CS - EXE - Income Tax - Notes - Combined PDF

INDEX
S.NO. CHAPTER NAME PAGE NO.
1. BASIC CONCEPTS OF INCOME TAX 1 – 30
2. RESIDENTIAL STATUS 31 – 52
3. INCOME UNDER HEAD HOUSE PROPERTY 53 – 81
4. UNDER HEAD SALARY 82 – 140
5. INCOME UNDER HEAD BUSINESS PROFESSION 141 – 206
6. INCOME UNDER HEAD CAPITAL GAIN 207 – 243
7. INCOME UNDER HEAD OTHER SOURCES 244 – 270
8. CLUBBING OF INCOME 271 – 281
9. SET OFF AND SET- OFF OF LOSSES 282 – 298
10. DEDUCTIONS 299 – 330
11. AGRICULTURAL INCOME 331 – 332

TAX PLANNING
12. 333 – 336
13. ASSESSMENT & RETURN 337 – 362
14. ADVANCE TAX 363 – 367
15. TAX DEDUCTED AT SOURCE 368 – 389
16. AMT 390
17. EXEMPT INCOME 391 – 406
18. INTERNATIONAL TAXATION 407 – 422
19. ASSESSMENT OF COMPANY 423 – 426
20. ASSESSMENT OF VARIOUS PERSONS 427v – 436

BASIC CONCEPTS
CHAPTER –1
BASIC CONCEPTS
Sections covered in this chapter
Sec 1 Short title, extent & Sec 172 Non-resident shipping business
commencement
Sec 174 Assessment of persons leaving India
Sec 2 Definitions Sec.174A Associations/ bodies formed for short

Sec 2(7) Assessee duration
Sec 2(9) Assessment Year Sec 175 Assessment of person trying to alienate his
Sec 2(17) Company assets with a view to avoid tax
Sec 2(23) Partnership firm Sec 176 Discontinued business
Sec 2(26) Indian Company
Sec 2(31) Person Sec 68 Cash credit
Sec 2(34) Previous Year Sec 69 Unexplained investment
Sec 2(43) Tax
Sec 69B Amount of investment not fully disclosed
Sec 2(45) Total Income
Sec 14 Heads of Income
Sec 3 Previous Year Sec 69C Unexplained expenditure
Sec 4 Charge of Income Tax Sec 69D Amount borrowed or repaid on Hundi
Sec 87A Rebate of Tax Sec 115BBE Tax @ 30%
INCOME TAX IS A FORM OF DIRECT TAX

DIRECT TAX
When the person on whom incidence of tax falls also bears its impact, it is known as direct tax. Therefore,
incidence and impact of tax fall on the same person. e.g. Income Tax and Wealth Tax.
INDIRECT TAX
When the person on whom incidence of tax falls does not bear its impact, it is known as Indirect Tax.
Therefore, incidence and impact falls on two different persons. e.g. VAT, Service Tax and Excise Duty.
OPERATIONAL SYSTEM OF THE INCOME-TAX ACT, 1961

1) INCOME TAX ACT, 1961: The Indian Income – tax Act contains the law regarding computation,
classification of various incomes. It also contains provisions for assessment of income, filing of appeals and
also defines the powers of various income tax authorities. The Income Tax Act exhaustively defines the
obligations and remedies of the tax payer.
Finance Bill and Finance Act: The Income- tax Act is an amending statute. Every year a budget is
presented by the Finance Minister in the parliament generally on the last day of February containing the
financial proposals of the Central Govt. for the next financial year. One of the components of the Budget is
the Finance Bill.
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BASIC CONCEPTS
The Bill contains various amendments which are sought to be made in the direct taxes and Indirect taxes.
When the Bill is passed by both houses of Parliament and it receives the assent of the President of India, it is
known Finance Act.
2) Income tax Rules: The Income Tax Act contains the various provisions of Law for computing income.
To give effect to these provisions rules have been framed which are contained in the Income-tax Rules,1962.
These rules are framed by Central Board of Direct Taxes (C.B.D.T) vide power given u/s 295 of the Income-
tax Act. These rules contain rates of depreciation, various income tax forms etc.
Rates of Income-tax: The Income is chargeable to tax at rates depending upon the nature of income and
status of the assessee. The rates at which the taxable income is taxed are given in
1) The Income – tax Act; (eg. Tax on long term capital Gain, Tax on lotteries etc.)
2) The Finance Act. (Tax at slab rates, surcharge etc.)
3) CBDT Circulars: The top Authority for administering the working of the Department is the Central
Board of Direct Taxes (CBDT). The Board may, from time to time, issue such circulars and clarifications to
other income tax authorities, as it may deem fit for the proper administration of the Income Tax Act and such
authorities and all other persons employed in the execution of this Act shall observe and follow such
circulars and clarification of the Board.
The circulars issued by the CBDT are binding of the Income Tax Authorities except the appellate authorities.
These circulars and clarification are not binding on the assessee but he can take advantage of benevolent
circulars
4) JUDICIAL DECISIONS: The decisions rendered by the appellate authorities are known as judicial
decisions. The following are the appellate authorities in the ascending order.
1. Commissioner of Income- tax (Appeals)
2. Income Tax Appellate Tribunal (ITAT)
3. High Court
4. Supreme Court.
Commissioner of Income – Tax (Appeals) : CIT ( Appeals) is the first appellate authority. The first appeal
is always filed by the assessee.
Income tax Appellate Tribunal ( ITAT) : Income Tax Appellate Tribunal is the second appellate authority.
The appeal may be filed to the ITAT either by the assessee or the income- tax department. Decision rendered
by the ITAT is binding on all the assessees as well as the Income-tax authorities which fall under their
jurisdiction, unless it is overruled by a higher authority. Decision given by the ITAT is final on disputes
involving questions of fact and no further appeal lies.
High Court : If the dispute over an issue involves a question of Law, the question of law may be referred to
the High court for its decision. Decision given by the High Court is binding on ITAT, all the assessees and
the income-tax authorities which fall under its jurisdictions, unless it is overruled by the Supreme Court.
Supreme Court : Decisions given by the Supreme Court becomes the law of the land, binding on all the
high Courts, Appellate Tribunal, the income-tax authorities and the assessee.
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BASIC CONCEPTS
Section 1 : SHORT TITLE, EXTENT AND COMMENCEMENT
 This act may be called Income –tax Act,1961

 It shall extend to whole of India
 It shall come into force on 1st day of April,1962
Section 4 : CHARGE OF INCOME-TAX
 INCOME TAX shall be charged
 For any ASSESSMENT YEAR
 At RATES specified for that Assessment year by FINANCE ACT
 On TOTAL INCOME
 During PREVIOUS YEAR
 Of any PERSON who is an ASSESSEE
Section 2(31) : PERSON INCLUDES
1) An Individual : The word individual includes only natural persons i.e a Human being. E.g male, female,
minors, lunatic persons.
2) A Hindu Undivided Family:
 The term H.U.F is not defined under the Income-tax Act.

 According to Hindu Law, It consists of all persons lineally descended from a common ancestor
including their wives and unmarried daughter
 H.U.F is not formed under any contract but is a creation of Law
 It is a distinct and separate entity under Income -tax Act
3) A Company :
Sec 2(17): Company means
 Any Indian company, or
 Any body corporate incorporated under the laws of a country outside India, or
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BASIC CONCEPTS
Sec 2(26): Indian company means
 A company formed and registered under the Companies act,1956, and includes
 A corporation established by or under a central, state or provincial act
Provided that the Registered office/principal office of the above is in India
4) A firm:
Sec 2(23) : Firm, Partner and Partnership have the meaning assigned to them in the Indian Partnership
Act,1932 and shall include a limited liability partnership as defined in the Limited Liability Partnership
Act, 2008; but the partner shall also include any person who, being a minor, has been admitted to the benefits
of partnership
According to Indian Partnership Act,1932, partnership is relationship between persons who have agreed to
share the profits of Business carried on by all or any one of them acting for all
Persons who have entered into partnership are individually called partners and collectively a firm and name
under which business is carried on is called Firms name.
5) An Association of Persons or a Body of Individuals, whether incorporated or not
Association of persons
 The term AOP is not defined under the Income-tax, Act.
 The meaning of AOP can be defined on basis of various judicial decisions
 AOP means an association in which two or more persons join in a common purpose or common
action
 Any association of persons does not mean any and every combination of persons. They must come
together under a common design or will
The word ‘associate’ means, according to the Oxford Dictionary, ‘to join in common purpose or to join in
an action’. Therefore, an association of persons must be one in which two or more persons join in a
common purpose or common action. [CIT v. Indira Balkrishna (SC)]
Body of Individuals
 The term BOI is not defined under the Income-tax, Act.
 The meaning of BOI can be defined on basis of various judicial decisions
The words ‘body of individuals’ occurring in the Income-tax Act in the definition of the word ‘person’ in
section 2(31), therefore, could only mean a conglomeration of individuals who carry on some activity with
the object of earning income. [CIT v. Smt. Vandana Verma]
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BASIC CONCEPTS
Differences between AOP and BOI

1) AOP consists of combination of Persons eg. Company and Individual, Firm and company etc.
whereas BOI includes only combination of Individuals.
2) AOP is formed only when there is some common design or will whereas BOI may or may not
have such common design or will.
Similarities between AOP and BOI

1) Both are to be treated as separate unit of assessment under the Income tax act.
2) Tax rates applicable for both are the same
6) A local authority:
 The term Local authority is not defined under the Income-tax, Act.
 According to General Clause Act, It means
(a) Panchayat or
(b) Municipality or
(c) Municipal committee having control of Municipal funds or
(d) Cantonment Board
7) Every Artificial Juridical Person not falling within any of the preceding sub-clauses
 Any other persons not falling under preceding clauses, which have separate legal entity falls under
this clause
 Any income arising to them is also taxable under Income-tax Act.
 For eg. Delhi University, private religious trusts etc.
Special Point :
1. Explanation to Sec 2(31) : AOP or BOI or Local Authority or AJP shall be deemed to be a
Person whether or not it is established with the object of deriving Income or profit
Section 2(7) : Assessee
Assessee means a person by whom any tax or any other sum of money is Liability as per this Act and
includes the following:
(i) Every person in respect of whom any proceeding under the Income-tax Act has been taken
 for assessment of income or
 for determining the loss or
 for determining the refund
(ii) A deemed assessee - A person who is deemed to be an assessee for some other person, is called
‘Deemed Assessee’.
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BASIC CONCEPTS
 For example,(i) after the death of a person, his legal representative will be treated as an assessee for
that income of the deceased on which tax has not been paid by the deceased before his death ; (ii) a
person representing a minor or a lunatic is treated as an assessee for the income of such or minor or
lunatic.
(iii) Assessee who is deemed to be an ‘Assessee in default ‘

When a person is responsible for doing any duty under the Act and if he fails to do it, he is called an
‘Assessee in default’.
 For example if a person while making any payment to another person, is liable to deduct income tax
thereon at source, does not deduct income tax there from, or having deducted it, does not deposit it in
the Government Treasury, he will be treated as an assessee in default for that income tax.
 Likewise if an assessee does not pay advance tax, he shall be deemed to be assessee in default.
Special Point :
Sec 160 : Representative assessee means
(i) for income of a non-resident, the agent of non-resident,
(ii) for income of a Minor, Lunatic or Idiot, the Guardian or manager who is entitled to
receive such income
Every representative assessee shall be deemed to be an assessee for the purposes of this Act.
Section 2(9) : Assessment Year
Assessment Year means the period of 12 months commencing on the first day of April every year. It is,
therefore, the period from 1st April every year to 31st of March of next year.
Section 2 (34) : Previous Year
Previous year means previous year defined under Sec 3
Sec 3 : Previous year means the financial year immediately preceding the assessment year.
 Income-tax is Liability on the income earned during the previous year and it is assessed in the
immediately succeeding financial year which is called an assessment year.
 Therefore, the income earned during the previous year 1st April 2017 to 31st March, 2018 will be
assessed or charged to tax in the assessment year 2018 – 2019.
Special Point :
All assesses are required to follow a uniform previous year i.e. the financial year (1st April to 31st
March) as their previous year .i.e. they cannot choose calendar year as their previous year.
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BASIC CONCEPTS
First P/Y for a business/profession newly set-up during the financial year or for a new source of income:
 In such a case the period Beginning from the date of setting up of the business/profession or from the
date the new source came into existence, and
 Ending on last day of that F/Y i.e. 31st of March shall be first P/Y for that business or source of income.
Case where income of previous year is assessed in the same year; As a normal rule, the income earned
during any Previous year is assessed or charged to tax in the immediately succeeding assessment year.
However, in the following circumstances the income is taxed in the same year in which it is earned:
(a) Non-resident shipping business (Section 172)
(b) Assessment of persons leaving India (Section 174).
(c) Associations/ bodies formed for short duration (Sec. 174A)
(d) Assessment of person trying to alienate his assets with a view to avoid tax (Section 175)
(e) Discontinued business (Section 176)
Section 172 : NON RESIDENT SHIPPING BUSINESS
 Person who is a non-resident & who owns a ship or ship is chartered by him
 which carries passengers, livestock, mail or goods shipped at a port in India during a P/Y
 7.5 % of amount paid / Liability on account of such carriage
 Shall be deemed to be his Income
 Which shall be chargeable to tax in the same P/Y .
Special Point:
1. Departure after approval & tax payment only
The master of the ship shall submit a return of income before the departure of the ship from the Indian
port. Such return may be submitted within 30 days of the departure of the ship, if the Assessment Officer
is satisfied that it will be difficult to submit the return before departure and if satisfactory arrangement for
payment of tax has bee made.
2. Unless the tax has been paid , a port clearance shall not be granted by the Collector of Customs.
3. Right for normal assessment: The non-resident can claim assessment of his total income for the p/y
under the normal provisions of the Act. Claim for such assessment can be made during Assessment year.
On such claim, any tax paid earlier on the deemed income is treated as advance payment of tax.
Section 174: Assessment of Persons Leaving India
 When it appears to AO that any individual may leave India

 during the current P/Y or shortly after its expiry,
 and that he has no present intention of returning to India,
 the Total income of the individual
 Commencing from first day of P/Y
 Upto the probable date of his departure from India.
 Shall be chargeable to tax in same P/Y
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BASIC CONCEPTS
Special Point: Separate assessments are made for each completed previous year or part thereof included in
above period
Section 174A : Association/ bodies formed for short duration
 Where it appears to the Assessing Officer

 that any association of persons or a body of individuals
 is formed for a particular event or purpose.
 and is likely to be dissolved during a P/Y
 the total income of such association
 Commencing from the first day of P/Y
 Up to the date of its dissolution
 Shall be chargeable to tax in same P/Y

Special Point : Separate assessments are made for each completed P/Y or part thereof included in above
period.
Section 175 : Assessment of Persons Likely to Transfer Property to Avoid Tax
 If it appears to the Assessing Officer

 that any person is likely to sell or transfer any of his assets during a p/y
 with a view to avoiding payment of any liability
 the total income of such person
Commencing from the first day of p/y
Upto the date when the Assessing Officer commences proceedings under this section.
 shall be chargeable to tax in same p/y
Special Point: Separate assessments are made for each completed previous year or part thereof included in
the above period.
Section 176: Discontinued Business
 Where any business or profession is discontinued in any p/y

 the total income of such business or profession
 Commencing from the first day of p/y
 Up to the date of discontinuance.
 Shall be chargeable to tax in same p/y
 at the discretion of Assessing Officer.
Special points:
1. If such discretion is not exercised, the income of the discontinued business is taxed in the normal way in
the assessment year immediately following the previous year of discontinuance.
2. Separate assessments are made for each completed previous year or part thereof included in above period.
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BASIC CONCEPTS
P/Y FOR UNDISCLOSED SOURCES OF INCOME
1. Cash credit [ Sec.68 ] : Where any sum is found credited in the books of accounts of an assessee for any
p/y and assessee offers no satisfactory explanation about the nature and source thereof then the sum so
credited will be charged to tax as the income of such p/y
Provided that where the assessee is a company, (not being a company in which the public are
substantially interested) and the sum so credited consists of share application money, share capital,
share premium , any explanation offered by such assessee-company shall be deemed to be not
satisfactory, unless
(a) the person, being a resident in whose name such credit is recorded in books of such company also
offers an explanation about the nature and source of such sum so credited and
(b) such explanation in the opinion of AO has been found to be satisfactory
2. Unexplained investment [ Sec.69 ] :- Where assessee has made investment in a financial year & which
are not recorded in the books of accounts and assessee offers no satisfactory explanation about the nature
and sources thereof then such investment will be deemed as income of such financial year in which
investment are made.
3. Unexplained money [ Sec.69A ] :- Where in any financial year assessee is found to be the owner of
money, bullion, jewellery or other valuable article which is not recorded in the books of accounts and
assessee offers no satisfactory explanation about the nature and source thereof then money and value of
such bullion, jewellery, etc. is deemed to be the income of such financial year in which it is found.
4. Amount of investment not fully disclosed [ Sec.69 B ] :- Where in any financial year assessee has made
Investments or is found to be owner of any bullion, jewellery etc. and Assessing Officer finds that the
amount expended on making such investments, bullion, jewellery etc exceeds the amount recorded in the
books of accounts and the assessee offers no satisfactory explanation about nature or source thereof then
such excess shall be deemed to be the income of the assessee for such financial year
5. Unexplained expenditure [ Sec.69 C ] :- Where in any financial year assessee has incurred any
expenditure and he offers no satisfactory explanation about the source thereof then the amount of such
unexplained expenditure will be deemed to be the income of the assessee of such financial year in
which amount was incurred
6. Amount borrowed or repaid on Hundi [ Sec.69 D ] :- Where any amount is borrowed on Hundi or any
amount due thereon is repaid to any person otherwise than through account payee cheque then amount
borrowed or repaid shall be deemed as income of the person borrowing or repaying of the p/y in which
the amount was borrowed or repaid. Further, the amount repaid shall include the amount of interest paid
on the amount borrowed.
However where any amount borrowed on a Hundi has been deemed to be the income of any person than
he will not be again liable on repayment of such amount.
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BASIC CONCEPTS
Sec 115BBE : Tax on income referred u/s 68 or 69 or 69A or 69B or 69C or 69D
(1) Where the Total Income of an assessee includes any income referred under above sections, the
income-tax shall be payable @ 30%
(2) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under any
provision of this Act in computing his income referred under above sections.
Some important principles which explain the concept of income for are given below:
(i) Regularity of Income:

 To be taxable it is not necessary that a particular source of income is regular.
 Thus even casual incomes like lotteries, winnings from races etc. are taxable.
(ii) Form of Income:

 Income can be received in cash or in kind i.e. in the form of money or money worth.
 Wherever income is received in kind like perquisites then its value has to be found as per the
rules prescribed and this value shall be taken to be the income.
(iii) Legal Vs. ILLegal Income:

 For purposes of Income -tax, there is no difference between legal and illegal income.
 Even illegal income is taxed just like any legal income.
 For example, the income earned from smuggling activities would also be taxable under the Act.
(iv) Disputed Income:

 Any dispute regarding the title of the income cannot hold up the assessment of the income in the
hands of the recipient.
 In such cases it is the assessing officer who decides regarding the taxability of such
disputed income.
(v) Basis of Income:

 Income can be taxed on receipt basis or on accrual basis.
 In case of income from business or income from other sources the taxability would depend upon
the method of accounting adopted by the assessee.
 Income from salaries is taxable on due or received basis, whichever is earlier.
 While in other cases, it would generally be taxed on accrual basis.
(vi) Lumpsum Receipt:

If a receipt is an income then whether it is received in lumpsum or in installments would not effect its
taxability; for example if a person receives arrears of salary in lumpsum amount, it would still be his
income.
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BASIC CONCEPTS
(Vii) Surplus from Mutual activity:

A person cannot make profit out of a transaction with himself. In order to be taxable income should
be received from other persons. Therefore body of persons who raise contributions from its members
and utilize such contribution to earn income, which is to be utilized for the benefit of its members,
then such income will not be treated as income of the body.
(Viii) Diversion of Income Vs. Application of Income
Diversion of Income
 It refers to such Income which due to compulsory obligation, is diverted before it becomes due or
is received the assessee
 Only the Net amount of income received, is subjected to tax
(For eg. Mr. ‘X’ gets `10,000 monthly from property left by his deceased father. The will states that
mother will be entitled to `4,000 out of `10,000. It is a case of Diversion of Income and only the net
amount of `6,000 monthly will be taxable in the hands of Mr. X.
Application of income
 It refers to income which has become due or is received by the assessee and afterwards he meets
an obligation whether compulsory or self imposed out of such income
 Gross amount of income received before obligation is met, is subjected to tax
(For eg. Mr. ‘X’ gets `10,000 monthly from property left by his deceased father. He gives `4,000 out of
`10,000 to his mother for household expenses. It is a case of Application of Income and whole of
`10,000 monthly will be taxable in the hands of Mr. X.
(ix) Pin Money: Amount of money received by wife for her personal expenses from her husband is not
income in
her hands
(x) Revenue and Capital receipts
Revenue receipt:
 Receipt on account of circulating capital
 Profits arising from transaction which is entered in the ordinary course of assessee business
 Revenue receipts are chargeable to tax unless specifically exempted eg dividend income, though
revenue receipt, is exempt from tax under sec 10
Capital receipt:
 Receipt on account of fixed capital
 Profits arising from transaction which is not entered in the ordinary cource of assessee business
 Capital receipts are generally not chargeable to tax unless specifically taxable eg. profit on sale of
capital assets ,though it is capital receipt but still it is taxable under sec 45
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BASIC CONCEPTS
(xi) Sec 2(10) : Average rate of income-tax means the rate arrived at by dividing the amount of
income-tax calculated on the total income, by such total income
Income tax calculated on total income/Total Income x 100
(xii) Sec 2(29C) : Maximum Marginal Rate
Marginal relief is given to the assessee who has to pay the surcharge. The idea behind the marginal
relief is that the increase in tax due to surcharge should not exceed the increase in income. The
relief is given to make a balance between the increase in income and increase in tax.
To understand better, take an example of a business firm having turnover more than 50 crores.
Firm ABC make a profit of Rs 1,00,00,000. According to slab rate, the tax would be
30% on 1 crore = Rs 30,00,000
Firm XYZ make a profit of Rs 1,00,10,000. According to slab rate, the tax would be
30% on 1,00,10,000 = Rs 30,03,000
12% surcharge on Rs 30,03,000 = Rs 3,60,360
Total tax = Rs 33,63,360
In this situation the increase in income is Rs 10,000 but increase in tax is Rs 3,63,630, To balance
out this, marginal relief is given by the income tax department.
Under marginal relief, the surcharge cannot be more than the increase in income minus tax payable
on this income. In above example surcharge would be
Surcharge = 10,000 (increase in income) – 3000 (30% tax)
= Rs 7000
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BASIC CONCEPTS
COMPUTATION OF TOTAL INCOME
Step 1: Compute Income from each head after deducting allowable expenses
Section 14 : Heads of Income
For purpose of computation of Total Income, Income shall be classified under 5 heads:
1. Income under head Salaries (Sec 15 to Sec 17)
2. Income under head House Property ( Sec 22 to sec 27)
3. Income under head Profits & Gains of Business or Profession (Sec 28 to Sec 44D)
4. Income under head Capital Gains (Sec 45 to Sec 55A)
5. Income under head Other Sources (Sec 56 to Sec 59)
Step 2 : Make adjustments under each head for

- Clubbing of Income (Sec 60 to Sec 65)
- Set off of losses (Sec 70 to Sec 80)
Step 3 : Total of 5 heads is Gross Total Income (G.T.I)
Step 4 : Subtract Deductions (Sec 80C to Sec 80 U )
Step 5 : Balance Amount is Total Income ( T.I )
Sec 288A : Rounding off of Total Income

Total Income shall be rounded off 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.
Relevance of Method of Accounting for Heads of Income
Salaries 1. Taxable on due basis or on receipt basis, whichever is earlier.

(Sec 15 – Sec 17) 2. Method of accounting is irrelevant.
House Property 1. Income from house property is taxable only on accrual basis.
(Sec 22 – Sec 27) 2. Method of accounting is not relevant.
Business Income 1. U/s 145 assessee may follow either Cash or Mercantile system of
(Sec 28- Sec 44) accounting regularly employed by the assessee.
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BASIC CONCEPTS
2. Exceptions : Certain payments are allowable only on actual payment basis.

(a) Certain expenses on actual payment basis u/s Sec 43B
(b) Telecommunication Licence u/s 35ABB
(c) Preliminary Expenses u/s 35D
(d) Amalgamation / Demerger Expenses u/s 35DD.
(e) Amount in connection with Voluntary Retirement Scheme u/s 35DDA.
Capital Gains 1. Income from capital gains shall be taxable during previous
(Sec 45 – Sec 55A) year in which Capital Asset is transferred (i.e) year of accrual.
Exceptions : In following case, receipt basis is applicable

a) Destruction of Capital Asset u/s Sec 45(1A)
b) Conversion of Capital Asset u/s Sec 45(2)
c) Compulsory acquisition of Capital Asset u/s Sec 45(5)
d) Liquidation of company u/s Sec 46(2)
2. The method of accounting is not relevant for taxing the income under the
head capital gains.
Other sources U/s 145 assessee may follow either on Cash or Mercantile system of
(Sec 56 to 59) Accounting.
Exceptions : Casual incomes is taxable on receipt basis
TAX RATES OF INCOME TAX (ASSESSMENT YEAR 2018 – 2019)
Nature of Person Exemption Rates of Income Tax Surcharge

Amount
Total Income Rate Total Income Rate
1. INDIVIDUAL 0 – 2,50,000 : NIL
( Other than 2 & 3 below) 2,50,000 above 2,50,000 upto 5,00,000 : 5%
above 5,00,000 upto 10,00,000 : 20%
above 10,00,000 : 30%
2. Senior Citizen
(Resident in India & 0 – 3,00,000 : NIL
atleast 60 yrs but less 3,00,000 Above3,00,000 upto 5,00,000 : 5% 0-50 Lacs : NIL
than 80 yrs any time above5,00,000 upto 10,00,000 : 20% 50 Lacs < upto Rs.1 crore 10%
during p/y 16-17) above 10,00,000 : 30% > 1 crore : 15%
3. Very Senior Citizen

( Resident in India & 0 – 5,00,000 : NIL
atleast 80 yrs any time Above 5,00,000 upto 10,00,000 : 20%
during p/y 16-17) 3,00,000 above 10,00,000 : 30%
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BASIC CONCEPTS
As applicable to As applicable to individual

HUF,AOP,BOI ,AJP 2,50,000 individual in point 1
0-1 crore : NIL
Domestic Company NIL 30% (If turnover > 50 cr) >1cr upto 10 cr : 7%
25% (If turnover upto 50cr) > 10 crore : 12%
Foreign company NIL 40% 0-1 crore : NIL
> 1cr upto 10 cr : 2%
> 10 crore : 5%
Firm including LLP NIL 30% 0-1 crore : NIL
> 1 crore : 12%
Local Authority NIL 30% 0-1 crore : NIL
> 1 crore : 12%
Co-Op. Society NIL 0 – 10,000 : 10% 0-1 crore : NIL
above10,000 upto 20,000 : 20% > 1 crore : 12%
above 20,000 : 30%
Incomes taxable at fixed rates :
1. Sec 111A : STCG on listed Equity shares & Listed units of Equity oriented mutual funds : 15%
2. Sec 112 : LTCG : 20 %
3. Sec 115BB : Casual Incomes : 30%
Section 2(24) : 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.
4. Sec 115BBE : Income u/s 68 or 69 or 69A or 69B or 69C or 69D : 30%
5. Sec 115BBDA : Dividend u/s 10(34) in excess of 10 lakhs in case of Resident Individual
/Resident HUF/Resident Firm : 10%
6. Sec 11BBF : Royalty income for patent developed & registered in India for resident : 10%
Special Points :
FA 2004 ( W.e.f. A/Y 05-06) : 2% Education Cess (EC) is payable by All assesses on tax after Surcharge
FA 2007 (W.e.f. A/Y 08-09) : 1%Secondary & Higher Education Cess (SHEC) is payable by All assessee
on tax after Surcharge
Page 15
BASIC CONCEPTS
Sec 87A : Rebate of Income Tax
 Individual Resident in India,

 whose Total Income is upto ` 3,50,000,
 shall be allowed a rebate,
 from income-tax of
 100% of Income Tax or ` 2,500,whichever is less.
Computation of Tax Liability of Individuals
Step 1 : Bifurcate Total Income into 2 parts

Incomes taxable at Slab rates : Apply Tax at Slab rates
Incomes taxable at Fixed Rates : Apply Tax at Fixed rates
Step 2 : Add 15% Surcharge if Total Income > 1 crore
Step 3 : Subtract Marginal Relief, if applicable

The surcharge cannot be more than the increase in income minus tax payable on this
income.
Step 4 : Subtract Rebate u/s 87A for Resident Individual, if Applicable
Step 5 : Add 3% Education Cess
Step 6 : Step 1 + Step 2 – Step 3 + Step 4 – Step 5 = Total Tax Liability
288B : Rounding off of Tax Liability

Any amount payable & refundable, shall be rounded off to nearest multiple of ten rupees & paise shall be
ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or
more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last
figure is less than five the amount shall be reduced to the next lower amount which is a multiple of ten
.
Computation of Tax Liability of HUF/ AOP/ BOI/ AJP
Step 1 : Bifurcate Total Income into 2 parts

Incomes taxable at Slab rates : Apply Tax at Slab rates
Incomes taxable at Fixed Rates : Apply Tax at Fixed rates
Step 3 : Subtract Marginal Relief, If applicable

The surcharge cannot be more than the increase in income minus tax payable on this
income.
Page 16
BASIC CONCEPTS
Step 5 : Step 1 + Step 2 – Step 3 + Step 4 = Tax Liability
288B : Round off Tax Liability to nearest multiple of 10
Computation of Tax Liability of Firm
Step 1 : Apply Different Tax Rates on Different incomes
Step 3 : Subtract Marginal Relief, If applicable

Tax after surcharge cannot exceed [Tax on 1 crore + (Total Income – 1 crore)]
288B : Round off Tax Liability to nearest multiple of 10
Computation of Tax Liability of Domestic Company
Step 1 : Apply Tax rates on Total Income
Step 2 : Add: Surcharge @ 7% if Total Income > 1 crore but upto 10cr & 12% if Total Income >
10crore
Step 3 : Subtract Marginal relief ,if applicable

If surcharge @ 7% is applicable

288B : Round off tax liability to nearest multiple of 10
Page 17
BASIC CONCEPTS
Computation of Tax Liability of Foreign Company
Step 1 : Apply Tax rates on Total Income
Step 2 : Add:Surcharge @ 2% if Total Income > 1 crore but upto 10cr & 5% if Total Income >
10crore
Step 3 : Subtract Marginal Relief ,if applicable

288B : Round off tax liability to nearest multiple of 10
Page 18
MCQ BASIC CONCEPTS
MULTIPLE CHOICE QUESTIONS
COMPONENTS OF INCOME TAX LAW
(1) The Central Government has been empowered by entry ________________ of the Union list of schedule VII of the constitution
of India to levy tax on income other than agricultural income.
(a) 84 (b) 81
(c) 82 (d) 84
(2) The Income tax act, 1961 came into force w.eJ. __________________ _
(a) Is' April, 1962 (b) 1st April, 1961
(c) 31st March, 1961 (d) None of above.
(3) Amongst the following _________________ is empowered to levy tax on agricultural income.
(a) Central Government (b) State Government
(c) Commissioner (d) President
(4) Circulars and Notifications are binding on the

(a) Central Board of Direct Taxes (CBDT) (b) Assessee
(c) Income Tax Appellate Tribunal (ITAT) (d) Income Tax Authorities
(5) Supreme Courts precedent in binding on
(a) Courts (b) Appellate Tribunals

(c) Income Tax Authorities (d) All of the above.
(6) High Court's precedents are not binding on
(a) Tribunal (b) Income Tax Authorities
(c) Assessee (d) None of the above.
Page 19
MCQ BASIC CONCEPTS
(7) Wherever in the Act the phrase as prescribed appears it means that -
(a), Regulations are to be framed is in this respect. (b) Rules have been framed in this respect.
(c) Regulations were earlier framed in this respect. (d) Regulations are framed in this respect.
(8) Who amongst the following confers on the power to issue circulars and clarifications?
(a) ITAT (b) Central Government

(c) CBDT (d) State Government
(9) Amendments by the finance act are made applicable from
(a) First day of next financial year (b) First day of same financial year
(c) Last day of same Accounting year (d) None of the above.
CONCEPT OF CHARGE OF INCOME TAX, PERSON,

ASSESSEE AND EXCEPTIONS TO PREVIOUS YEAR RULE
(10) Income Tax is charged in -

(b) Assessment Year
(a) Financial Year
(d) Accounting Year
(c) Previous Year
(11) A person includes:

(a) Only Individual (b) Only Individual and HUF
(c) Individuals, HUF, Firm, Company only (d) Individuals, HUF, Company, Firm, AOP or BOI,
Local Authority, Every Artificial Juridical
Person
(12) As per section 2(31), the following is not included in the definition of 'person' - (Dec. 2014)
(a) An individual (b) A Hindu undivided family
(c) A company (d) A minor
(13) Every assessee is a person, and -
(a) every person is also an assessee (b) every person need not be an assessee
(c) an individual is always an assessee (d) A HUF is always an assessee
(14) Describe the status of the following person (i.e. individual, HUF, Firm, Company etc.) X and Yare legal heirs of Z. Z died in 2018
and X and Y carry on his business without entering into a partnership.
(a) Firm (b) Limited Liability Partnership
(c) Company (d) Body of Individual
(15) Assessment year can be a period of :

(a) only more than 12 months (b) 12 months and less than 12 months
(c) only 12 months (d) 12 months and more than 12 months
(16) Year in which income is taxable is known as ___________ and year in which income is earned is known as ----
(a) Previous year, Assessment year (b) Assessment year, Previous year
(c) Assessment year, Assessment year (d) Previous year, Previous year
(June, 2015)
(17) The year in which the income is earned is known as
(b) Financial year
(a) Previous year
(d) None of the above.
(c) Both (A) or (B)
Page 20
MCQ BASIC CONCEPTS
(18) All assessees are required to follow:
(a) Uniform previous year which must be calendar (b) Uniform previous year which must be financial year
year only only
(c) Any period of 12 months (d) Period starting from 1st July to 30th June only
(19) XYZ LLP falls under which category of person -

(a) Individual (b) Partnership firm
(c) Company (d) Association of person
(20) Municipality of Niwai falls under category of person-
(a) Artificial juridical person (b) Local authority

(c) Individual (d) Association of Person
(21) Under Income Tax Act partnership firm includes -
(a) Limited liability partnership (b) Limited liability company
(c) One person company (d) Association of person
(22) A.O.P should consist of :
(a) Individual only (b) Persons other than individual only
(c) Both individual and non individual persons. (d) None of these
(23) Body of individual should consist of :
(a) Individual only (b) Persons other than individual only
(c) Both individual and non individual persons. (d) None of these
(24) A person becomes a member of HUF by -
(a) Contract (b) Agreement

(c) Popularity (d) Status
(25) In order to be assessed as HUF there should be -
(a) Partnership (b) Co-Partnership

(c) Co-Parcenership (d) Co-Ownership
(26) Section __ of the Income-tax Act, 1961 defines the term 'person' -
(a) 4 (b) 5
(c) 2(31) (d) 2(32)
(27) must be one in which two or more persons join in for a common purpose or common action with the object
of earning income or profits or gains.
(a) Partnership (b) Co-ownership
(c) Body of Individuals (d) Association of Persons
(28) Which amongst the following is Artificial Juridical Person?

(a) Corporation (b) Local Fund
(c) District Board (d) None of these
(29) Previous year is defined in -

(a) Section 2(34) (b) Section 2(9)
(c) Section 3 (d) Section 4
Page 21
MCQ BASIC CONCEPTS
(30) Financial year means a year commencing on –

(b) 1" day of the April
(a) 31st March of the period
(d) None of these
(c) Mid of the year
(31) First previous year in case of a business/profession newly set up on 31-3-2017 would:
(a) Start from 1st April, 2016 and end on 31st (b) Start from 31" March, 2017 and will end on 31st
March, 2017 March 2017
(c) Start from 1st January, 2017 and end on 31st (d) Start from 1st January, 2017 and will end on 31st
December, 2017 March,2017
(32) Dr. Ashok commenced medical practice on 1st September, 2016. The previous year for the profession for the assessment
year 2017-18 would be _ (June 2016)
(a) 1st April, 2016 to 31st March, 2017 (b) 1st September, 2016 to 31st March, 2017
(c) 1st June, 2016 to 31st March, 2017 (d) 1st September, 2016 to 31st January, 2017
(33) Income of business commenced on 1st March, 2018 will be assessed in assessment year-
(a) 2017-18 (b) 2018-19
(c) 2019-20 (d) 2020-21
(34) A person follows calendar year for accounting. For taxation, he has to follow:
(a) Calendar year only :1stJanuary to 31st (b) Financial year only :1st April to 31st March
December
(c) Any of the Calendar or Financial year as per his (d)

He will to follow extended year from 1st January to
next 31st March (a period of 15 months)
choice
(35) In which of the following cases, income of previous year is assessable in the previous year itself:
(b) A person in employment in India
(a) Assessment of persons leaving India
(d) A person who is running a charitable
(c) A person who is into illegal business institution
(36) In which of the following cases, Assessing Officer has the discretion to assess the income of previous year in previous year itself or in the
subsequent assessment year:
(a) Shipping business of non-residents (b) Assessment of Association of Persons or Body of
Individuals formed for a particular event or purpose
(c) Assessment of persons likely to transfer (d) Discontinued business
property to avoid tax
(37) In case of non-residents engaged in shipping business in India income earned during the financial year is -
(a) Taxable in India the same financial year (b) Taxable in India the relevant assessment year
(c) Not taxable in India in the same financial year (d) Not taxable in India.
(38) In case of non-residents engaged in shipping business _____________ freight paid or payable to the owner or charterer shall
be deemed to be total income.
(a) 5% (b) 7.5 %
(c) 10% (d) 20 %
(39) Which amongst the following is an exception to the previous year rule?
(a) Business or Profession newly set up. (b) Where a source of income newly set up.
(c) Non-resident engaged in shipping business. (d) None of the above.
Page 22
MCQ BASIC CONCEPTS
(40) Income Tax is levied on the ___________ of a person.
(a) Total Income (b) Total Income-Debt
(c) Gross Total Income (d) Net Income-Debt Perquisites
(41) The period of 12 months commencing on the rt day of April every year is known as ____________ _
(a) Financial Year (b) Assessment Year

(c) Previous Year (d) Accounting Year
(42) The charging section of the Income-tax Act, 1961, states that the income earned in a year is taxable in the next year. This
is known as ______
(a) Principle of mutuality (b) Previous year rule

(c) Financial year rule (d) None of these.
(43) Income-tax in India is charged at the rates prescribed by -
(Dec. 2014)
(a) The Finance Act of the assessment year (b) The Income-tax Act, 1961
(c) The Central Board of Direct Taxes (d) The Finance Act of the previous year.
(44) A new business was set-up on 1st July, 2017 and trading activity was commenced from 1st September, 2017, the previous
year would be the period commencing from - (Dec. 2015)
(a) 1st April, 2017 to 31st March, 2018 (b) 1st July, 2017 to 31st March, 2018
(c) 1st September, 2017 to 31st March, 2018 (d) 1st October, 2017 to 31st March, 2018.
CONCEPTS OF INCOME, METHOD OF ACCOUNTING
(45) According to section 2(24) definition of 'income' is _ (Dec. 2014)
(a) Inclusive (b) Exhaustive

(c) Exclusive (d) Descriptive.
(46) 'Income' under section 2(24) includes -
(June, 2015)
(i) The profits and gains of a banking business carried on by a co-operative society with its members.
(ii) Any advance money forfeited in the course of negotiations for transfer of capital asset.
Choose the correct option with reference to the above statements _
(a) Both (i) and (ii) (b) Only (i)

(c) Only (ii) (d) Neither (i) nor (ii).
(47) Income includes -

(a) Profits and gains
(b) Profit in lieu of Salary
(c) Income from other sources
(d) All of the above
(48) Income is divided in ___________ heads of Income.
(a) 4 (b) 5
(c) 6 (d) 3
(49) Income includes -
(a) Profits or Gains
(b) Capital gains
(c) Lottery winnings
Page 23
MCQ BASIC CONCEPTS
(June, 2010)
(50) The term' income' includes the following types of incomes -
(a)' Legal (b) Illegal
(c) Legal and illegal both (d) None of the above,
(51) Which of the following income is not included in the term 'income' under the Income-tax Act, 1961 -
(a) Profit and gains (b) Dividend
(c) Profit in lieu of salary (d) Reimbursement of travelling expenses.
(52) Which amongst the following is not a head of Income?

(a) Salaries (b) Income from house Property
(c) Capital gains (d) Income from exports
(53) Amongst the following which activity will be taxable?

(a) Profits & gains of any insurance business (b) Income from specific services provided by
carried on by a co-operative society. trade, professional or similar association.
(c) The profits and gains of any banking business (d) All of the above.
carried on by a co-operative society.
(54) AB & Co. received `2,00,000 as compensation from CD & Co. for premature termination of contract of agency. Amount
so received is _ (Dec. 2014)
(a) Capital receipt and taxable (b) Capital receipt and not taxable
(c) Revenue receipt and taxable (d) Revenue receipt and not taxable
(55) Subsidy if given as assistance to carry on business already commenced is a -----

(a) Revenue receipt (b) Capital receipt
(c) It is not a receipt (d) None of these
(Dec. 2014)
(56) Which of the following is not included in taxable income -
(a) Income from smuggling activity (b) Casual income
(c) Gifts of personal nature subject to a maximum (d) Income received in kind.
of `50,000 received in cash
(57) Compensation on account of loss of profit is -
(a) Revenue receipt (b) Capital receipt

(c) Revenue expenditure (d) Capital expenditure
(58) Out of the following, which of the capital receipt is not taxable:
(a) Capital gains of ` 10,00,000 (b) Amount of `5,00,000 won by way of lottery,
games, puzzles
(c) Amount of `2,00,000 received by way of gift (d) Amount of `1,00,000 received by way of gift
from relatives from a friend on marriage anniversary
(59) In case the Keyman insurance policy is taken in name of any other person any sum received on its maturity by such person
shall be taxable under the head -
(a) Salaries (b) Profits & Gains of Business or Profession
(c) Capital Gains (d) Income from Other Sources
(60) Method of Accounting is not relevant for –

(a) Salaries (b) Income from House Property
(c) Capital Gains (d) All of the above
Page 24
MCQ BASIC CONCEPTS
(61) Income-tax in India is charged at the rate(s) prescribed by - (Dec. 2009)
(a) TheFinance Act (b) The Income-tax Act
(c) The Central Board of Direct Taxes (d) The Ministry of Finance.
(62) Which of the following is not included in taxable income -
(a) Reimbursement of expenses (b) Cash gifts received from non relatives
(c) Income from illegal activity (d) Profit on sale of equity shares of unlisted Ans .(a) company.
(63) The Central Government has notified Income computation and disclosure standards for computing income
under the head Profits and Gains of Business and Profession - .
(a) 2 (b) 5
(c) 8 (d) 10
(64) An individual is said to have substantial interest in a concern if he or she, along with his or her relatives, is, at any time
during the previous year, beneficial owner of equity shares carrying or more of the voting power in a
company; or entitled to or more of the profits of such concern.
(a) 20% ,10% (b) 10% ,20%

(c) 10%, 10% (d) 20% ,20%
MODE OF COMPUTATION OF INCOME AND TAX

RATES FOR ASSESSMENT YEAR 2018-19
(65) Surcharge @ 12 is payable by a domestic company if the total income exceeds.

(a) ` 10 lakhs (b) ` 1 crore
(c) ` 10 crore (d) None of the above.
(66) Surcharge @ 7 is payable by a domestic company if the total income exceeds.

(a) ` 10 lakhs (b) ` 50 lakhs
(c) ` 1 crore (d) ` 10 crores.
(67) The tax exemption limit for a resident senior citizen is - (Dec. 2014)
(a) Upto ` 2,00,000 (b) Upto ` 5,00,000 (d)

(c) Upto ` 1,80,000 Upto ` 3,00,000
(68) Surcharge of 15 is payable by an individual where the total income exceeds:

(a) ` 7,50,000 (b) ` 8,50,000
(c) ` 1,00,00,000 (d) None of the three
(69) The maximum amount on which income-tax is not chargeable in case a co-operative society is:
(a) ` 50,000 (c) (b) ` 30,000

` 20,000 (d) None
(70) Additional surcharge (education cess) of 3 per cent is payable on-

(a) Income tax
(b) Income tax plus surcharge
(c) Surcharge
(d) None ofthe three
(71) What is the maximum amount of income not chargeable to tax in case of AOP /BOI ?
(a) ` 2,50,000 (c) (b) ` 1,45,000
` 10,000 (d) None of these.
Page 25
MCQ BASIC CONCEPTS
(72) In case of Partnership firm or company and foreign company marginal relief is provided if total income exceeds ` --
(a) . ` 1 crore (b) ` 10 lakhs

(c) Marginal relief (d) None of these
(73) What is the rate of Secondary and Higher Education cess?
(a) 3% (b) 2%
(c) 1% (d) There is no such tax.
(74) The total income is rounded off to the nearest multiple of -
(a) `10
`1
(b)
(c)
`100
(d)
`1,000
(75) The MMR of 35.535% for Assessment Year 2018-18 is relevant in case of which of the following person-
(a) Individual (b) Association of Persons
(c) None of (a) and (b) (d) In case of (b) only
(76) If a firm's total Income is ` 1,03,00,000, the marginal relief available to the firm is -
(a) ` 3,09,000 (b) ` 3,03,000
(c) ` 1,60,800 (d) None of these.
(77) The amount of education cess and secondary and higher education cess to be collected along with income-tax for
assessment year 2018-19 shall be _ (June, 2009)
(a) 1 % (b) 2%
(c) 3% (d) 4%
(78) In respect of a resident assessee, who is of the age of 60 years or more at any time during the previous year but less than
80 years on the last day of Previous Year relevant to Assessment Year 2018-19: (June, 2008)
(a) Rebate of tax payable subject to a maximum of (b) Higher basic exemption of ` 1,50,000.
` 20,000.
(c) Higher basic exemption of ` 3,00,000. (d) Higher basic exemption of ` 1,35,000.
(79) Surcharge of 15% is payable by an Hindu Undivided Family where the total income exceeds:
(a) ` 7,50,000 (b) ` 8,50,000
(c) ` 1,00,00,000 (d) None of the three.
(80) In case of resident HUF, what is maximum exemption limit for Assessment Year 2018-19 :
(a) ` 3,00,000 (b) ` 2,50,000
(c) ` 5,00,000 (d) ` 2,20,000
(81) In case of a female individual, who is of 59 years of age, what is the maximum exemption limit for AY. 2018-19:
(a) ` 3,00,000 (b) ` 2,50,000

(c) ` 5,00,000 (d) Nil
(82) The income-tax payable by a Resident Individual (aged 30 years) for AY. 2018-19 if his total income is `3,00,000 will be:
(a) ` 2,060 (b) ` 2,210

(c) ` 2,206 (d) Nil
(83) The income-tax payable by a Non Resident Individual (aged 30 years) for Assessment Year 2018-19 if his total income is ` 2,70,000 will
be:
(a) ` 2,060 (b) ` 2,210
(c) ` 2,206 (d) Nil
Page 26
MCQ BASIC CONCEPTS
(84) The income-tax payable by a Resident Individual (aged 30 years) for AY. 2018-19 if his total income is ` 3,01,500 will be:
(a) ` 2,630 (b) ` 566
(c) ` 77.25
(d) ` 2,626
(85) The income-tax payable by a Mrs Swati Non Resident Individual (aged 65 years) for AY. 2018-19 if her total income is ` 2,75,000 will
be:
(a) Nil (b) ` 2,575
(c) ` 1,287
(d) ` 520
(86) The income-tax payable by a Mr Bansal Resident Individual (aged 25 years) for AY. 2018-19 if his total income is ` 4,50,000 will be :
(a) Nil (b) ` 10,300

(c) ` 20,600 (d) ` 540
(87) Arun, a non-resident of India celebrated his 80th birthday on 10th October 2017. If his total income for the previous year is
` 6,00,000, his income-tax liability for the previous year 2018-19 is - (June 2016)
(a) ` 33,475 (b) ` 41,200

(c) ` 20,600 (d) Nil
(88) The amount of marginal relief admissible to Mr Bansal Resident Individual (aged 25 years) for AY 2018-19 if his total income is
` 51,00,000 will be :
(a) ` 34,250 (b) ` 2,00,000

(c) ` 2,20,000 (d) Nil
(89) The maximum income of ` _________________ is not chargeable to tax is case of non-resident woman of 60 years of age.
(a) ` 2,50,000
(b) ` 3,00,000
(c) ` 5,00,000
(d) ` 10,00,000
(90) The tax payable is rounded off to the nearest multiple of -
(a) ` 1
(b) ` 1,000
(c) ` 10
(d) ` 100
(91) The income-tax payable by a Non Resident Individual (aged 30 years) for AY 2018-19 if his total income is ` 2,75,500 will be:
(a) ` 1,313 (b) ` 566

(c) ` 570 (d) ` 2,626
(92) The income-tax payable by a Resident Individual (aged 30 years) for AY 2018-19 if his total income is ` 5,00,000 will be:
(a) ` 12,875 (b) ` 25,750

(c) ` 33,990 (d) Nil
(a) ` 23,690 (c) (b) `12,875

` 33,990 (d) Nil
(94) The income-tax payable by a Resident Individual (aged 30 years) for AY 2018-19 if his total. income is ` 6,00,000 will be:
(a) ` 33,475 (c) (b) ` 44,290

` 45,000 (d) ` 20,600
Page 27
MCQ BASIC CONCEPTS
(a) ` 3,01,275 (b) ` 3,19,000
(c) ` 3,15,000 (d) ` 3,30,000
(a) Nil (b) `2,060 (d)

(c) ` 2,060
` 4,000
(97) The income-tax payable by a Resident Individual (aged 62 years) for AY 2018-19 if his total income is ` 3,00,000 will be :
(a) Nil (b) `2,060 (d)

(c) ` 4,120
` 4,000
(a) ` 2,060 (c) (b) ` 1,030
` 4,120 (d) Nil

(a) `515 (b) ` 6,180
(c) ` 8,240 (d) Nil

(a) Nil (b) ` 1,030

(c) ` 8,240
(d) ` 6,180
(a) Nil (b) ` 2,060
(c) `1,030 (d) ` 6,180
(102) An assessee, being an individual resident in India, is entitled to a deduction, from the amount of income-tax on his total income which
is chargeable for an assessment year, of an amount equal to 100 of such income-tax or a lesser amount. The maximum amount of total
income qualifying for such deduction and the maximum amount of deduction so available is _ (Dec. 2014)
(a) ` 5 lakh and ` 2,000 respectively (b) ` 3lakh and ` 2,000 respectively
(c) ` 3.5 lakh and ` 2,500 respectively (d) ` 3lakh and ` 5,000 respectively
(103) Calculate Rebate, an Individual (aged 30 years) for AY 2018-19 if his total income is ` 3,40,000 :
(a) ` 2,500 (b) `9,000
(c) ` 4,500 (d) Nil

(104) Calculate the amount of rebate u/s 87 A in case of a resident individual having total income of ` 3,00,000.
(a) ` 30,000 (c) (b) ` Nil
` 2,000 (d) ` 2,500
(105) The income-tax payable by a XYZ Inc a foreign company on total income of ` 12,25,500 will be :
(a) ` 5,04,910 (b) ` 5,04,906
(c) ` 3,78,520 (d) ` 3,78,525
Page 28
MCQ BASIC CONCEPTS
(106) The income-tax payable by a XYZ Cooperative society on total income of ` 50,000 will be :
(a) ` 12,360 (b) Nil
(c) ` 20,600 (d) ` 15,450
(107) Total income is to be rounded off to nearest multiple of __ and tax is to be rounded off to nearest multiple of
(a) Ten, Rupee (b) Hundred, Ten

(c) Ten, Ten (d) Rupee, Rupee
(108) Unexplained cash credits are chargeable to tax @ ___________ _

(a) 10%
(b) 15%
(c) 20%
(d) 30%
(109) Long term capital Gains are chargeable to tax @ ___________ _

(a) 10%
(b) 15%
(c) 20%
(d) 30%
(110) Short term capital gains arising on transfer of listed equity shares through recognised stock exchange are chargeable to
Tax @ _____ _
(a) 10% (b) 15%

(c) 20% (d) 30%
(111) Income by way of dividends in excess of ` 10 lakh in the case of an individual, Hindu undivided family (HUF) or a firm who is resident
in India is chargeable to tax at rate of -
(a) 10% (b) 15%

(c) 20% (d) 30%
(112) Income by way of royalty in respect of a patent developed and registered in India in respect of person who is resident in India is
chargeable to tax at rate of -
(a) 10% (b) 15%

(c) 20% (d) 30%
(113) For a domestic company, the minimum amount of total income liable for surcharge and the rate of surcharge applicable
therein are - (Dec. 2014)
(a) ` 10 crore and 7 respectively (b) ` 1 crore and 7 respectively

(c) ` 1 crore and 12 respectively (d) ` 10 crore and 12 respectively
(114) The total income of Atul, a resident individual, is ` 2,65,000. The rebate allowable u/s 87 A would be - (June, 2015)
(a) ` 2.000 (b) Nil
(c) ` 750 (d) `1,545.
(115) For the previous year 2017-18, taxable income of A Ltd., a domestic company (Turnover in FY 2015-16 was ` 8 crores) is
` 10,86,920. Its tax liability would be - (June, 2015)
(a) ` 2,47,822 (b) ` 4,47,811
(c) ` 3,32,770 (d) ` 3,35,860
Page 29
MCQ BASIC CONCEPTS
1. C 2.A 3.B 4.D 5.D 6.D 7.D 8.C 9.A 10.B
11.D 12.D 13.B 14.D 15.C 16.B 17.A 18.B 19.B 20.B
21.A 22.C 23.A 24.D 25.C 26.C 27.D 28.A 29.C 30.B
31.B 32.B 33.B 34.B 35.A 36.D 37.A 38.B 39.C 40.A
41.B 42.B 43.A 44.B 45.A 46.A 47.D 48.B 49.D 50.C
51.D 52.D 53.D 54.D 55.A 56.C 57.A 58.C 59.D 60.D
61.A 62.A 63.D 64.D 65.C 66.C 67.D 68.C 69.D 70.B
71.A 72.A 73.C 74.B 75.D 76.C 77.C 78.C 79.C 80.B
81.B 82.D 83.A 84.C 85.C 86.B 87.A 88.A 89.A 90.C
91.A 92.A 93.B 94.A 95.A 96.C 97.A 98.D 99.A 100.A
101.B 102.C 103.A 104.D 105.A 106.A 107.C 108.D 109.C 110.B
111.A 112.A 113.B 114.C 115.D
Page 30
RESIDENTIAL STATUS
CHAPTER – 2
RESIDENTIAL STATUS
Sec 5 Scope of Total income

Sec 6(1) Residential status of an Individual
Sec 6(2) Residential status of an HUF, Firm, AOP & BOI
Sec 6(3) Residential status of Company
Sec 6(4) Residential status of other assesse
Sec 6(5) Resident for one source resident for all source
Sec 6(6) Resident & Not Ordinarily Resident
Sec 7 Income deemed to be received
Sec 9 Income deemed to accrue or arise in India
Need to Determine Residential Status
 A person may earn incomes from various sources. These sources may be in India or or outside India.
Similarly the person earning such incomes may be an Indian Citizen or foreign Citizen.
 Income tax act neither say that Indian Citizens will pay Income tax nor does it says that only Indian
Income will be taxable.
 Taxability Under Income Tax act depends upon Residential status of the assessee i.e whether he is a
resident or non resident in India during the previous year
Special Points :
1. Residential status should not be confused with Citizenship : A person may be a foreign citizen and still
be a resident of India. Similarly an Indian citizen may be a non resident. Therefore determination of
Residential status of an assessee is independent of his citizenship.
2. Resident for one source, resident for all Sources : If an assessee is a resident in any year with regard to
any one source of income, he will be treated as resident in that year with regard to all other sources of his
income. He cannot have difference residential status for different sources of income in same year.
Sec. 6(5)
3. Resident in India and other countries simultaneously : It is not necessary that a person, who is resident
in India, cannot become resident in any other country for the same assessment year. A person may be
resident in more than one country at the same time.
4. Residential status is determined for every Assessment year separately and can change from one A/Y to
another
Page 31
RESIDENTIAL STATUS
Determination the Residential Status of an Individual

An individual may be a :
(a) Resident in India or
(b) Non-resident in India.
Individual is said to be Resident in India during a Assessment year if [SEC 6(1)]
He satisfies any one of the following two basic conditions:
1st condition: He is IN INDIA for a period of 182 days or more in the relevant previous year
OR
2nd condition: He is IN INDIA for 60 days or more during the relevant previous year
AND
Has been in India for 365 days or more during four previous years immediately preceding the relevant
previous year.
Individual is said to be Non-resident in India if

He does not satisfy either condition 1 or 2
SPECIAL POINTS :
1. In computing the period of stay in India, it is not necessary that the stay should be for a continuous period.
e.g. if an assessee is once present in India during the relevant previous year say for 120 days & then again
for 90 days ,he will be satisfying the requirement of 182 days presence.
2. It is also not necessary that the stay should be only at one place. It can be at different places in India
3. While calculating the presence of 182 days or more, both day of arrival and day of departure should be
included. But if information regarding hourly entry and hourly exit in the same previous year is also
available, then a total of 24 hours will be taken as one day.
4. India means : Sec 2(25A)

 Territory of India ,
 Its territorial waters,
 Seabed and subsoil underlying such waters,
 Continental shelf,
 Exclusive economic zone and
 Air space above its territory and territorial waters.
5. Only physical presence of assessee is relevant. His position of assets in India & residential status of family
members is not relevant.
Page 32
RESIDENTIAL STATUS
Exceptions to 2nd basic condition
Under the following three cases, 2nd Basic condition is not applicable. i.e an Individual will be resident in
the following cases if he is in India for atleast 182 days in the previous year. The second condition of 60/365
days will not be applicable.
CASE 1:
 Individual, who is a citizen of India
 Who leaves India in any previous year
 For the purpose of employment outside India
Special point : If a person goes outside India for business purpose or for training or on foreign tour or
education purpose or temporary transfer etc. then in such case second Basic condition will be also be
applicable
CASE 2 :
 Individual, who is a citizen of India
 And also crew member of an Indian ship
 Who leaves India in any previous year
Special point :
 Individual, being a citizen of India and
 a crew member of a foreign bound ship leaving India,
 period of stay in India shall,
 in respect of such voyage,
 be determined in prescribed manner and conditions.
The numbers of days of stay in India for such person shall not include the days from the start date of
the Continuous Discharge Certificate and ending on the end date of this document, as signed off on
this document.
CASE 3 :
 Individual who is a Citizen of India or is a Person of Indian origin,
 Who being outside India,
 Comes on a visit to India in any previous year.
Special Point:
a) A person is said to be of Indian origin if he or either of his parent or any of his grand parent was born in
Undivided India.
b) If a person comes to India for permanent settlement than 2nd basic condition will be applicable
Page 33
RESIDENTIAL STATUS
An Individual cannot simply be called a Resident in India
If he is a Resident in India , we have to further determine whether he satisfies conditions of Sec 6(6) :
An Individual is Resident & Not Ordinarily Resident RNOR during a previous year if {Section 6(6)}
He satisfies Either of the following additional conditions:
1st condition: He has been in India for 729 days or less, during 7 previous years immediately preceding the
relevant previous year. OR
2nd condition: He is Non Resident in India for at least 9 out of 10 previous years immediately preceding
the relevant previous year.
Individual is said to be Resident & Ordinarily resident (ROR) in India during a previous year if
He does not satisfies Either of Additional conditions
INDIVIDUAL
Resident in India Non-Resident in India
Fulfill Any
additional
condition
u/s 6(6)
YES
NO
RNOR
ROR
Page 34
RESIDENTIAL STATUS
Residential Status of Hindu Undivided Family (HUF) [Section 6(2)]
HUF is said to be a resident in India during a previous year if

Any part of the control and management of its affairs is situated in India during the relevant previous year
HUF is said to be a Non-Resident in India during a previous year if

No part of the control and management of its affairs is situated in India during the relevant previous year
HUF is resident and ordinarily resident during a previous year if [Section 6(6)]
The Karta/Manager of the HUF satisfies both the following conditions:

(a) He must be resident in at least two out of ten previous years immediately preceding the relevant year
And
(b) He must be in India for at least 730 days during 7 previous years immediately preceding the relevant
previous year.
HUF is said to be resident but not ordinarily resident during a previous year if
The Karta/Manager of the HUF satisfies any one and not both of the above conditions.
Special points :
 In order to determine whether a HUF is resident or non-resident, the residential status of Karta of the
family during the previous year is not relevant.
 Residential status of karta during the preceding previous years prior to relevant previous years is
considered for determining whether HUF is ROR or RNOR
 The place of control and management means that place where the head and brain of the HUF business
( i.e. The karta ) is situated, and where vital decisions concerning the HUF affairs are taken, such as,
expansion or diversification of business, raising of finance, appointment and removal of staff etc.
Residential Status of
Firm, Association of Person (AOP) , Body of Individuals (BOI) [Section 6 (2)]
These entities may either be resident or non-resident in India for any previous year. They are not further
bifurcated into ordinarily and not ordinarily residents.
Firm, AOP, BOI is said to be resident in India during a previous year if

Firm, AOP, BOI is said to be Non-Resident in India during a previous year if
Page 35
RESIDENTIAL STATUS
Special Point : In the case of a firm , the control and management is in the hands of the partners and therefore,
if the partners generally meet in India regarding the affairs of the firm then the firm is said to be resident in
India.
Residential Status of a Company [Section 6 (3)]
A company is said to 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.
“Place of effective management” means 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.
Residential Status of other Person [Section 6 (4)]
Other assessee is said to be a resident in India during a previous year if

Other assessee is said to be a Non-Resident in India during a previous year if

INDIAN INCOME VS FOREIGN INCOME
Particulars Due Received Type of Income

Sale in Delhi Sale price received in Delhi India India Indian Income
Sale in Delhi Sale price received in USA India Outside Indian Income
India
Sale in USA Sale price received in Delhi Outside India Indian Income
India
Sale in USA Sales price received in USA Outside Outside Foreign income
India India
Sec 5 : Scope of Total income on Basis of Residential status
Particular of income Indian ROR RNOR NR

/Foreign
Income
1. Income due in India Indian Income Taxable Taxable Taxable
Page 36
RESIDENTIAL STATUS
(whether Received in India or

outside India )
2 Deemed Incomes u/s 9 Indian Income Taxable Taxable Taxable
3 Income due outside India & Indian Income Taxable Taxable Taxable
received in India
4 Income due outside India and

received outside India
-From Business/profession set Foreign Taxable Taxable Not Taxable

up in India Income
Foreign Taxable Not Taxable Not Taxable
-From any other source Income
INCOME RECEIVED IN INDIA
 Any income received in India is taxable for all categories of assesses i.e. ROR, RNOR & NR. It does
not matter whether such income have become due in India or outside India
 As per “Keshav Mills Ltd (SC)” remittance of an already received amount does not result in its receipt
at that other place.
 Thus if an assessee having received an income in a foreign country, say in Japan, remits it to his family
in India, it is not an income received in India, as the income has already been received in Japan & after
its receipt it is being merely remitted to India.
INCOME ACCRUE OR ARISE IN INDIA
Income accrue or arise in India is taxable for all for all categories of assesses viz. ROR, RNOR & NR. It
does not matter whether such income is received in India or outside India
 As per Ashokbhai Chimanbhai (SC), when the right to receive the income becomes vested in the
assessee, it is said to accrue or arise.
Page 37
RESIDENTIAL STATUS
INCOME DEEMED TO ACCRUE OR ARISE IN INDIA : SECTION 9
Income deemed to accrue or arise in India is taxable for all for all categories of assesses viz. ROR,
RNOR & NR. It does not matter where such income is received in India or outside India
The following incomes shall be deemed to accrue or arise in India:
(a) Income from a Business connection in India.- Where by virtue of “ business connection” in India,
income accrues or arises outside India to any person it is deemed to accrue or arise in India.
As per R.D. Agarwal (SC) : Business connection involves a relation between a business carried on
by a non-resident in foreign country which yields profits or gains and some activity in India, which
contributes, directly or indirectly, to the earning of those profits or gains.”
Business connection is very well illustrated by the following examples:

(i) Forming a local subsidiary company to sell the products of non-resident parent company
(ii) Maintaining a branch office for the sale of goods or transacting other business in India.
Special point :
1.Following shall not be treated as business connection in India:
(i) Operations confined to purchase of goods in India for purpose of exports;
(ii) Operations confined to collection of news and views for transmission outside India by or on behalf
of Non-resident who is engaged in the business of running news agency or publishing newspaper,
magazines or journals;
(iii) Operations confined to shooting of cinematograph films in India by foreign citizen who is a non-
resident
2. BUSINESS CONNECTION also includes – A person acting on behalf of a non-resident and who
performs any one or more of the following –
Activity one – He exercises in India an authority to conclude contracts on behalf of the non-resident
Activity two – He has no such authority but maintains in India stock of goods from which he regularly
delivers goods or merchandise on behalf of the non-resident.
Activity three – He secures order in India for the non-resident
3. In the case of a business of which all the operations are not carried out in India, 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
Page 38
RESIDENTIAL STATUS
4. Any share or interest in a company registered outside India shall be deemed to be situated in India, if the
share or interest derives, directly or indirectly, its value substantially from the assets located in India.
5. In the case of a foreign company engaged in the business of mining of diamonds, no income shall be
deemed to accrue or arise in India to it through or from the activities which are confined to the display of
uncut and unassorted diamond in any special zone notified by Central Government in Official Gazette.
INDEPENDENT BROKERS / AGENTS ARE EXCLUDED – The “business connection”, shall not
include cases where the non-resident carries on business through a broker, general commission agent or any
other agent of an independent status, provided that such a person is acting in the ordinary course of his
business.
(b) Income from any Property, Asset or Source of income situated in India:
For instance, the house property or machinery or furniture, situated in India, is given on
rent , then such rental Income shall be deemed to accrue or arise in India in hands of the owner of
such property or source.
(c) Income from the transfer of any capital asset situated in India:
Any capital gain from the transfer of a capital asset, situated in India, is deemed to accrue or arise
in India in hands of the owner of such Capital asset.
(d) Income under salary head payable to a citizen of India abroad by the government:
It is applicable to government employees who are citizens of India and are posted abroad. They
render the services outside India and they are paid salary by Indian Govt. Such salary shall be
deemed to accrue or arise in India in hands of the employee.
It is important to note that by virtue of Section 10(7), all allowances and perquisites received by
such an employee is exempt .
(e) Income under the head Salary for services rendered in India
If a person has rendered services in India, salary for such services will be deemed to accrue or arise
in India in the hands of such employee.
(f) Dividend paid by an Indian company outside India.:- Any dividend paid by an Indian company
outside India is deemed to accrue or arise in India in the hand of recipient.
However as per Sec 10(34), Dividend paid by Indian company is exempt in hands of the recipient
(g) Interest payable by:

(i) Government; or
(ii) A person who is resident in India, except where interest is payable in respect of money
borrowed and used for the purpose of business or profession carried on outside India or earning
any income from any source outside India; or
Page 39
RESIDENTIAL STATUS
(iii) A person who is a non resident in India provided interest is payable in respect of money
borrowed and used for a business or profession carried on in India.
Then such interest shall be deemed to accrue or arise in India in the hands of the Recipient.
(h) Royalty payable by :

(i) Government; or
(ii) A person who is resident in India except where it is payable in respect of any right/information/
property used for the purpose of a business or profession carried on outside India or earning any
income from any source outside India; or
(iii) A person who is a non resident in India provided royalty is payable in respect of any right/
information/ property used for the purpose of the business or profession carried on in India or
earning any income from any source in India.
Then such royalty shall be deemed to accrue or arise in India in the hands of the Recipient.
(i) Fees for technical services payable by:

(i) Government; or
(ii) A person who is resident in India, except where services are utilized for a business or
profession carried on outside India or earning any income from any source outside India; or
(iii) A person who is a non resident in India provided fee is payable in respect of services for a
business or profession carried on in India or earning any income from any source in India.
Then such fees shall be deemed to accrue or arise in India in the hands of the Recipient.
Special point:
1. Royalty does not include
 Lumpsum royalty Paid by resident
 For transfer of Computer software
 Supplied by a Non resident manufacturer
 Along with computer
2. Fees for Technical Services means consideration for rendering managerial, technical or consultancy
services.
Page 40
MCQ RESIDENTIAL STATUS
RESIDENTIAL STATUS OF INDIVIDUAL
(1) Residential status to be determined for:

(a) Previous year (b) Succeeding Year
(c) Calendar year (d) None of the above
(2) To claim the status of Not Ordinarily Resident for individual-

(a) Only one basic condition needs to be satisfied. (b) One basic and one additional condition are to
be satisfied.
(c) Need not satisfy any of the conditions. (d) Only additional condition is to be satisfied.
(3) To claim the status of Non-resident for individual-

(a) Only one basic condition need to be satisfied. (b) One basic and one additional condition is to be
satisfied.
(c) Need not satisfy any of the conditions. (d) Only additional conditions are to be satisfied.
(4) Amongst the following which is the basic condition to identify the residential status of the individual -
(a) Person must be in India for or more 182 days (b) Person must be in India for less than 60 days
during the previous year. during the previous year and 365 days on more
during the four years preceding the previous
year.
(c) He must be in India in nine out of ten previous (d) All of these.
years preceding that year.
(5) Amongst the following which is the basic condition to identify the residential status of the individual -
(a) Person must be in India for less than 180 days (b) Person must be in India for 60 days or more during
during the previous year. the previous year and 365 days on more during the
four years preceding the previous
year.
(c) He must not be in India in nine out of ten (d) Non of these
previous years preceding that year.
(6) Atul is a foreign citizen. His father was born in Delhi in 1951 and mother was born in England in 1950. His grandfather was born
in Delhi in 1922. Atul visited India to see Taj Mahal and visit other historical places. He came to India on 1st November, 2017 for
200 days. He has never come to India before. His residential status for assessment year 2018-19will be (Dec. 2014)
(a) Non resident in India (b) Not ordinarily resident in India
(c) Resident in India (d) None of the above
Page 41
(7) Determine the residential status of Mr. X a foreign citizen who came to India for the first time on 15 April, 2017 for a period of
just 200 days -
(a) Resident
(b) Non-Resident
(c) Not ordinarily Resident
(d) Any of these
(8) The following additional conditions are to be satisfied by a person to be resident and ordinarily resident in India _ (Dec. 2014)
(a) He is a resident in at least any two out of the (b) He has been in India for 730 days or more
ten previous years immediately preceding the during the seven previous years immediately
relevant previous year preceding the relevant previous year
(c) Both (a) and (b) of above (d) None of the above
(9) X, an Indian citizen, who is living in Delhi since 1980, left for Japan on 1 5t July, 2016 for employment. He came back to India on
1st January, 2018 on a visit and stayed for 4 months. His residential status for the assessment year 2018 -19 would be - (Dec. 2014)
(a) Resident and ordinarily resident (b) Not ordinarily resident

(c) Non resident (d) Resident.
(10) Paresh, a software engineer at ABC Ltd. Came to India on 10th August, 2017 for the treatment of his wife. For income-tax
purpose, his residential status for the assessment year 2018-19 will be - (June, 2015)
(a) Resident (b) Non-resident
(c) Not ordinarily resident
(d) Cannot be determined from the given information.
(11) Determine the residential status of Ms. Haseena a person of Indian origin who came for visiting India on 15 th April, 2017.
She left India on 30th April 2017.
(a) Resident
(b) Non-Resident
(d) Any of these
(12) If Karta is resident and ordinarily resident in India but control and management of HUF is situated partly outside India
in the previous year, the HUF is - (Dec. 2014)
(a) Resident and ordinarily resident (b) Not ordinarily resident

(c) Non resident (d) Resident.
(13) Determine the residential status of Ms. Haseena a person of Indian origin who has been visiting India for 100 days every year
since last 10 years -
(a) Resident
(b) Non-Resident
(d) Any of these
(14) Determine the residential status of Ms. Maria, a US citizen who has been visiting India for 100 days every year since la st 10
years-
(a) Resident
(b) Non-Resident
(d) Any of these
(15) Determine the residential status of Mr. Karamchand, an Indian citizen who has left India for the first time on 15 th July 2017 for the
purpose of employment outside India
(a) Resident
(b) Non-Resident
(d) Any of these
(16) Determine the residential status of Mr. Rakesh, an Indian citizen who has left India for the first time on 15 th July 2017 for the
purpose of visit outside India. He came back to India on 17th March 2018
(a) Resident
(b) Non-Resident
(d) Any of these
Page 42
(17) Determine the residential status of Mohit who came to India for the first time on 15 th December, 2017 for a period of just 200
days-
(a) Resident (b) Non-Resident
(c) Not ordinarily Resident (d) Any of these
(18) Arif was citizen of Afghanistan. His mother was born in a village near Kathmandu. He came to India for first time since 1982 on
02-10-2017 for a visit of 190 days. What is the residential status of Arif ?

(c) Not ordinarily Resident (d) Any of these
(19) An individual is said to be resident in India in a previous year (in which the February month has 29 days) if he is in I ndia
in that year for a period or periods amounting in all to : (June, 2008)
(b) 60 Days or more

(a) 182 Days or more Ans.(a)
(d) 150 Days or more
(c) 183 Days or more
RESIDENTIAL STATUS OF HUF
(20) The residential status of HUF depends upon the ----

(a) Control and management of affairs.
(b) Place of residence of Karta
(c) Place of residence of Karta its members
(d) Location of the head office
(21) Determine the residential status of a HUF if HUF's control and management is wholly situated in In dia and Karta of HUF is a
Non-resident in India for that previous year.
(a) Resident and Ordinary Resident (ROR) (b) Resident but not ordinary resident (RNOR)
(c) Non-Resident (NR) (d) ROR or RNOR
(22) Find the residential status of HUF whose control and management is partly in India and the Karta stays in India for 360 days
during the period of 7 years.
(c) Not Ordinarily Resident (d) Any of these
(23) Find the residential status of HUF whose control and management is wholly outside in India and the Karta stays in India for 360
days during the period of 7 years.
(24) Find the residential status of HUF whose control and management is partly in India and the Karta stays in India for 750 days during
the period of 7 years preceding the previous year and is resident in last 4 years preceding the previous year.

(25) Ram who was born and brought up in India left for employment in Dubai on 20 th August, 2017. His residential status in respect of
the assessment year 2018-19 would be - (Dec. 2015)
(b) Non-resident
(a) Resident and ordinarily resident
(26) Somesh was born in New Jersey in 1976 and his father was born in China in 1948 whereas Somesh's grandfather was born in India
in 1932. Somesh visited India for 180 days during the previous year. His residential status is-
(a) Resident (b) Not Ordinarily Resident

(c) Not Resident (d) Any of these
Page 43
(27) Sony Bros. HUF was partly controlled from India by its Karta, Mahesh who is citizen of India but stays outside India. For the
purpose of managing affairs of the HUF, Mahesh regularly visits India. Determine the residential status of the HUF for the
Assessment Year 2018-19, if during the last 12 years Mahesh visited India for 110 days every year.
(a) Resident
(b) Non-Resident
(d) Any of these
(28) Which of the following may be a 'not ordinarily resident' in India
(Dec. 2012)
(a) Partnership firm
(b) Joint stock company
(c) Association of persons
(d) Hindu Undivided Family.
(29) HUF of Ashwin consisting of himself, his wife and 2 sons is assessed to income-tax. The residential status of HUF would be
non-resident, when - (Dec. 2015)
(a) The management and control of its affairs is (b) wholly
The management and control of its affairs is
in India
wholly outside India
(c) The status of karta is non-resident for that year (d) When majority of the members are nonresident.
RSIDENTIAL STATUS OF OTHER PERSON

(30)
------- will be resident in India even if its place of effective management, is outside India during the
previous year.
(a) Indian Company

(b) Foreign Company
(c) Partnership firm
(d) All of these
(31) XYZ LLP will be ___________ in India if control and management of its affairs is wholly situated outside India during
the previous year.
(a) Resident
(b) Non-Resident
(c) Not Ordinarily Resident
(d) Any of these
(32) A company is said to be a resident in India in previous year, if:
(a) It is an Indian company (b) Its place of effective management, is in India.

(c) Either it is an Indian company or its place of (d) It is both an Indian Company and its place of
effective management, is in India.
effective management, is in India.
(33) XYZ Ltd. an Indian company will be ____________ in India if its place of effective management is wholly situated outside
India during the previous year.
(a) Resident
(b) Non-Resident
(c) Not Ordinarily Resident
(d) Any of these
(34) An Indian company would:
(a) be resident in India if its control and (b) be resident in India if its its place of effective
management is in India management, is in India
(c) be resident in India if its place of effective (d) be always resident in India irrespective of its
management, is outside India place of effective management.
(35)
----- will be resident in India if its place of effective management, is in India during the previous year.
(a) Indian Company (b) Foreign Company

(c) Domestic Company (d) All of these
Page 44
(36) Residential status of an Indian company is resident and ordinarily resident for the year - (Dec. 2015)
(a)' If the entire control and management is wholly (b) If part of the control and management is in India
in India
(c) Regardless of the place of control and (d) If it is listed on recognised stock exchange.
management
(37) 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 - (June 2016)
(b) Non-resident
(a) Resident
(d) Foreign company
(38) X Ltd. is an Indian Company. It carries on business in Mumbai and New York and its place of effective management, is situated
outside India. Further, 80 of total Income of the company is from the business in London. What is the
residential status of X Ltd?

(c) Not ordinarily Resident (d) Any of these.
(39) An foreign company would be resident in India:

(a) if its control and management is partly in India (b) if its its place of effective management, is in India
(c) if its place of effective management, is outside (d) If its control and management is wholly in
India India
INCIDENCE OF TAX
(40) Income which accrue outside India from a business controlled from India is taxable in case of:
(a) Resident only (b) Both ordinarily resident and NOR
(c) Non-resident (d) All the assesses

(41) Income deemed to accrue or arise in India is taxable if the person is -

(c) Non Resident (d) Any of these
(42) Income which accrues outside India but is received in India is taxable if the person is -

(43) Income which received outside India but is deemed to accrue in India is taxable if the person is -

(44) Income accrued outside India and received outside India is taxable in case of:
(a) Resident and ordinary resident (ROR) only (b) Resident but not ordinary resident (RNOR) only
(c) Non resident only (d) ROR, RNOR and Non-Resident
(45) The following income is deemed to be received in India:

Transferred balance in a recognised provident
(a) Employer's contribution to a recognised (b)
fund to the extent of employer's contribution and
provident fund in excess of 12% of salary; & interest
interest thereon;
credited thereon in excess of 9.5% p.a.;
Page 45
(c) Contribution made by the Central Government (d) All of these.
or other employer in the previous year,
under a pension scheme u/s 80CCD
;
(46) Interest credited to RPF in excess of ___________is taxable as deemed receipt.

(a) 8.00%
(b) 8.50%
(c) 9.50%
(d) 9.00%
(47) Which of the following incomes is deemed to accrue or arise in India?
(a) Income from any business connection in India. (b) Income from a property in India.
(c) Income through transfer of capital asset (d) All of these.
situated in India.
(48) Which of the following incomes is not deemed to accrue or arise in India ?
(a) Income from any business connection in India. (b) Income from a salary for services rendered in India.
(c) Income through transfer of capital asset (d)

Dividend paid by an Indian company outside
situated outside India.
India.
(49) Which of the following incomes is deemed to accrue or arise in India?

(a) Income which falls under the head "Salaries", if (b) Income chargeable under the head "Salaries"
it is earned in India. payable by the Government to a citizen of India
for service rendered outside India.
(c) Income by way of interest payable by the (d) All of these.
Government
(50) Which of the following incomes is deemed to accrue or arise in India ?

(a) Income by way of fees for technical services (b) Income by way of royalty payable by resident
payable by non-resident, where it is payable in respect where it is payable in respect of any right used for
of any services utilised in a business or profession the purposes of a business or profession carried on
carried on by such person in India. by such person outside India
(c) Income chargeable under the head "Salaries" (d) Income earned by a foreign company engaged in
payable by the Indian Company to a citizen of India the business of mining of diamonds through or
from the activities which are confined to the
for service rendered outside India.
display of uncut and unassorted diamond in any
special zone notified by the Central Government
in the Official Gazette in this
behal
(51) Income chargeable under the head "Salaries" payable by the Government to a citizen of India for service rendered outside India
is taxable if the person is _
(a) Resident
(b) Not Ordinarily Resident
(c) Not Resident (d) Any of these
(52) The person who concludes contracts on behalf of the non-resident is known as _
(a) Concluding agent (b) Stocking agent
(c) Indenting agent
(d) None of these
(53) Business activity carried on with which of the following agent is not a business connection?
(a) Concluding agent (b) Stocking agent
(c) Indenting agent (d). None of these
Page 46
(54) Fees for technical services means any consideration for rendering of any:
(ci) Managerial service (b) Technical service
(c) Consultancy service (d) All of these
(55) Which of the following activity will be considered as business connection in India?
(a) All the operations of a firm are not carried in (b) An office set up by non-resident for carrying
India. out business activity in India.
(c) The profits earned by assessee on supplies of (d) All of these.
fabricated platforms.
(56) Employer's contribution in excess of 12% of salary is :
(a) Income but not Taxable (b) Taxable Income

(c) Deemed Income (d) None of these
(57) Mr. K is an Indian citizen. He has an income from artwork in USA and spent for medical treatment in France `15,000 and Income from
publishing magazine in UK by collecting news and views in India (80 attributable to operations in India is `50,000. What will be his total
Income if he is a NOR?
(a) `15,000 (b) `40,000
Ans.(b)
(c) `55,000 (d) `65,000
(58) Following are the particulars of Income of Adarsh -

(i) Income from agriculture in Indonesia being invested there only : `12,350
(ii) Income from business in Bangladesh being controlled from India : `10,150.
If Adarsh is NOR what is his total income?
(a) `12,350 (b) '10,150 (d)

Ans.(b)
(c) `22,500 '{ 2,200
(59) What would be your answer in question no 58, If Adarsh is Resident what is his total Income?
(a) '{ 12,350 (c) (b) `10,150

Ans.(c)
'{ 22,500 (d) ` 2,200
(60) What would be your answer in question no 58, If Adarsh is Non-Resident what is his total Income?
(a) ` 12,350 (b) `10,150
(c) ` 22,500 (d) Nil Ans.(d)
(Dec. 2014)
(61) Abhay earns the following income during the previous year ended 31st March, 2018 :
> Interest on U.K. Development Bonds (1/4th being received in India) : `2,00,000
> Profits on sale of a building in India but received in Holland: `2,00,000
The income liable to tax for the assessment year 2018-19 if Abhay is resident and not ordinarily resident in India, is -
(a) `2,50,000 (b) `4,00,000
(c) ` 2,00,000 (d) `50,000.
(62) Following are the particulars of Income of Prakash -

(i) Past untaxed profits brought in India during the previous year - ` 75,000
(ii) Income from agriculture in Japan being invested there only - ` 12,350
(iii) Income from business in Bangladesh being controlled from India - `10,150.
If Prakash is Resident what is his total income?
(a) `12,350 (b) `10,150
(c) ` 22,500 (d) ` 97,500
(63) Profits of `1,00,000 for the year 2016-17 of a business in Germany remitted to India during the previous year 2016-17 (not taxed earlier)
would be:
Page 47
(a) Taxable in India for ROR only
(b) Not taxable in India for all (ROR, RNOR & NR)
(c) Taxable in India for all (ROR, RNOR and NR)
(d) Taxable only for RNOR and NR
(64) Profits of ` 2,00,000 is earned from a business in USA which is controlled in India, half of the profits being received in India. How much
amount is taxable in India for a Non-resident Individual?
(a) `2,00,000 (b) Nil
(c) `1,00,000 (d) `3,00,000
(65) Dividend from British Co. of `2,00,000 received in London will be taxable in case of ;
(a) Resident and ordinary resident (ROR) only (b) Not ordinary resident (NOR) only
(c) Non resident (NR) only (d) ROR, NOR and NR all
(66) Income of non-resident when attributed from operations in India relating to the following is taxable in India;
(1) Profits of business
(2) Fee for technical services
(3) Royalty
(4) Income from house property in India
Select the correct answer from the options given below _
(Dec. 2015)
(a) (1) and (4) (b) (1), (3) and (4)
(c) (1) and (3) (d) (1), (2) (3) and (4).
(67) From the following particulars of Income furnished by Mr. Anirudh pertaining to the year ended 31-03-2018,-
Particulars Amount ~
(i) Profit on sale of shares of private limited Indian Company received in Germany 15,000
(ii) Dividend from a Japanese Company received in Japan 10,000
(iii) Agricultural income from lands in Gujarat 27,000
If Anirudh is Non-Resident what is his total income?
(a) ` 15,000
(b) `10,000
(c) ` 27,000
(d) `25,000
(68) From the following particulars of Income furnished by Mr. Anirudh pertaining to the year ended 31-03-2018,
Particulars Amount ~
(i) Interest received from Indian Government bonds outside India 15,000
(ii) Royalty received in India from non resident who used the rights for business outside India 10,000
(iii) Agricultural income from lands in Japan received in India If 37,000
Anirudh is Non- Resident what is his total income?

(a) `15,000
(b) `10,000
(c) `25,000
(d) `62,000
(69) From the following particulars of Income furnished by Mr. Kamlesh pertaining to the year ended 31-03-2018,
Particulars Amount `
(i) Interest received from Indian Government bonds outside India 15,000
(ii) Royalty received outside India from non resident who used the rights for business outside India 20,000
(iii) Agricultural income from lands in Japan (20 is received in India) 37,000
If Karnlesh is Non- Resident what is his total income?
(a) `15,000
(b) `20,000
(c) `7,400
(d) `22,400
Page 48
(70) From the following particulars of Income furnished by Ms. Sharmilee pertaining to the year ended 31-03-2018,
Particulars Amount`
(i) Profit on transfer of building situated in Delhi received in London 15,000
(ii) Business Income carried in Singapore received there,and subsequently remitted to India 37,000
If Sharmilee is Non- Resident what is her total income?
(a) `15,000 (b) `37,000
(c) `52,000 (d) Nil

(71) From the following particulars of Income furnished by Ms. Kajol pertaining to the year ended 31-03-2018,-
(i) Profit on transfer of building situated in Delhi received in London 35,000
(ii) Business Income carried in Singapore controlled from India, received there and subsequently
remitted to India 37,000
If Kajol is Not ordinarily Resident what is her total income?
(a) `35,000 (b) `37,000
(c) `72,000 (d) Nil

(72) Following are the particulars of income of Mr. Khushwant, an Indian citizen-
(i) Income from activity of purchasing goods in India and exporting to USA : ` 50,000
(ii) Income from the shooting of cinematograph films in India (90% attributable to the operations in India): `5,00,000
(iii) Dividends from foreign company received in India : 20,000.

If Mr. Khushwant is resident what is his total Income?
(b) `5,70,000
(a) `5,00,000
(d) Nil
(c) `5,20,000
If Mr. Khushwant is Not Ordinarily Resident what is his total Income?
(a) ` 5,50,000 (b) `4,70,000

(c) `5,20,000 (d) Nil
If Mr. Khushwant is Non-Resident what is his total Income?
(a) `4,70,000 (b) `4,50,000

(c) `20,000 (d) Nil
(73) Dividends received from an Indian company in USA is _______________ in case of a resident, __________ in case of a not
ordinarily resident and _________ in case of a non-resident?
(b) Taxable, taxable, taxable

(a) Taxable, exempt, exempt
(d) Exempt, exempt, exempt
(c) Taxable, taxable, exempt
(Dec. 2009)
(74) Income accruing in India in previous year is taxable for -
(a) Resident (b) Not ordinarily resident

(c) Non-resident
(d) All of the above.
(June, 2010)
(75) Every year, the residential status of an assessee -
(a) May change (b) Will certainly change

(c) Will not change (d) None of the above.
Page 49
(76) Income accruing from agriculture in a foreign country is taxable in the case of an assessee who is - (Dec. 2010)
(a) Resident (b) Not-ordinarily resident

(c) Non-resident
(77) Foreign income received in India during the previous year is taxable in the case of - (Dec. 2010)
(a) Resident (b) Not-ordinarily resident

(c) Non-resident
(78) Income earned and received outside India but later on remitted to India, is taxable in the case of- (June, 2012)
(a) All the assessees (b) Resident and ordinarily resident in India
(c) Non-resident (d) None of the above.
(79) Past untaxed profit of the financial year 2004-05 brought to India in 2017-18 is chargeable to tax in the assessment year
2018-19 in the hands of (June 2013)
(a) All the assessees (b) Resident and ordinarily resident in India
(c) Non-resident in India (d) None of the above.
(80) Total income of a person is determined on the basis of his - (June 2013)
(a) Residential status in India (b) Citizenship in India

(c) Both (a) and (b) above (d) None of the above.
(81) From the following particulars of Income furnished by Mr. Paresh pertaining to the year ended 31-03-2018,-
(i) Interest received in Japan on Indian Government bonds. 35,000
(ii) Business Income carried in Singapore controlled from India, received there and subsequently
If Paresh is Not ordinarily Resident what is his total income?

(a) `35,000 (b) `37,000
(c) `72,000
(d) Nil
(82) From the following particulars of Income furnished by Ms. Usha pertaining to the year ended 31-03-2018,-
(i) Dividend received from shares of Indian Company 55,000
(ii) Business Income carried in Singapore controlled from India, received there, and subsequently
If Usha is Resident what is her total income?

(a) `55,000 (b) ` 37,000
(c) `92,000 (d) Nil
Page 50
(83) If Anirudh has stayed in India in the P.Y. 2017-18 for 181 days, and he is nonresident 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. 2018-19
would be
(a) Resident and ordinarily resident (b) Resident but not ordinarily resident
(c) Non-resident (d) Cannot be ascertained with the given information
(84) Raman was employed in Hindustan Lever Ltd (HLL). He received a salary at ` 40,000 p.m. from 1.4.2017 to 27.9.2017. He
resigned and left for Dubai for the first time on 1.10.2017 and got salary of rupee equivalent of ` 80,000 p.m. from 1.10.2017 to
31.3.2018. His salary for October to December 2017 was credited in his Dubai bank account and the salary for January to March
2018 was credited in his Bombay account directly. He is liable to tax in respect of
(a) Income received in India from HLL; (b) Income received in India and in Dubai;
(c) Income received in India from HLL and income directly credited in India; (d) Income received in Dubai.
(85) A company, other than an Indian company, would be a resident in India for the P.Y. 2017-18 if, during that year,
(a) its Place of Effective Management is in India. (b) its control and management is wholly in India.
(c) it control and management is partly in India. (d) majority of its directors are resident in India
(86) A company,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
(87) Incomes which accrue or arise outside India but received directly in India are taxable in case of
(a) resident and ordinarily resident only (b) resident but not ordinarily resident
(c) non-resident (d) All the above
(88) R Ltd. is an Indian company whose place of effective management is outside India. R Ltd., shall be:
(a) resident in India (b) non-resident in India
(c) not ordinarily resident in India (d) resident and ordinarily resident only
(89) Fees for technical services paid by the Central Government will be taxable in case of –
(90) Profit on sale of shares of an Indian company received in Australia is taxable in case of –
(91) Income from a business in Canada, controlled from Canada is taxable in case of –
(92) Dividend Income from Australian company received in Australia in the year 2015, brought to India during the previous year
2017-18 is taxable in case of –
(c) non-resident (d) None of the above
Page 51
1. A 2. B 3. C 4. A 5. B 6. A 7. C 8. C 9. C 10. C
11. B 12. A 13. C 14.C 15. B 16. A 17. B 18. B 19. A 20. A
21. D 22. C 23. B 24. A 25. B 26. C 27. A 28. D 29. B 30. A
31. B 32C. 32.A 34. B 35. B 36. C 37. A 38. A 39. B 40. D
41. D 42. D 43.D 44. A 45. D 46. C 47. D 48. C 49.D 50. A
51. D 52. A 53. D 54. D 55. B 56. C 57. B 58. B 59. C 60. D
61. A 62. C 63. B 64. C 65. A 66. A 67. A 68. D 69. A 70. C
71. C 72. 73. D 74. D 75. A 76. A 77. D 78. D 79. D 80. A
(i)b,(ii)c,(iii)a
81. C 82. B 83.B 84.B 85.A 86.A 87.D 88.A 89.D 90.D
91.A 92.D
Page 52
INCOME UNDER HEAD HOUSE PROPERTY
CHAPTER – 3
Section 22 : Charging Section
 Annual value of property consisting of

 Building or Lands Appurtenant thereto
 Of which Assessee is the Owner
 Shall be chargeable to Tax
 Under Income from House Property.
 Building will not include such portion which is occupied by assessee
for HIS Business or Profession
Special Point :
Sec 2(2): Annual value in relation to any property, means its annual value as determined under section 23
Essential Conditions for Taxable Income under this Head

(1) Property must consist of any buildings with or without adjoining lands
BUILDING : The term building is not defined in the Income tax Act. As per general meaning it means a
permanent structure built of bricks and/or stones, having a foundation, doors, windows etc, which may or
may not have a roof.
 Stadiums & swimming pools don’t have any roof, but still they can be treated as building.
 A house under construction, incapable of being let out, is not treated as building until it is completed
Lands Appurtenant thereto : This term is also not defined in the Income tax act.It means land which is
attached to a building which is used as a part of building. e.g. garden, garage, car parking, cycle stand
Land, which is not adjoining, to any building is not covered by this section. Rental income of such land is
taxable under the head income from other source
 Independent and commercial income of adjoining land
It is taxable as income from other source or business income e.g. permanent source of drinking water in
adjoining land. Commercial exploitation of such source is independent of income from building. It is
income from other source. Ramalakshmi Reddy (Mad HC)
(2) Assessee must be the owner of the property:- It is only the owner of the house property, who is
liable to pay tax, under this head of income. Thus where a person is himself a tenant & and if he
further let out this property (i.e. subletting), he is not taxable under this head but under the head
Income from other source, as he is not the owner of the property.
 Ownership includes legal ownership as well as deemed ownership.
 If a person is owner of a building and not the owner of the land on which the building is built,
even then income form such building will be taxable in his hands.
Page 53
COMPUTATION OF INCOME UNDER HOUSE PROPERTY
Step 1 : Calculate ANNUAL VALUE of House Property
Step 2 : Allow Deductions u/s Sec. 24
Step 3 : Step 1 – Step 2 is Income Taxable under head House Property
Sec 23 of the Income Tax Act,1961
Annual value how determined.

23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be—
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or receivable by
the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so
received or receivable; or
(c) where the property or any part of the property is let and was vacant during the whole or any part
of the previous year and owing to such vacancy the actual rent received or receivable by the
owner in respect thereof is less than the sum referred to in clause (a), the amount so received or
receivable :
Provided that the taxes levied by any local authority in respect of the property shall be deducted
(irrespective of the previous year in which the liability to pay such taxes was incurred by the owner
according to the method of accounting regularly employed by him) in determining the annual value of the
property of that previous year in which such taxes are actually paid by him.
Explanation — For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent
received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the
amount of rent which the owner cannot realise.
(2) Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes of his own residence; or
(b) 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,
the annual value of such house or part of the house shall be taken to be nil.
(3) The provisions of sub-section (2) shall not apply if—

(a) the house or part of the house is actually let during the whole or any part of the previous year; or
(b) any other benefit therefrom is derived by the owner.
(4) Where the property referred to in sub-section (2) consists of more than one house—
Page 54
(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the
assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of which the assessee has
exercised an option under clause (a), shall be determined under sub-section (1) as if such house or
houses had been let.
(5) In case of a house property held as stock-in-trade [Section 23(5)]
(a) In some cases, property consisting of any building or land appurtenant thereto may be held as
stock-in-trade, and the whole or any part of the property may not be let out during the whole or
any part of the previous year.
(b) In such cases, the annual value of such property or part of the property shall be NIL.
(c) This benefit would be available for the period upto one year from the end of the financial year in
which certificate of completion of construction of the property is obtained from the competent
authority.
Section 23 : ANNUAL VALUE
Calculation of Annual Value
Step 1 : Calculate Reasonable Value for the P/Y: [Sec. 23(1)(a)]

Reasonable Value = i. Municipal value or Fair rental value, whichever is higher
ii. Value determined under (i), above cannot exceed value of
Standard Rent, if such property is governed by Rent Control Act
Special Points :
1. Municipal Value :
Municipalities or Municipal corporations impose property/house tax on properties which are under
their jurisdiction. For the purpose of levying such tax, valuation of the property is done. The
valuation so determined is known as municipal value.
2. Fair rental value / Market Rental Value :

Fair rental value of the property is the rent prevailing in the market for same type of house in the
same or similar locality
3. Standard Rent:
If a property is governed by the provisions of the rent control act, then the rent fixed under the rent
control act is known as Standard Rent.
As per Mrs. Shiela Kaushik v CIT (S.C) : Reasonable value cannot exceed the standard rent.
Page 55
Step 2 : Calculate Actual Rent Received/Receivable [Sec. 23(1)(b)]
Determine the rent for the period, during which the property is let out in the previous year. Even if the entire
rent for the period for which property is let out ,is not received during the previous year, total amount of rent
will be taken for calculating value under step 2
However there is an exception to this rule.

Actual rent received or receivable will not include Unrealised rent
Unrealised rent is rent which is receivable & which is proved to be lost &
Actual rent shall irrecoverable.
Not include
Unrealised Rent  Tenancy is bonafide.
provided the  Defaulting tenant has vacated or steps taken to compel him to vacate property.
adjacent  Defaulting tenant not occupying assessee’s other property.
conditions are  Assessee taken reasonable steps to institute legal proceedings for recovery of
satisfied unpaid rent or satisfies AO that proceedings will be useless
.
Step 3 : Calculate Gross Annual Value, where
GAV = Step 1 or Step 2, whichever is higher
Step 4 : Calculate Net Annual Value
= Value determined in Step 3

Less : Municipal Taxes ( Actually paid by Owner during P/Y )
Special Point:
 Municipal tax paid during the year is fully deductible, if paid by owner.
 Municipal taxes can be house tax , water tax , fire tax , education tax ,scavenging tax (cleaning tax),
sewage tax ,general tax or local tax.
 If amount is paid by tenant, the amount is not deductible.
 This deduction is on payment basis. Deduction is available for the municipal tax paid whether for current
year, earlier years or next years
 Municipal tax paid can exceed the GAV. In this case Annual Value shall be negative.
Page 56
Computation of Taxable House property Income
1. Municipal value XXXX

2. Fair Rental value XXXX
3. Standard Rent XXXX
4. Expected Rent u/s 23(1)(a)

( 1 or 2 , higher but cannot exceed XXXX
Standard rent)
5. Actual Rent u/s 23(1)(b) XXXX
Gross Annual Value (GAV) XXXX

( 4 or 5 , higher)
Less : Municipal Taxes XXXX
Net Annual Value (NAV) XXXX
Less : Deductions
u/s 24 (a) XXXX
u/s 24 (b) XXXX
Amount after deduction XXXX
Add : Recovery
u/s 25A XXXX
XXXX
Taxable HP Income XXXX
For calculating Annual Value, House Property is divided following categories
LET OUT PROPERTY
1. House property let out for whole of p/y

2. House property let out but remained vacant for part of p/y
3. House property let out but remained vacant for whole of p/y
4. House property not let out but remained vacant for whole of p/y
PROPERTY OCCUPIED FOR SELF RESIDENCE
5. One property occupied for Self residence during p/y [Sec. 23(2)]
6. One property which could not be occupied for self residence because of business/profession or
employment [Sec. 23(2)]
7. More than one house occupied for Self residence during p/y [Sec. 23(4)]
Page 57
PROPERTY PARTLY SELF OCCUPIED AND PARTLY LET OUT
8. House property Self occupied for part of p/y and let out for balance of p/y
I. HOUSE PROPERTY LET OUT FOR WHOLE OF PREVIOUS YEAR
This covers a case when the house property has been let out for entire previous year to a tenant
Annual value shall be determined as follows
Step 1 : Calculate Expected Rent for the entire P/Y
Step 2 : Calculate Actual Rent Received/Receivable for entire P/Y
Step 3 : Calculate Gross Annual Value (GAV = Step 1 or Step 2, whichever is higher)
Step 4 : Net Annual Value = Value as per Step 3

Less: Municipal Tax (Actually paid by Owner during P/Y)
2. HOUSE PROPERTY LET OUT BUT REMAINED VACANT FOR PART OF P/Y
This covers a case when the house property has been partly let out & partly vacant during the P/Y
Step 2 : Calculate Actual Rent Received/Receivable for the period property is let out.
Step 3 : Calculate Gross Annual Value
Where value as per Gross annual Value shall be
i. Step 2 greater than Step 1 = Value as per Step 2

ii. Step 2 less than Step 1 (Because of vacancy) = Value as per Step 2
iii. Step 2 less than step 1 (Due to rent being less) = Value as per Step 1

Less Municipal Tax (Actually paid by Owner during P/Y)
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3. HOUSE PROPERTY LET OUT BUT REMAINED VACANT FOR WHOLE OF P/Y
This covers a case where the owner wants to let out the house property during the p/y but remained
vacant throughout the previous year as no suitable tenant could be found
Step 2 : Actual Rent Received/Receivable will be NIL
Step 3 : Gross Annual Value shall be NIL (Sec 23(1)(c)

4. HOUSE PROPERTY NOT LET OUT BUT REMAINED VACANT FOR WHOLE OF P/Y
This covers a case where the owner does not want to let out the house property during the p/y and
therefore remained vacant throughout the previous year
Step 3 : Gross Annual Value shall be Step 1 (Benefit of vacancy not available)

5. ONE SELF-OCCUPIED PROPERTY [SEC. 23(2)]
Where a property consists of a house or part of a house
Which is in occupation of Owner for his own Residence
Net Annual value of that House/Part shall be NIL.
Special Points :
1) Sec 23(3) : Net Annual Value shall be Nil if
 Such House/part is not let out for any part of the previous year &
 Owner derives no other benefit from such property
2) Assesse lets out his house to his employer, who reallots the house to him as rent free accommodation. In
such case NAV will not be Nil.
3) Benefit of sec 23(2) is available for Individuals & HUF only
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6. ONE SELF-OCCUPIED PROPERTY WHICH COULD NOT BE OCCUPIED [SEC. 23(2)]
 Where property consists of a house or part of house
 Cannot be occupied because of
 Employment/Business/Profession carried on at any other place
 Has to reside at that place in a building not belonging to him.
 Net Annual value of that House/Part shall be NIL.
Special Points :
1) Sec 23(3) : Net Annual Value shall be Nil if
 Such House/part is not let out for any part of the previous year &
 Assessee derives no other benefit from such property.
2) Where assessee did not occupy his own residential house but lives in the same town in a house owned by
his father for the sake of personal convenience , annual value of such house shall not be taken as nil.
3) Where an official or a dignitary, has to reside in official residence as a constitutional obligation &
therefore, his own residential house is kept vacant, the benefit of Section 23(2) would apply
7. ASSESSEE OWNS MORE THAN ONE HOUSE FOR HIS RESIDENCE [SEC. 23(4)]
This covers a case where the assessee has more than one house for self residence purpose during a p/y
Assessee, at his option, can treat any one house to be self occupied and the Net Annual Value of such House
shall be NIL.
- Then the Other Houses which are used for self residence, shall be Deemed to be let Out
Calculation of Annual Value of deemed to be let out property
Step 3 : Gross Annual Value shall be Step 1

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8. ONE HOUSE PROPERTY SELF OCCUPIED FOR PART OF P/Y & LET OUT FOR BALANCE
OF P/Y
Calculation of Annual Value
Step 2 : Calculate Actual Rent Received/Receivable for the let out period
Step 3 : Calculate Gross Annual Value, where

GAV = Step 1 or Step 2, whichever is higher
Step 4 : Annual Value = Value as per Step 3

.
ONE HOUSE USED FOR MULTIPLE PURPOSES
Where one house is used for multiple purpose and percentage of use is also specified, then annual value of
each part shall be calculated as if it is a separate house property
DEDUCTIONS FROM HOUSE PROPERTY INCOME (Sec. 24)
Following TWO deductions are ONLY allowed from Net Annual Value of the house property
Sec. 24(a) : Statutory Deduction
 This is allowed at a flat rate of 30% of positive Net annual value
 If Net annual value is Negative or Nil then such deduction is not allowed.
 Deduction u/s 24(a) is not available from one self occupied property, whose NAV is taken as NIL
 This deduction is allowed to cover repair expenses of house property & similar other expenses like
Insurance premium, annual charge, ground rent, land revenue, depreciation of the building etc.
Actual expenses incurred have no relevance for calculating this deduction.
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Sec. 24(b) : Interest on borrowed capital
 Interest payable on loan taken

 For the purpose of
 Purchase, construction, reconstruction, repair or renovation of house property
 is allowable as a deduction
 On DUE BASIS.
For computing deduction u/s 24(b), loans are divided as follows:
1) POST ACQUISITION/CONSTRUCTION LOANS
Loan taken after purchase or construction of House Property for Repair, Renovation or Reconstruction of
house property.
Interest on such loans which become due during the previous year will be allowed as deduction for that
previous year.
2) PRE ACQUISITION/CONSTRUCTION LOANS
Loan taken before purchase or construction of house property for the purpose of Purchase or Construction
of House property
INTEREST FOR PRE- CONSTRUCTION / ACQUISITION PERIOD
This interest is allowed as deduction in five equal annual installments starting from the year of completion
of construction / acquisition.
So we can say ,Pre acquisition/construction period is

 Date of loan to
 31st march of previous year prior to previous year of construction/purchase or
Date of repayment , whichever is earlier
For computing Limit of deduction u/s 24(b), Properties are divided into two categories
1. Let out and vacant property

2. Self occupied property whose Net annual value is NIL
1. Deduction u/s 24(b) for let out and vacant properties

Under this categories all types of let out properties are covered e.g. fully or partly let out, fully or partly
vacant, partly self occupied and partly let out or deemed to be let out.
For these types of properties, deduction of interest u/s 24(b), calculated in above manner, is 100%
ALLOWED without any limit.
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2. Deduction u/s 24(b) for Self occupied property whose Net annual value is NIL
Deduction of section 24(b) is allowed subject to a maximum limit of `30,000.

However,
Where loan is taken on or after 1st April,1999
 for purchase or construction of
 Self occupied property
 and such purchase or construction is completed
 Within 5 years from the end of the F/Y in which loan is taken,
 Deduction u/s 24(b) shall be allowed upto maximum limit of 2,00,000
Provided, the person extending the loan certifies that such interest is payable for acquisition or
construction of the house.
Special Points
 Interest on unpaid interest is not deductible.
 Interest on a fresh loan raised merely to repay the original loan taken for the above purpose is allowable
as a deduction under this section.
 Brokerage or commission paid for arranging the loan is not deductible.
 If arrears of interest is paid during the previous year, no deduction is available in respect of arrears as it
has already been claimed on due basis in earlier years.
 Similarly interest paid in advance is not fully deductible in one year, as deduction is on accrual basis.
 Interest payable outside India [SECTION 25]

 The interest u/s 24(b) payable outside India
 shall be allowed as deduction u/s 24(b),
 If tax on the same has been paid or
 Deducted at source or
 There is a person in India, who may be treated as agent of recipient for such purpose
 If interest is paid on unpaid purchase price to the seller then also deduction can be claimed u/s 24(b)
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Sec 25A : Recovery of Arrears of Rent or Unrealised Rent
(1) The amount of arrears of rent received from a tenant or unrealized rent realised subsequently from a
tenant,by an assessee shall be deemed to be the income from house property in respect of the financial
year in which such rent is received or realised, and shall be included in the total income of the assessee
under the head “Income from house property”, whether the assessee is the
owner of the property or not in that financial year.
(2) A sum equal to 30% of the arrears of rent or the unrealised rent referred to in sub-section (1) shall be
allowed as deduction.
OTHER CONCEPTS UNDER HEAD HOUSE PROPERTY
1. Concept of Composite Rent
 Property is let out by the assessee
 together with Services (e.g. electricity, gas, water etc.) or Assets (e.g plant, machinery or furniture)
 Rent charged by the assessee is a consolidated sum( i.e Rent for property + Rent for services/assets)
Treatment of Composite Rent is done as under
Where rent of property and rent of services / assets Where rent of property and rent of
can be separated services / assets cannot be separated
Rent of letting of property Rent of service ,assets Taxable under Other sources or Business
Taxable under House Taxable under Other

property sources or business
2. DEEMED OWNERS [Section 27]
The following are deemed to be the owners of the property:
I. An individual who transfers any house property to his spouse, or to his minor child, for inadequate
consideration shall be deemed to be the owner of the house property even after transfer
Exceptions to the point are:
 House transferred to spouse under an agreement to live apart.
 House transferred to minor married daughter.
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 If a person transfers the money to his spouse and then spouse purchases the house property out of that
money. In this case, assessee is not the treated as deemed owner of the property but any rental income
arising to the spouse will be taxable for the assessee as per clubbing provisions.
II. The holder of an Impartible estate is deemed to be the owner of all the properties comprised in the
estate. A HUF property belongs to its members. But until the partition, HUF is the holder and
therefore deemed as owner under house property
III. A member of a Co-operative Society, Company or an Association of persons to whom a

building/ flat is allotted under a house building scheme of the society, company or association, shall
be deemed to be the owner of that property, although the co-operative society/ company/ association
is the legal owner of that building.
IV. Person in possession of a property:- A person who is allowed to take the possession of the property
by way of “ power of attorney” transactions ( as per section 53A of Transfer of property Act), will be
deemed to be the deemed owner of the properties
if the following conditions are satisfied :-
 Possession of the property has been handed over to the buyer.
 Sale consideration has been paid to the seller by the buyer.
 Sale deed has not been executed in favour of the buyer , although certain other documents like
power of attorney / agreement to sell ,have been executed.
V. A person, who acquires a property on lease of 12 years or more, shall be deemed to be owner of
property. If right of extension is given to lessee, then aggregate period is considered for such purpose.
3. PROPERTY IN A FOREIGN COUNTRY
If foreign property is taxed in India, it will be taxable under the head ‘ Income from house property’
and its annual value shall be computed as if the property is situated in India. In computing annual value of
such a house property, municipal taxes levied by a local authority of foreign country and which have
been paid are to be deducted in computing the annual value.
4. DISPUTED OWNERSHIP
Mere dispute as to ownership cannot hold up an assessment. Income tax department will decides based on
the facts of each case, as to who is the owner of the property. Generally, the one, who is receiving the rent
or is having the possession of the house property, shall be declared as owner and is thus taxable under this
head.
5. ASSESSEE ENGAGED IN PROPERTY DEALING BUSINESS:
Supreme Court in East India Housing and Land Development Trust Ltd. vs. CIT (1961) held that if an
assessee is dealing in purchasing and selling buildings, Rental income received from such buildings upto
they are owned by the assessee will be taxable under house property
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6. LETTING OUT IS SUBSERVIENT AND INCIDENTAL TO THE MAIN BUSINESS
As per CIT v. Delhi Cloth & General Mills Co. Ltd., if an assessee constructs residential quarter’s & lets
them out to his employees & letting out of residential quarter’s is only related to business, i.e. it is not
main business of assessee, then income is taxable as business income & not income from house property.
 In the same way it was held in CIT v. National News prints & Paper Mills Ltd., that if the assessee
makes its accommodation available to Govt. for locating a branch of nationalised bank, post office,
police station, central excise office etc., with the aim of carrying on its business efficiently and
smoothly, rent collected is taxable as business income and not as house property income.
7. EXEMPTIONS REGARDING INCOME FROM HOUSE PROPERTY :-
1. Income from farm house. [Section 10(1)]

2. Annual value of one palace of ex-Indian Ruler. [Section 10(19A)]
3. Property used for own business or profession [Section 22]
4. One self-occupied property.[Section 22]
5. Income from property owned by:
(i) Local authority; [Section 10(22)
(ii) Scientific Research Association; [Section 10(21)]
(iii) University, college etc.; [Section 10(23 C)]
(iv) Hospital; [Section 10(23C)]
(v) Games or sports association; [Section 10(23)]
(vi) Trade union; [Section 10(24)]
(vii) Charitable trust; [Section 11]
(viii) Political party. [Section 13A]
8. PROPERTY OWNED BY CO-OWNERS [SECTION 26]
 If a property is owned by two or more persons, who are knows as co- owners
 their share in property is definite and ascertainable
 then the share of each co-owner in the income of the property (as computed under the head
“Income from house property”)
 Shall be included in the total income of each such person.
Special point :
1) The benefit of Section 24(b) to the extent of ` 30,000 / ` 2,00,000 is available to each of the co-owner, if
used for own residence
2) The co-owners shall be assessed as an Association of Persons if the share is not definite
Page 66
9. TREATMENT OF LOSS
If the IFHP is negative, it will first be adjusted against other positive incomes under the same head, i.e.
it will first be adjusted against other positive incomes of house property and if the loss can not be fully
adjusted then balance will be adjusted against other incomes under other heads of income like salary
income, business income etc. [Section 70 & Section 71].
However sub-section (3A) in the said section to provide that set-off of loss under the head
"Income from house property" against any other head of income shall be restricted to two lakh
rupees for any assessment year.
If, still some amount is left to be adjusted, then it is carried forward for next years to be adjusted against
house property income only. It means during the current year of loss, the house property losses can be
adjusted against other heads of income, but during subsequent years [maximum 8 years] it can be
adjusted only against house property incomes. [Section 71B].
Page 67
MCQ HOUSE PROERTY
BASIC CONCEPTS OF TAXABILITY OF INCOME FROM HOUSE PROPERTY
(1) Which is the charging section of Income from house property?

(a) Section 15 (b) Section 22
(e) Section 24 (d) Section 10(10D)
(2) Income from vacant plot is taxable under the head
(a) Income from House Property (b) Income from Other Sources
(e) Profits & Gains of Business or Profession (d) Capital Gains
(3) Which of following conditions need to be satisfied in order to tax any income under the head Income from house property ?
(a) The property must consist of building or land (b) The assessee must be the owner of such house
appurtenant thereto. property.
(e) The property must not be used for business or (d) All of the above.
profession carried on by assessee.
(4) Income from subletting of house property is taxable under the head _____________ _
(a) Income from House Property
(b) Income from Other Sources
(e) Profits & Gains of Business or Profession
(d) Capital Gains
(5) In case the letting out of property is incidental to the main business, then income from such property shall be taxable as
(e) Profits & Gains of Business or Profession
(d) Capital Gains
(6) Annual value of property of a social club will be :

(a) Taxable as Income from House Property (b) Taxable as Income from Other Sources
(c) Exempt from tax (d) Taxable as Profits and gains of business
(7) In case any property is owned by an assessee and the same is given by him to the partnership firm, in which he is a partner, for
carrying on the business of such firm, then the income from such property will :
(a) Not be taxable.
(b) be taxable as Income from Other Sources
(c) Be taxable as Income from house property
(d) Taxable as Profits and gains of business
(8) Income from building constructed on leasehold is taxable as :
(c) Profits & Gains of Business or Profession
(d) Capital Gains
(9) The assessee, who was deriving income from "House property" realised a sum of ` 52,000 on account of display of
advertisement hoarding of various concerns on the roof of the building. The same will be taxable under:
Page 68
(a) Income from House Property (b) Income from Other Sources
(c) Profits & Gains of Business or Profession (d) Capital Gains
(Dec. 2014)
(10) Composite rent of let-out house property is taxable as –
(b) Income from other sources
(a) Profits and gains from business or profession
(d) Either (a) or (b) above depending upon certain
(c) Income from house property
conditions.
COMPUTATION OF ANNUAL VALUE - SECTION 23
(11) Expected Rent is equal to _________ _

(a) Fair Rent (b) Municipal Valuation
(c) Lower of Fair Rent or Municipal valuation (d) Higher of Fair Rent or Municipal valuation
subject to the maximum of Standard Rent
(12) If Actual Rent received or receivable exceeds Expected Rent, the Gross Annual Value equals to-
(a) Actual Rent received or receivable (b) Expected Rent
(c) Actual Rent - Expected Rent (d) None of these.
(13) The sum for which the property might reasonably be expected to let year to year is known as -
(a) Expected Rent (b) Standard Rent
(c) Annual value (d) Municipal Valuation
(14) In which of the following cases the annual value of the house is taken to be NIL.
(a) Self occupied house. (b) Vacancy for the whole period.
(c) If the assessee holds two house properties.
(d) Both (a) & (b) but not (c)
(15) Sajal is the owner of a house property covered under the Rent Control Act. Municipal value ` 30,000, actual rent ` 25,000
fair rent ` 36,000 and standard rent is ` 28,000. The gross annual value of the house property will be - (Dec. 2014)
(a) ` 30,000 (c) (b) ` 25,000

` 36,000 (d) ` 28,000
(16) Rohit owns a house property in Delhi which he wants to give on rent. He seeks your help to determine the reasonable expected rent when
monthly municipal value is ` 20,000, fair rent ` 25,000 and standard rent ` 22,000. The reasonable expected rent will be computed with
reference to following amount per month - (June, 2015)
(b) ` 20,000
(a) ` 22,000 (c)
` 25,000
(17) Find out the expected rent of house property A, if the following is given:
Municipal value = ` 1,00,000; Fair Rent = ` 88,000;
Standard Rent = ` 1,12,000. Actual Rent = ` 1,25,000
(a) ` 1,00,000 (b) ` 88,000
(c) ` 1,12,000 (d) ` 1,25,000
(18) Find out the expected rent of house property H, if the following is given:
Municipal value = ` 70,000; Fair Rent = ` 88,000;
Standard Rent = ` 1,12,000. Actual Rent = ` 1,25,000
(a) ` 70,000 (b) ` 88,000
(c) ` 1,12,000 (d) ` 1,25,000
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(19) Find out the expected rent of house property P, if the following is given:
Municipal value = ` 70,000; Fair Rent = ` 88,000; Standard Rent = ` 60,000 Actual Rent = ` 1,25,000
(a) ` 70,000 (b) ` 88,000
(c) ` 60,000 (d) ` 1,25,000
(20) Find out the expected rent of house property Q, if the following is given:
Municipal value = ` 65,000; Fair Rent = ` 88,000; Standard Rent = ` 60,000 Actual Rent = ` 1,25,000
(a) ` 65,000 (a) ` 88,000
(a) ` 60,000 (a) ` 1,25,000
(21) Find the Gross Annual Value of house property of A if the following is given:
Municipal value =` 10,000; Fair Rent =` 88,000;
Standard Rent = ` 92,000; Actual Rent = ` 89,000.
(a) ` 10,000 (c) (b) ` 88,000

` 92,000 (d) ` 89,000
Municipal value = ` 1,00,000; Fair Rent = ` 88,000;
Standard Rent = ` 92,000; Actual Rent = ` 89,000.
(a) ` 1,00,000
(b) ` 88,000
(c) ` 92,000
(d) ` 89,000
Municipal value = ` 1,00,000; Fair Rent = ` 1,20,000;
Standard Rent = ` 1,50,000; Actual Rent = ` 1,30,000.
(a) ` 1,00,000
(b) H,20,000 (d)
(c) `l,50,OOO
` 1,30,000
(a) ` 1,60,000 (b) ` 1,20,000
(c) `l,50,000 (d) ` 1,55,000
(a) ` 1,40,000 (b) ` 1,20,000
(c) ` 1,50,000 (d) ` 1,30,000
(26) Calculate the Gross Annual value from the following details:
Municipal Value - ` 45,000; Fair rental value - ` 50,000;
Standard rent - ` 48,000; Actual Rent - ` 42,000.
(a) ` 50,000
(b) ` 48,000
(c) ` 45,000
(d) ` 42,000
Standard rent - ` 48,000; Actual Rent Receivable - ` 75,000; Unrealised rent : ` 20,000
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(a) ` 50,000 (b) ` 55,000 (d)
(c) ` 45,000 ` 42,000
Standard rent - ` 48,000; Actual Rent Receivable - ` 55,000; Unrealised rent : ` 20,000.
(a) ` 50,000 (b) ` 48,000

(c) ` 45,000 (d) ` 35,000
Standard rent - ` 48,000; Actual Rent Receivable (11 months) - ` 46,000 Vacancy: 1 month
(a) `50,000 (b) `46,000
(c) ` 45,000 (d) ` 48,000
Standard rent - ` 48,000; Actual Rent Receivable (11 months) - ` 40,000 Vacancy: 1 month
(a) `50,000 (b) ` 40,000
(c) ` 45,000 (d) ` 48,000
(31) Find the Gross Annual Value of house property of A if the following information is given:
Municipal value = ` 1,40,000; Fair Rent = ` 1,50,000; Standard Rent = ` 1,44,000; Actual
Rent = ` 15,000; Vacancy = 11 months.
(a) ` 1,40,000 (b) ` 1,50,000
(c) ` 15,000 (d) ` 1,44,000
(32) Find the Gross Annual Value of house property of X if the following is given -
Municipal value = ` 80,000; Fair Rent = ` 70,000; Vacancy = 12 months
(a) ` 80,000 (b) Nil
(c) ` 70,000 (d) ` 10,000
(33) X is the owner of a house, the details of which are given below: (June, 2009)
(a) Municipal value : ` 30,000 (b) Actual rent : ` 32,000

(c) Fair rent : ` 36,000 (d) Standard rent : ` 40,000.
The gross annual value would be –

(a) ` 36,000 (b) ` 35,000
(c) ` 30,000 (d) ` 40,000.
(34) Municipal value : ` 14,000; Fair rent : ` 14,500; Standard rent : ` 14,200. Actual rent as property let-out throughout the previous year
: ` 16,800. Unrealized rent of the previous year : ` 7,000. The annual value of the house property shall be (June 2007)
(a) ` 9,800 (b) ` 7,200

(c) ` 14,200 (d) ` 7,500
(35) X is owner of house which has been let out at a monthly rent of ` 25,000. The fair rent of the house is ` 2,90,000 and standard rent is
` 2,60,000. The municipal value of house is ` 2,80,000 and municipal taxes are levied @ 10% of municipal value. The entire amount
of municipal taxes are outstanding for the year ended 31-03-2018. The amount of municipal taxes to be allowed as deduction for
computing the annual value will be :
Page 71
(a)`30,000 (b)`29,000
(c) ` 28,000 (d) Nil
(36) Z is owner of house which has been let out at a monthly rent of` 25,000. The fair rent of the house is` 2,90,000 and standard rent is`
2,60,000. The municipal value of house is` 2,80,000 and municipal taxes are levied @ 10% of municipal value. The entire amount
of municipal taxes for the year ended 31-03-2017 are paid by the owner on 31-03-2017. The amount of municipal taxes to be
allowed as deduction for computing the annual value will be :
(a)`30,000 (b)`29,000
(c)`28,000 (d) Nil
(37) T is owner of house which has been let out at a monthly rent of` 25,000. The fair rent of the house is` 2,90,000 and standard rent
is `2,60,000. The municipal value of house is `2,80,000 and municipal taxes are levied @ 10% of municipal value. The entire
amount of municipal taxes for the year ended 31-03-2016 out of which half of the municipal taxes are paid by the tenant. The
amount of municipal taxes to be allowed as deduction for computing the annual value will be :
(a) `30,000 (b) `29,000

(c) `14,000 (d) Nil
(38) Karim owns a house, which is self-occupied upto 31-5-2016. W.e.£. 1-6-2016, the property is let to Rafi at ` 40,000 p.m.
Determine the Gross Annual Value of the house if the municipal value is ` 4,15,000; Fair Rent ` 4,20,000 and standard rent is
` 4,10,000.
(a) ` 4,00,000
(b) `4,20,000
(c) ` 4,10,000
(d) `4,15,000
(39) Shammi owns a house, which is self-occupied upto 31-5-2016. W.e.f. 1-6-2016, the property is let to Ranjeet at` 42,000 p.m.
Determine the Gross Annual Value of the house if the municipal value is `4,15,000; Fair Rent `4,30,000 and standard rent is
` 4,10,000.
(a)` 4,20,000 (b) `4,30,000
(c)` 4,10,000 (d) `4,15,000
(40) Shammi owns a house, which is self-occupied upto 31-5-2016. W.e.f. 1-6-2016, the property is let to Ranjeet at ` 42,000 p.m.
Determine the Net Annual Value of the house if the municipal value is` 4,15,000; Fair Rent ` 4,30,000 and standard rent is
` 4,10,000 and tenant has paid 10% of municipal value as municipal taxes.
(a) `4,20,000 (b) `4,30,000

(c) ` 3,78,500 (d) `4,15,000
DEDUCTIONS FROM ANNUAL VALUE - SECTION 24
(41) Which of the following deduction are to be made from income house property?
(a) Statutory deduction
(b) Interest on borrowed loan
(c) Both (a) and (b)
(d) Option (a) but not (b)
(42) The construction of a house was completed on 31 st January, 2017, The owner of the house took a loan of` 20,00,000 @ 6% p.a. On
I" May, 2016. In this case the deduction allowable for the previous year 2016-17 towards interest on borrowings is - (June 2016)
(a) `22,000 (b) ` 24,000
(c) ` 1,10,000
(d) None of the above
(43) Sandeep purchased a house for his residential purpose after taking a loan in January, 2015. During the previous year 2016-17, he
paid interest on loan`2,17,000. While computing income from house property, the deduction is allowable to the extent of -
(Dec. 2009)
(a)`30,000 (b)`1,00,000
(c)` 2,17,000 (d)` 2,00,000.
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(44) When did pre-acquisition or pre-construction period commences -
(a) On the 1st year when loan is borrowed (b) On the date of borrowing
(c) On the 1st
April of the year when construction is (d) On the 31st March of the year when loan is
completed borrowed
(4S) When did pre-acquisition or pre-construction period ends?

(a) 31st march immediately prior to date of (b) Date of repayment of loan completion of construction or
acquisition of property.
(c) (a) or (b) whichever is earlier (d) Any of these
(46) Which of the following amount is not allowed for deduction from income from house property ?
(a) Interest on loan borrowed for construction of (b) Interest on fresh loan taken to repay original loan.
house property.
(c) Interest on unpaid interest. (d) Interest on unpaid purchase price.
(47) The maximum limit of deduction under section 24(b) for interest on borrowed capital on or after 1-4-1999 for repairs of house
property used for self occupation is:
(a) `30,000 (c) (b) ` 2,00,000

` 50,000 (d) ` 60,000
(48) The maximum limit of deduction under section 24(b) for interest on borrowed capital on or after 1-4-1999 for acquisition or
construction of such house property is:
(a) `30,000 (c) (b) ` 2,00,000

` 50,000 (d) ` 60,000
(49) The maximum limit of deduction under section 24(b) for interest on borrowed capital before 1-4-1999 for construction of house
property used for self occupation is:
(a) ` 30,000 (b) ` 2,00,000

(c) ` 50,000 (d) ` 60,000
(50) The maximum limit of deduction under section 24(b) for interest on borrowed capital on or after 1-4-1999 for construction of
house property used for self occupation if the house is completed within 5 years from the end of previous year in which loan is
taken is:
(a)` 30,000 (b) ` 2,00,000

(c) ` 50,000 (d) ` 60,000
(51) The maximum limit of deduction under section 24(b) for interest on borrowed capital on or after 1-4-1999 for construction of
house property used for self occupation shall be ` 2,00,000 if -
(a) the house is completed within 5 years from the (b) the house is completed within 5 years from the end
end of previous year in which loan is taken. of previous year in which construction is started.
the house is completed within 5 years from the date
(c) the house is completed within 5 years from the (d) when construction is started.
date when the loan is taken.
(52) M took a loan of ` 6,00,000 on 1-4-2015 from a bank for construction of a house. The loan carries an interest @ 10% p.a.
The construction is completed on 30-6-2016. The entire loan is still outstanding. The pre-construction period interest will
Be ` ______
(b) Nil
(a) ` 60,000
(d) ` 90,000
(c) ` 75,000
Page 73
"
(53) R took a loan of `8,00,000 on 1-4-2016 from a bank for construction of a house. The loan carries an interest @ 12% p.a.
The construction is completed on 31-03-2017. The entire loan is still outstanding on 31-03-2018. The pre-construction
period interest will be ` ___________
(a) `96,000 (b) Nil

(c) `1,92,000 (d) `1,50,000
(54) K took a loan of `8,00,000 on 1-4-2015 from a bank for construction of a house. The loan carries an interest @ 12 % p.a.
The construction is completed on 31-03-2017. The entire loan is still outstanding on 31-03-2018. The pre-construction period interest
allowable in Assessment Year 2018-19 will be
(a) ` 19,200 (b) `38,400

(c) ` 96,000 (d) `1,92,000
(55) K took a loan of `8,00,000 on 1-4-2015 from a bank for construction of a house. The loan carries an interest @ 12 %p.a.
The construction is completed on 31-03-2017. The entire loan is still outstanding on 31-03-2018. The total interest allowable in
Assessment Year 2018-19 will be
(a) ` 1,15,200 (b) ` 1,34,400

(c) ` 96,000 (d) ` 1,92,000
(56) When a house property is let-out throughout the year for a monthly rent of `22,000 and municipal tax paid for current
year is `24,000 and for the earlier year paid now is `16,000, the income from house property would be - (Dec. 2015)
(a) `1,68,000 (b) `1,56,800

(c) `1,84,800 (d) `2,24,000
(57) T is owner of house which has been let out at a monthly rent of `25,000. The fair rent of the house is `2,90,000 and standard rent is
`2,60,000. The municipal value of house is `2,80,000 and municipal taxes are levied @ 10 of municipal value. The entire amount of
municipal taxes for the year ended 31-03-2018 are paid by the owner. The income from house property will be :
(a) `1,90,400 (b)`1,76,400

(c) `1,62,400 (d) `2,72,000
municipal taxes for the year ended 31-03-2018 are paid by the owner. Interest on borrowed capital is `2,10,000 (outstanding). The
income from house property will be
(a)`2,32,400 (b)`22,400
(c) `1,62,400 (d) `32,400
municipal taxes for the year ended 31-03-2018 are paid by the owner. Interest on borrowed capital is `60,000 (outstanding). The income
from house property will be
(a) `1,02,400 (c) (b) `1,62,400 (d)

`88,400 `1,48,400
(60) In case of self-occupied property, statutory deduction under section 24(a) shall be :
(a) Nil (b)`30,000
(c) `2,00,000 (d) `90,000
(61) Under which of the following circumstances the income from house property is exempt from tax
(a) Farm house (b) Trade Union
(c) One self occupied property (d) All of the above
Page 74
(62) If the respective shares of income of co-owners are not definite and ascertainable, the co-owners shall be assessed as:
(a) AOP· (b) BOI

(c) Joint owners (d) Any of these
(63) Who amongst the following is not a deemed owner?

(a) An individual who transfers his house property (b) A member of a co-operative society, company
otherwise then for adequate consideration to or an AOP to whom a building or part thereof
his or her spouse. is alloted.
(c) The holder of impartible estate of an HUF. (d) None of the above.
(64) Mr. Kamal had two children Sumit and Sushmita (married with Aman) of age 15 & 17 respectively and wife named Anu.
In which of the following case he will not be considered as deemed owner?
(a) Transfer of property to Anu. (b) Transfer of property to Sushmita.
(c) Transfer of property to Sumit. (d) None of the above.
(65) What are the conditions to be fulfilled in order to claim exemption of unrealized rent?
(a) The defaulting tenant is in occupation of any other (b) Steps have been taken to compel him to vacate
property of the assessee. the property.
(c) The tenancy is bona fide. (d) Both (b) and (c)
(66) The net annual value of house let-out is ` 1,00,000 and actual amount spent by the assessee on repairs and insurance premium is
` 20,000, the amount of deduction allowed under section 24(a) shall be ` ----------------
(a) ` 20,000 (b) ` 30,000

(c) ` 25,000 (d) ` 22,000
(67) M took a loan of ` 6,00,000 on 1-4-2015 from a bank for construction of a house. The loan carries an interest @ 10 p.a.
The construction is completed on 15-6-2017. The entire loan is still outstanding. Compute the interest allowable for the
assessment year 2018-19.
(a) `60,000 (b) `1,80,000

(d) `24,000
(c) `84,000
(68) A had one self occupied house property in Mumbai for residence. Fair rent of that property is `56,000 per annum.
Municipal valuation is ` 28,000. Municipal taxes paid are `5,000 including `1,000 for an earlier year. The house was constructed
in December, 2007 with a loan of `12,00,000 from a bank taken in November, 2006. During the previous year 2017-18, the
assessee refunded `2,30,000 which includes `2,18,000 as current year interest. Compute the income from house property for
assessment year 2018-19?
(a) Loss of ` 30,000 (b) Loss of ` 2,18,000
(c) Nil (d) Loss of ` 2,00,000
(69) Which out of the following is not a case of deemed ownership of house property?
(a) Transfer to a spouse for inadequate (b) Transfer to a minor child for inadequate
consideration consideration
(c) Holder of an impartible estate (d) Co-owner of a property
(70) Jagdish, after sale of his house property during August, 2016, received arrears of rent amounting to ` 40,000 on 2nd
February, 2018. The said income is chargeable to tax under the head ------------and the taxable income would be `-------
(a) Income from house property; `28,000 (b) Income from other Sources; ` 28,000
(d) Income from other sources; `40,000
(c) Income from house property; `40,000
(71) Rakesh, after sale of his house property during August, 2016, received unrealised rent amounting to `80,000 on 2nd
February, 2018. The said income is chargeable to tax under the head------------- and the taxable income would be `--------
Page 75
(a) Income from house property; ` 56,000 (b) Income from other Sources; ` 56,000
(c), Income from house property; ` 80,000 (d) Income from other sources; ` 80,000
(72) Megha received ` 30,000 as arrears of rent during the previous year 2017-18. The amount taxable under section 25A
would be ----------
(a) Nil
(b) ` 30,000
(c) ` 21,000
(d) ` 25,000
(73) In case assessee is owner of more than one house which are self occupied by him, then at the option of the assessee:
(a) One house shall be treated as self occupied and (b) One house shall be treated as self occupied and the
the other house shall be deemed to let out. other house shall be deemed to be vacant.
(c)
Both the houses shall be treated as deemed to (d) Both the houses shall be treated as self occupied.
be let out.
(74) Sanjeev owns a house property. Following are the details about the property :
Municipal value of house ` 72,000 per annum.
Fair rent of house ` 66,000 per annum.
Standard rent of house
` 60,000 per annum.
The house was let out at ` 6,000 per month but was sold on I" January, 2018. Find out income from house property for the assessment
year 2018-19.
(a) Nil
(b) ` 50,400
(c) ` 37,800
(d) ` 25,000
(75) Mrs. Preeti owns a house property which is let out @ ` 10,000 p.m. During the previous year ending 31 st March 2018, she received -
(i) arrears of rent of ` 30,000; and (ii) unrealised rent of ` 20,000.

Compute her income chargeable to tax under the head 'Income from House Property'.
(Dec. 2002)
(a) ` 84,000 (b) `1,04,000
(c) ` 1,25,000
(d) ` 1,19,000
(76) Ramesh let-out his house on I" April, 2017 on rent of ` 15,000 p.m. The fair rent and the municipal value of house are ` 13,500 p.m. and
` 16,000 p.m. respectively. Municipal taxes paid for the year were ` 12,000. Income from house property for the assessment year
2018-19 will be - (Dec. 2015)
(a) ` 1,26,000 (c) (b) ` 1,76,000

` 1,05,000 (d) None of the above.
(77) Ms. Padmaja let out a property for ` 20,000 per month during the year 2017-18. 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 - (June 2016)
(a) ` 1,80,000 (b) ` 1,57,500

(c) ` 1,26,000 (d) ` 1,36,500
(78) Suresh owns two house properties. First property was used half for running his business and the other half was let-out at ` 4,000 per
month. The second property was wholly used as a residence by Suresh. Municipal value of the two properties were the same at ` 72,000
each per annum and local taxes @ 10. Suresh's income from house property for the previous year 2017-18 will be - (Dec. 2014)
(a) ` 33,600 (b) ` 31,080

(c) ` 28,560 (d) ` 62,160.
Page 76
(79) X is the owner of a commercial property let out at ` 20,000 p.m. The municipal tax on the property is ` 25,000 annually, 50 of which is
payable by the tenant. This tax was actually paid on 15-04-2018. He had borrowed a sum of ` 10 lacs from his cousin, resident in U.S.A.
(in dollars) for the construction of the property on which interest @ 10% is payable. He has also received arrears of rent of ` 20,000
during the year, which was not charged to tax in the earlier years. What is the
property income of X for assessment year 2018-19 ?
(a) ` 82,000 (b) ` 73,250

(c) ` 83,625 (d) ` 88,000
(80) During the financial year 2017-18, Mr. A received a sum of ` 1,80,000 (` 60,000 p.a.) by way of enhancement for the last three years as the
Government department (tenant) enhanced the rate of rent with retrospective effect. The sum of ` ---------
be taxable in the assessment year 2018-19
(a) ` 1,80,000 (b) ` 1,26,000

(c) ` 60,000 (d) ` 42,000
(81) X, an American national, is resident in India during the PY ending on 31-3-2018. He was the owner of a building located in New York.
The same was on rent @ US $12,500 p.m. The Municipal Corporation of New York was paid taxes on such building of US $ 10,000 on
12-2-2018. The value of one US $ in Indian rupee remained at ` 60 throughout the year. X wants to know his taxable income for house
property for assessment year 2018-19.
(b) ` NIL
(a) `58,80,000
(d) ` 90,00,000
(c) ` 63,00,000
(82) When share of each co-owner in a house property is not definite, the income from such property shall be - (Dec. 2015)
(a) Taxed equally (b) Exempt from tax

(c) Taxed as association of persons (d) Taxed as body of individuals.
(83) The net annual value of house let-out is ` 1,00,000 and actual amount spent by the assessee on repairs and insurance
premium is ` 20,000, the amount of deduction allowed under section 24(a) shall be ` --------------------(Dec. 2010)
(84) Jagdish, after sale of his house property during August, 2016, received arrears of rent amounting to ` 40,000 on 2nd
February, 2018, The said income is chargeable to tax under the head----------------------- and the taxable income would be
`----------- (Dec. 2007)
(85) Megha received ` 30,000 as arrears of rent during the previous year 2017-18. The amount taxable under section 25A
would be------------------ (June 2008)
(86) R gifted his house property to his wife in 2015. Mrs. R has let out the house property @ `5,000 p.m. The income from
such house property will be taxable in the hands of:
(A) Mrs. R
(B) R. However, income will be first computed as Mrs. R's income and thereafter clubbed in the income of R
(C) R, as he will be treated as deemed owner of the house property and liable to tax
(D) none of the above
(87) R gifted the house property to his minor son which was let out @ `5,000 p.m. Income from such house property shall be taxable in the
hands of:
(A) minor son
(B) R. However, it will be first computed as minor's income & thereafter clubbed in the income of R
(C) “R” as he will be deemed owner of such house property & liable to tax
(D) None of the above
Page 77
88 R transferred his house property to his wife under an agreement to live apart. Income from such house property shall
be taxable in the hands of:
(A) R as deemed owner
(B) R. However, it will be first computed as Mrs. R income & thereafter clubbed in the hands of R provided the income of the
father is higher than the income of her mother
(C) Mrs. R.
89 (i) R has taken a house property on lease for 15 years from G and let out the same to S. Income from such house to
R shall be taxable as
(A) income under the head other sources
(B) income from house property as R is the deemed owner.
(C) income from business
(D) income from house property or business as decided by R
(ii) What shall be the answer ifR had taken it on lease for 10 years
90 R gifted his house property to his married minor daughter. The income from such house property shall be taxable in the hands of:
(A) R as deemed owner
(B) R. However, it will be first computed as minor daughter's income & clubbed in the income of R provided the income of the
father is higher than the income of her mother
(C) income of married minor daughter
91 R is a member of house building Cooperative Society who is the owner of flats constructed by it. One of the flats is
allotted to R. The income from such house property shall be taxable in the hands of:
(A) co-operative society
(B) R as deemed owner
(C) R, but it will be taxable under the income from other sources
(D) R, but it will be taxable under the income from business
92 R is owner of superstructure although the land was taken by him on lease. The income from such house property shall
be taxable under the head:
(A) income from other sources
(B) income from house property
(C) income from business
93 R has taken a house on rent and sublets the same to G. Income from such house property shall be taxable under head:
(A) income from house property
(B) income from other sources
(C) income from house property or income from other sources as decided by R
94 Municipal valuation of the house is `1,00000 whereas the fair rent of house property `1,20,000 and standard rent is `110,000;
actual rent received or receivable is `1,40,000; municipal taxes paid 10%. The annual value in this case
shall be:
(A) `90,000
(B) `1 ,00,000
(C) `1,30,000
(D) `1,10,000
Page 78
95 Municipal valuation of the house is `1,20,000, fair rent is `1,40,000 standard rent is `1,30,000 whereas actual rent
received or receivable is n ,25,000; municipal taxes paid are `40,000. The annual value in this case shall be:
(A) `1,00,000
(B) `85,000
(C) `90,000
(D) `80,000
96 Fair rental value of a house is `1 ,50,000, standard rent `l ,20,000, actual rent `1 ,30,000. Municipal taxes paid during
the previous year for the past 7 years is `1,40,000. The annual value shall be:
(A) `20,000
(B) Nil
(C) `10,000
(D) `1,10,000
97 A has two house properties. Both are self-occupied. The annual value:
(A) of both house shall be nil
(B) one house shall be nil
(C) of no house shall be nil
98 Tick the deductions which shall be allowed in the case of one self occupied house property whose annual value is nil:
(A) 30% of net annual value
(B) insurance premium
(C) ground rent
(D) lease rent
(E) interest on money borrowed full amount
(F) interest on money borrowed `30,000
(G) annual charge •
(H) interest on money borrowed `30,000 or `2,00,000 as the case may be
99 Tick, from the under mentioned, the cases where annual value can be negative:
(A) let out property
(B) one self occupied property
(C) deemed let property
(D) one property which could not be occupied due to employment elsewhere
(E) partly let out & partly self occupied property
100 If Annual Value of the house property let is negative then tick the deductions which shall be allowed u/s 24.
(A) All deductions
(B) No deduction
(C) Deduction on account of interest on money borrowed
(D) Standard deduction
101 In case of deemed let out property, tick the deductions which shall be allowed under section 24
(A) Repairs and collection charges
(B) Insurance premium
(C) Ground rent/lease rent
(D) Annual charge
(E) Interest on money borrowed
(F) Vacancy allowance
(G) Standard deduction of 30%
102 A borrowed Rs. 5,00,000 @ 12% p.a. on 1-4-2013 for construction of house property which was completed on 15-3-2017. The
amount is still unpaid. The deduction of interest for previous year 2017-18 shall be :
(June 2017)
(A) Rs. 60,000
(B) Rs. 96,000
(C) Rs. 1,80,000
(D) Rs. 2,40,000 (Ans.b)
Page 79
103 Mr. Ahmed acquired a property in April, 2016 for self-residential use. The loan interest payable to State Bank of India for the
financial year 2016-17 amounts to Rs. 2,10,000. The amount eligible for deduction under section 24 is :
(June 2017)
(A) Rs. 30,000
(B) Rs. 2,00,000
(C) Rs. 2,10,000
(D) Rs. 1,50,000 (Ans. B)
104. R has taken a house on rent and sublets the same to G. Income from such house property shall be taxable under the head :
(June 2017)
(A) income from house property
(B) income from other sources
(C) income from house property or income from other sources as decided by R
(D) none of the above (Ans b)
Page 80
1.B 2.B 3.B 4.B 5.C 6.C 7.A 8.A 9.B 10.D
11.D 12.A 13.A 14.B 15.D 16.A 17.A 18.B 19.C 20.C
21.D 22.C 23.D 24.D 25.A 26.B 27.B 28.B 29.B 30.D
31.C 32.B 33.A 34.C 35.D 36.C 37.C 38.C 39.A 40.A
41.C 42.C 43.D 44.B 45.C 46.C 47.A 48.B 49.A 50.B
51.A 52.A 53.B 54.A 55.A 56.B 57.A 58.B 59.A 60.A
61.D 62.A 63.D 64.B 65.D 66.B 67.C 68.D 69.D 70.A
71.A 72.C 73.A 74.C 75.D 76.A 77.C 78.B 79.A 80.B
81.A 82.C 83. 84. 85. 86. C 87.C 88.C 89. B&A 90.B
30000 28000 21000(30000-30@)
91.B 92.B 93.B 94.C 95.C. 96.C 97.B 98. H 99. 100. C
A,C&E
101.
E&G
Page 81
INCOME UNDER HEAD SALARIES
CHAPTER - 4
Employer & Employee Relationship
- Relationship between employer and employee should be of Master and Servant

- Employer (Master) directs what & how the work is to be performed.
- Employee (Servant) is bound to follows the instructions i.e. he has no free will
- Any benefit (cash or kind) received by employee from employer, will always be chargeable under head
salaries
Special Point :
1. A member of Parliament (M.P) or of State Legislature (M.L.A) is not treated as an employee of the
Government. Salary and allowances received by him are, therefore, not chargeable to tax under the head
salaries but under the head Income from other sources
2. Remuneration by Partner of a Firm: Any form of remuneration received by a partner from his firm
will
not be chargeable to tax under salaries but under head P/G/B/P.
3. Director of a Company: Ordinary director is generally not an employee therefore his remuneration will
be chargeable under head Other Sources or P/G/B/P, as the case may be. If Director is an employee e.g.
managing director, then his remuneration will be chargeable under head Salary
Section 15 : Basis of Charge
Following income shall be chargeable to tax under the head salaries-

a) Any salary due from an employer or a former employer to an assessee in the previous year, whether paid
or not;
b) Any salary paid to him in the previous year by or on behalf of an employer or a former employer, though
not due or before it became due to him;
c) Any arrears of salary paid to him in the previous year by or on behalf of an employer or a former
employer, if not charged to income tax for any earlier previous year.
Explanation : Where any salary paid in advance is included in the total income of any person for any
previous year it shall not be included again in the total income of the person when the salary becomes due
Page 82
CONCLUSION
Method of accounting of employee has no relevance while computing taxable salary income
Salary is chargeable to Income Tax on RECEIPT or DUE BASIS, whichever is earlier
Special Points: However following are taxable on Receipt basis
1. Arrears of Salary : If not charged to tax in an earlier previous year, taxable in previous year of receipt.
[However assessee can claim relief u/s 89(1)]
2. Advance Salary : Will be taxable first in the previous year of receipt and therefore not taxable in the
previous year in which it becomes due. [However assessee can claim relief u/s 89(1)]
COMPUTATION OF INCOME UNDER HEAD SALARY
Step 1: Calculate GROSS SALARY

(Gross salary includes various elements of salary u/s 17 after allowing exemptions available against them)
Step 2 : Allow deductions u/s 16 (ii) & (iii)
Step 3 : Step 1 – Step 2 is Income taxable under head Salary.
Section 17(1): Salary Includes
(a) Wages;
(b) Any Annuity or Pension;
(c) Any Gratuity;
(d) Any fees, commission, perquisites or profits in lieu of salary or wages;
(e) Any advance of salary;
(f) Any payment received by an employee for any period of leave not availed by him;
(g) The annual credit to employee account in a Recognised Provident Fund, to the extent to which it is
chargeable to tax;
(h) Transferred balance of an employee participating in a Recognised Provident Fund, to the extent it is
chargeable to tax;
Page 83
(i) Contribution made by Central Govt. or any other employer to account of employee under a pension
scheme referred u/s. 80CCC
DEDUCTIONS FROM GROSS SALARY
Section 16(ii) TREATMENT OF ENTERTAINMENT ALLOWANCE
It is first included in the gross salary (ignoring the amount of deduction available) & then a deduction is
available u/s 16(ii)
The deduction available is calculated as under:
In case of Government employees i.e. employees of Central & State Govt.
The deduction from gross salary shall be the minimum of the following three amounts:
I. Actual entertainment allowance
II. ` 5,000
III. 20% of basic salary.
In case of other employees

Deduction on account of Entertainment Allowance is NOT ALLOWED
Special Points:
 Salary for this purpose is basic salary only. That means all allowances; commissions & perquisites
will have to be ignored.
 Actual expenditure incurred by an employee for entertainment purpose is not relevant.

Deduction is to be calculated only as per above-mentioned provisions.
Section 16(iii) : TAX ON EMPLOYMENT
Employment/professional tax paid in allowed as deduction in the Previous Year of Actual Payment
Special point:
1. The constitution has given powers to state govts to levy tax on profession, trade, employment .Such tax
payable by a person cannot exceed `2500 pa.
2. If professional tax is paid by the employer, then first it will be included in employee Gross salary
as a perquisite, being a monetary obligation of the employee fulfilled by the employer. And then
deduction will be allowed to employee u/s 16(iii)
Page 84
Salary in Grade system: Certain employers appoint employees under grade system of salary. Under this system,
the annual increment is already mentioned in the grade.
For eg,if an employee joins service on 1/10/16 & his grade is [10,000 - 1,000 - 15,000 - 1,500 - 21,000]
This means starting salary shall be 10,000 from 1st October,2016 to 30th September,2017.From 1st October,2017 to
30th September,2018,his salary shall be 10,000 plus 1,000 i.e `11,000.
After salary reaches 15,000 thereafter annual increment shall be `1,500.
BASIC SALARY / PAY
Basic salary/pay is minimum remuneration payable on monthly basis in money terms. It is the base on which
all the other benefits like allowances and perquisites are decided by the employer. It is Fully taxable.
WAGES
 Wages generally relate to manual work, whereas Salary relate to non-manual work.
 Wages can be hourly wages, daily wages, monthly wages, piece rate wages etc.
 From point of view of tax, wages are treated just like salary and, therefore wages is also taxable under
head salary.
BONUS
 Bonus can be of different types. It can be based on performance, fixed or can also be paid on certain
occasions eg Diwali etc.
 All types of Bonus are fully taxable.
 Bonus is taxable on receipt basis. Therefore, it will be included in the gross salary only in the previous
year in which the bonus is received.
COMMISSION
 Any commission payable by employer to the employee is fully taxable as salary.

 Commission payable can be a fixed sum e.g. `600 p.m., `5000 p.a. & like that. It can also be on
percentage basis like 3% of turnover achieved or say 2% of net profits of the company etc.
 All types of commissions including purchase commissions are fully taxable.
ALLOWANCES
What is an Allowance:
Payments in cash made by the employer to his employees monthly, other than basic salary, are called an
allowance. It is a fixed sum of money paid regularly in addition to salary for the purpose of meeting some
particular expenditure(whether personal or official) of an employee.
Page 85
Types of Allowances
Entertainment HRA Special allowances Other Allowances

Allowance
Exemption u/s Exemption u/s No Deduction/No
Deduction u/s 16(ii) 10(13A) 10(14) exemption
HOUSE RENT ALLOWANCE [SECTION 10(13A)]
House rent allowance is given by employer to the employee to meet the expenditure in respect of residential
accommodation occupied by the employee
H.R.A to be included under head Salary = HRA received less exemption u/s 10(13A)
Exemption u/s. 10(13A):
Minimum of following is exempt

1. Actual HRA
2. Rent paid less 10% of Salary
3. 50% of Salary : If rented accommodation in Delhi, Mumbai, Kolkata, Chennai ;

40% of Salary : In other cities
SPECIAL POINTS:
 Meaning of Salary : As per Income Tax Act
 Period of Salary : Salary is to be taken on due basis for period during which the accommodation is
taken on rent by the employee in the previous year e.g. if house is taken on rent by assessee only for
eight months during the previous year ,salary will be taken only for eight months.
 As Salary is to be taken on due basis, the salary of any other period is not to be included by the
employee even though it may be received and taxed during the previous year.
 No exemption of HRA if:
a) Employee living in his own house or at other place with no rental obligation or
b) Rent paid is upto or less than 10% of salary.
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SPECIAL ALLOWANCES [Sec. 10(14)]
All the special allowances can be divided into two categories as follows
Section 10(14)
- Prescribed allowances u/d. Rule2BB (1) - Prescribed allowances u/d. Rule 2BB(2)
- Granted to meet official expenses - Granted to meet personal expenses
Exemption :
Exemption:
Actual amount of allowance
or Actual amount of allowance
Amount Spent for official purpose or
whichever is less Specified Limit
whichever is less
Allowance specified under rule 2BB(1) Allowance specified under rule 2BB(2)
1 Travelling Allowance to meet cost of 1 Children ` 100/- pm per child

Allowance travel on tour or Education
(max. 2 child)
on transfer Allowance
2 Daily Granted to meet ordinarily 2 Hostel
Allowance daily charges on tour or Expenditure `300/- pm per child
on transfer Allowance
(max. 2 child)
3 Conveyance Granted to meet 3 Tribal Area For employees working in Madhya

Allowance expenditure on conveyance Allowance Pradesh,Tamilnadu,
for office duty provided U.P,Bihar,Karnataka,Tripura,
free conveyance is not Assam,West Bengal,Orissa
provided by the employer `200/- pm
4 Helper Granted to meet 4 Transport Granted to meet expense on
Allowance expenditure on helper Allowance commuting between place of duty
where helper engaged for & residence.
performance of office duty `1,600 pm
(3,200 for blind, handicap)
5 Academic 5 Allowance Allowance to meet personal
Allowance Granted for encouraging for expenditure of such employee
Academic, Research & Transport during his duty
training in Education & Employees
Research Institutions only 70% allowance or `10,000/-pm ,
whichever is less
Exemption only if employee not
receiving daily allowance
Page 87
Granted to meet 6 Undergroun Employee working in unnatural

6. Uniform expenditure on d Allowance climate in underground mines
allowance purchase or maintenance of `800/- pm.
uniform
for office 7 Counter For armed forces
Insurgency `3,900/- pm
Allowance
8 Island duty For armed forces working in
Special Point: allowance Andaman & Lakshadweep islands
1. Travelling allowance shall include sum `3250/-Pm
paid for transfer, packing and transportation of
personal effects on such transfer
9 High altitude For armed forces
2. Conveyance allowance will be exempt only
if free conveyance is not provided allowance 9000 to15000 ft : `1060 p.m
Above 15000 ft : `1600 p.m
Other Allowances are fully taxable
 Dearness Allowance/Pay
 City Compensatory Allowance
 Medical Allowance
 Lunch/ Tiffin Allowance
 Overtime Allowance, Night shift allowance
 Servant Allowance etc
Allowances Received By Below Are Fully Exempt
 Citizen of India who is a Govt. Employee for services outside India Sec. 10(7)
 High Court /S.C Judges
 UNO Employees
PERQUISITES : [Sec17(2)]
The term ‘perquisite means any benefit, attached to an office or position in addition to salary or wages
 Perquisite denotes a personal advantage. For example, if an employee is provided with a servant only
for helping him in official duties, it is not a perquisite, as there is no personal benefit to the
employee. But if the same servant helps the employee in his domestic obligations only. Then it is a
perquisite, being a personal advantage.
 Perquisite can be given in cash or kind. If it is given in kind it should be capable of being measured
in terms of money. Reimbursement of any expenses incurred by the employee, in cash, is also treated
as perquisite and not allowance.
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 Perquisites received from a person other than an employer is taxable under the head Profits and
gains from business or profession or Income from other source, as the case may be.
Sec 17(2) : Perquisites includes :
1) Value of Rent Free Accommodation PROVIDED to the employee by his employer
2) Value of Concessional accommodation PROVIDED to employee by his employer
3) Sum PAID by employer for meeting Employee obligation
4) Sum PAYABLE by employer for employee Life insurance or for Contract of annuity
5) Value of prescribed fringe benefit or amenity
6) Value of any specified security or sweat equity shares allotted directly or indirectly, by the
employer, or former employer, free of cost or at concessional rate to the assessee
7) Amount of any contribution to an approved superannuation fund by the employer in respect of

the assessee, to the extent it exceeds 1,50,000/-;
8) Value of any benefit or amenity Provided free of cost or at concessional rates

(Taxable for Specified Employee only)
1st PERQUISITE : RENT FREE ACCOMMODATION
Provided to the employee or to any member of his household will be taxable in the hand of the employee
Member of household
 Spouse(s),
 Children& their spouses ,
 Parents,
 Servants &
 Dependants
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Valuation of perquisite is done as follows :

Central/State Govt. Employee
Unfurnished Furnished
Accommodation Accommodation
(A) Other than in a Hotel In a Hotel
Value as per (A) 24% RFA Salary
License fees determined by Add : or
Central/State Govt. 10% p.a of actual cost of Actual charges paid/payable to
furniture etc (if owned) hotel by employer
or Whichever is less.
Actual hire charges
(if hired)
Other Employee
Unfurnished Accommodation Furnished Accommodation
(B) (C)
If Owned by employer Not owned (e.g Other than in In a Hotel
Population (as per 2001 RFA Rent or lease) Hotel
census) of city in which salary Rent paid / Value (B) or (C)
house provided Payable by Add : Same as for
Upto 10 lakhs 7.5% employer 10% p.a of actual Govt
More than 10 lakhs but 10% or cost of furniture etc employee
upto 25 lakhs 15% of RFA (if owned)
More than 25 lakhs 15% salary or
Whichever is Actual hire charges
less. payable (if hired)
Special Points
1. Salary for the purpose of Rent free accommodation (RFA SALARY)
Inclusions:
1. Basic Salary
2. DA/DP (if for retirement benefits)
3. Bonus & commission
4. Taxable portion of allowances
5. Other monetary payments (Excludes lumpsum payments at the time of leaving the service like
Gratuity,Leave salary,VRS etc)
- Salary to be taken on DUE BASIS during period for which accommodation occupied by employee.
Thus advance salary or arrears of salary, though taxable during previous year are to be ignored.
- Salary to include salary from more than one employer during above period
Page 90
Exclusions:
1. Employer contribution to Provident Fund
2. Perquisites u/s. 17(2)
2. No perquisite if accommodation provided in a Hotel for period upto 15 days & provided on transfer
of employee from one place to another
3. If New Accommodation is provided on transfer while retaining Old Accommodation.

For First 90 days : Accommodation having lower value shall be taxable
After 90 days : Both Accommodation shall be taxable
4. Accommodation includes a house, flat, farmhouse, accommodation in a hotel, motel, service

apartment, guesthouse, caravan, mobile home, ship.
5. Hotel includes licensed accommodation in the nature of Motel, service apartment or guest house.
2nd PERQUISTE : CONCESSIONAL ACCOMMODATION
Provided to the employee or to any member of his household will be taxable in the hand of the employee
Step 1: Determine the value of the accommodation (furnished or unfurnished) as if accommodation is

provided Rent Free
Step 2 : Deduct the amount recoverable from the employee as rent from step 1
Step 3 : The balance amount is perquisite in respect of concessional accommodation
3rd PERQUSITE : SUM PAID BY EMPLOYER FOR MEETING EMPLOYEE OBLIGATION
Where any Obligation is paid by employer (directly or through reimbursement), which would have been
payable by employee if employer did not paid it, actual amount paid by employer is perquisite taxable in
hands of the employee
E.g. Gas, water, electricity Bills, Income Tax, Professional tax, children education expenses of the
employee which are paid/reimbursed by the employer
4th PERQUISTE : SUM PAYABLE FOR LIC OR ANNUITY OF EMPLOYEE
 Sum Payable by the employer

 for Life Insurance Policy or Annuity policy taken by him
 for the benefit of the employee
 is a perquisite in the hand of the employee
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5th PERQUISITE : FRINGE BENEFITS OR AMENITY
Fringe benefits or amenity provided to employee or member of household is taxable in hands of the
employees
It includes the following benefits
a) Interest free/Concessional loans

b) Use of movable assets
c) Transfer of movable assets
d) Travelling, Tour, Accommodation & Other Expenses Paid or Reimbursed by Employer
e) Free Meals, Tea & Snacks
f) Gift, Vouchers or token
g) Expenditure on Credit Card
h) Club membership & Club Expenses
i) Other benefits
a) Interest Free Or Concessional Loans made available by Employer
If a loan (interest free or at concessional rates) is made available by employer to employee or to any
member of his household, such will be a perquisite chargeable to tax
The valuation of perquisite is done as follows

Step 1: Determine Maximum outstanding monthly balance of the loan on the last day of each month
Step 2: Find out rate of interest charged by State bank of India for similar loan on the 1st day of the
previous year in which such loan is given
Step 3: Determine interest for each month on the above rate applied on balance determined under step 1
Step 4: Total of step 3 is the value of the perquisite
If however, some interest is charged from employee, reduce such rate from the SBI rate
Exemption : The following loans are not taxable perquisite
1. Medical Loans taken for treatment of any person for diseases specified in Rule 3A e.g. cancer,
AIDS or diseases of heart, blood, liver, skin, eye, ear, nose etc. requiring surgical operation.
If loan is reimbursed under medical insurance scheme, then such amount reimbursed shall be
treated as taxable perquisite
2. Small loans i.e. Total amount of loan is upto ` 20,000 in the current previous year. The loan may be
taken for any purpose.
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3. Advance salary & Advance against salary
Advance salary is taxed as per section 15 on receipt basis. If any salary paid in advance is included
in the total income of any person for any pervious year it shall not be included again in the total
income of the person when the salary becomes due.
Advance against salary is not considered to be income rather it is a loan. However, loan involves
valuation of perquisite with respect to interest free loan i.e. from the date the loan is given to the date
it is repaid, the employee shall be subject to perquisite u/s section 17(2) & Rule 3.
b) Use of Movable Assets
Laptop/Computers Exempt as per Rule 3
Telephone including mobile Exempt as per Rule 3
Motor Cars Taxable under Perquisites for Specified Employees
Other Movable Assets If owned by employer : 10% p.a of original cost
In other cases : 100% of hire charges payable by

employer for such assets
Special Point :
 As per circular no. 15/ 2001, use of an asset which is older than 10 years shall be exempt from tax.
 The taxable amount shall be reduced by amount recovered from employee against this facility.
c) Sale of Movable assets belonging to employer to employee/ household member
COMPUTER & MOTOR CAR OTHER MOVABLE

ELECTRONIC ITEMS ASSETS
Actual cost to Employer Actual cost to Employer Actual cost to Employer
Less : Less : Less :
50% reduction on WDV basis 20% reduction on WDV 10% reduction on SLM basis
(for each completed year asset basis (for each completed (for each completed year
used by employer) year asset used by employer) asset used by employer)
Less : Selling Price Less : Selling Price Less : Selling Price
Page 93
Special Point :
1.Complete year here does not mean either calendar year or financial year. It means complete 365 days
2. As per clarification by circular no. 15/2001 electronic gadgets in this case means the data storage and
handling devices like computer, digital diaries and printers. They do not include household appliances like
washing machines, micro-wave ovens, mixers, TV etc.
d) Travelling, Tour, Accommodation & Other Expenses Paid or Reimbursed by Employer

(Such expenses shall not include LTC provided by employer)
OFFICIAL TOUR
Employee Household Member

Facility maintained by employer & not Other Cases
available for all employees
Exempt Value at which similar services Actual expenditure of

provided by other agencies to public employer
PRIVATE TOUR
Employee/Household Member
Facility maintained by employer & not Other Cases

available for all employees
Value at which similar services Actual expenditure of employer

provided by other agencies to public
Special Point :
In case above facility is not provided free of cost , Deduct amount paid/recovered from Employee
Page 94
e) Free Meals, Tea & Snacks
FREE MEALS/NON ALCHOLIC BEVERAGES TEA AND SNACKS
Office premises OR
At eating joints ( by paid vouchers) Other Case
Office Hours Non Office Hours Office Non Office Hours
Hours
Nil, provided
value upto `50/- Actual expenditure of Actual expenditure of Actual expenditure
employer employer Nil of employer
per meal
(If value > 50

excess taxable)
Special Point :
In case Meal is not provided free of cost , Deduct amount recovered from Employee
f) Gift, Vouchers or token
Gift, Voucher or token on ceremonial or Other occasions

In Kind In Cash
Aggregate value upto Aggregate value more than Any amount
`5,000 during P/Y `5,000/- during P/Y
Exempt Perquisite Value = Fully Taxable
(Actual value – 5,000/-)
g) Expenditure on Credit Card
Expenditure on credit card including membership & annual fees

Paid or reimbursed wholly & exclusively for official purpose Other Purposes
Nil, Amount paid or
Provided: reimbursed by employer
a) Details of date & nature of expenditure maintained by
employer and Less: Amount recovered
from employee
b) Employer certifies that expenditure incurred for official purpose
Special point : Credit card includes add on card
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h) Club membership & Club Expenses
Club membership & club expenses (including annual or periodic fees)

Paid or reimbursed wholly & exclusively for official purpose Other Purposes
Nil, Provided : Amount paid or
a) Details of date & nature of expenditure maintained by employer reimbursed by employer
and
b) Employer certifies that expenditure incurred for official purpose Less : Amount recovered
from employee
Special Point:
1. Initial fees of corporate membership of a club is not taxable as perquisite.
2. Use of Health club, sports & similar facility provided uniformly to all employees is not perquisite.
i) Any other benefit or perquisite
Valuation shall be done on the basis of cost to the employer under an arms length transaction as
reduced by the employees contribution
6TH PERQUISITE : SWEAT EQUITY SHARES / SPECIFIED SECURITY
Sweat Equity shares” means

 Equity shares issued by a company to its employees or directors
 at a discount or for consideration other than cash
 for providing know-how or value additions
Value of Perquisite :
Fair Market Value of sweat equity shares/specified security on the date on which the option is
exercised by the assessee
Less : Amount recovered from the assessee in respect of such shares/security
Special Point : FMV means value determined in accordance with the method as may be prescribed
Page 96
7TH PERQUISITE : Employer Contribution to Approved Superannuation Fund
Value of Perquisite : Employer contribution to Superannuation fund during the p/y in excess of ` 1,50,000/-
APPROVED SUPERANNUATION FUND

The purpose of this fund is to provide for annuities to employees on their retirement or to their widows,
children or dependents on the death of such employee.
Tax treatment of Superannuation Fund
Annuities received by employee are taxable as Salary income, while those received by the widow etc. is
taxable under Other sources.
Approved Superannuation Fund
Employees Employer’s Interest on Payment of Accumulated balance
Contribution Contribution accumulated balance
Deduction Excess of Exempt from tax u/s 10(13), if
80C from `1,50,000 Exempt from Tax  on death ,
GTI is
treated as  on retirement ,
available to
Perquisite  after specified age or
employee  becoming incapacitated
before retirement
 Transfer employee account
under pension scheme u/s
80CCD
8th PERQUISITES : TAXABLE IN HANDS OF SPECIFIED EMPLOYEE ONLY
Specified Employee
Employee is Director Employee has Substantial Employee’s Income under

of his employer Interest in his employer head salary exceeds 50,000/-
company company (excluding non monetary
benefits & amenities)
 Sec 2(32) : Substantial Interest in relation to company means beneficial ownership of atleast 20%
Equity shares of the company
 Salary for above purpose is to be taken on due basis or received basis, whichever is earlier.
Page 97
The following perquisites provided by Employer to Employee or to any Member of his household are
taxable perquisite in the hands of specified employee only.
a) Motor Car
b) Sweeper, Gardener, Watchman or Personal attendant
c) Supply of Gas, Electricity or Water provided to Employee
d) Educational facilities to employee children & members of household
e) Free or concessional tickets provided to employee of transport undertakings
a) Valuation of Motor Car
The perquisite of Motor car is divided into 4 Cases
1.Motor car owned/Hired by employer & expenses incurred by Employer

2.Motor car owned/Hired by employer & expenses incurred by Employee
3.Motor car owned by employee & expenses incurred by Employer
4.Other conveyance owned by employee & expenses by Employer
1. Motor Car owned/ hired by employer & expenses met by Employer
Exclusively for Exclusively for private purpose Partly official & partly private
official purpose
Sum total of :
Nil a. Actual running & maintenance Car upto 1.6 Lit.
(Provided expenses 1,800 p.m + 900 pm for
specified chauffer(If any)
documents are b. Actual remuneration to chauffeur
maintained by Car > 1.6 Lit.
employer) c. 10% of cost of car (if owned) or hire 2,400 p.m + 900 p.m for
charges (if hired) chauffer (If any)
Less: Amt recovered from employee
2. Motor Car owned/ hired by employer & expenses met by Employee
Exclusively for Exclusively for private Partly official & partly private
official purpose purpose
Sum total of : Car upto 1.6 Lit.
Exempt a) Actual running & 600p.m + 900 pm for chauffer.(If any)
maintenance expenses
Car > 1.6 Lit.
b) Actual remuneration to 900 p.m + 900 pm for chauffeur (If
chauffeur (If borne by any)
employer)
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3. Motor Car owned by employee & expenses met by Employer

Exclusively Exclusively for Partly official & partly private
for official private purpose
purpose
Actual Exp. of employer
Nil Amount paid by
employer Less :
(Provided I,800 pm + 900 pm (car upto 1.6Lit)
specified OR
documents 2,400 pm + 900 pm (car > 1.6 Lit)
maintained
by employer) Higher deduction for official expenses if
specified documents are maintained
4. Other Conveyance owned by employee & expenses met by Employer

Exclusively for Exclusively for Partly official & partly private
official purpose private purpose
Nil Expenditure paid Actual Exp. of employer
by employer
(Provided Less : 900 pm
specified Perquisite
documents are taxable for all Higher deduction for official expenses if
maintained by employees specified documents are maintained
employer)
Special Points
1. Applicable for Case 1 : Where more than one motorcar is provided by employer and the employee is
allowed to use them for both official & private purposes (i.e. not exclusively for official purposes).
- Value of One Car = Value as per partly official & partly private
- Value of Other Cars = Value as per private purpose
2. Specified Documents :
a) Employer should maintain complete details of date of journey, destination, mileage, amount of
expenditure incurred
b) And employer gives certificate that expenses incurred wholly & exclusively for official purpose.
3. Vehicle provided by employer to the employee for journey from his residence to his office or other place
of work & back shall not be regarded as perquisite.
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b) Sweeper, Gardener, Watchman or Personal attendant
Engaged by employer & provided to employee/household member , such perquisite shall be taxable
for all specified employee
Value of perquisite : Actual cost to employer Less Amount paid by employee.
Special point : Cost to employer shall be salary payable to such person by employer
c) Supply of Gas, Electricity or Water provided to Employee
Gas, Electricity or Water provided to Employee
Purchase from outside agency From own resources
Amount paid to outside agency Manufacturing cost

Less: Amount recovered from Less: Amount recovered from
employee employee
Special point
If Electricity, gas & water connections are in the name of employee and employer is bearing the expenditure
either directly or indirectly then it will be covered under 3rd perquisite of Sec 17(2) i.e obligation of
employee paid by employer and therefore will be taxable for all employees
d) Educational facilities to employee children & members of household
A) Facility in Educational institutions maintained by employer or in other educational institutions due

to employment
To whom Cost of education in similar Value of Perquisite

school in similar locality
upto `1,000 p.m per child Fully exempt

Employee child
Cost of education in similar
greater than `1,000 p.m per child school in same locality
less : 1,000 pm/per child
Cost of education in similar
Household members Limit of `1,000 irrelevant school in same locality
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B) Facility in any other educational institutions
To whom Value of Perquisite
Employee child Actual Cost to Employer
Household members Actual Cost to Employer
Special Points :
(a) If any amount is recovered from employee, reduce the value by that amount
(b) Education facility to employee in any form like training, seminars, conference etc. is fully exempt.
e) Free or concessional tickets provided to employees of transport undertakings for private journeys
 Employees of Airlines and Railways : Exempt in hands of employees
 Employee of other transport undertaking : Value at which such benefit or amenity is provided by the
employer to public
Special point : If any amount is recovered from employee, reduce the value by that amount
LEAVE TRAVEL CONCESSION IN INDIA : SECTION 10(5)
 Travel concession or assistance due or received from employer
 For himself or family member
 For travel to any place in India
 During Service or on leave or after retirement or after termination
 Value to be included in salary :
Amount of concession due or received

Less : exemption u/s. 10(5)
Page 101
Exemption u/s 10(5)

Journey by Air Journey by Rail Journey by other modes
Minimum of following Minimum of following Connected by Rail

Same as column 2
i. Actual concession i. Actual concession
Not Connected by Rail
ii. Amount actually ii. Amount actually
incurred by employee incurred by employee Minimum of following
iii. Air economy fare of iii. AC 1st class RAIL i. Actual concession
National Carrier by FARE by shortest
shortest route route ii. Amount actually incurred by
employee
iii. Deluxe fare of such transport by

shortest route (where recognised
transport exists)
OR
Similar AC 1st class rail fare by
shortest route
(if recognised transport does not
exists)
Special Points :
1. Exemption available on twice in a block of FOUR CALENDAR YEARS : 1986-89, 1990-93, 1994-
97, 1998-2001, 2002-05, 2006- 09, 2010- 2013 , 2014-2017, 2018-2021
2. No exemption claimed or only one exemption claimed in a block, then ONLY ONE exemption carried
forward in Calendar Year succeeding end of block.
Exemption only for the fare: - The exemption is strictly limited to expenses on air fare, rail fare, bus
fare only. No other expenses, like scooter charges at both ends, porterage expenses [money paid for
carrying luggage] during the journey and lodging / boarding expenses will qualify for exemption.
3. LTC available for a TWO children born on or after 01.10.1998. However, this restriction shall not
apply in respect of children born before 1-10-1998 and also incase of multiple births after one child.
4. Family for the above purpose means Spouse & Children &
Parents, brother, sisters of employee who are dependent on employee. Explanation to Sec 10(5)
5. In case the LTC is encashed without performing the journey, the entire amount received by the
employees would be taxable.
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MEDICAL FACILITIES (Proviso to Sec 17(2))
MEDICAL FACILITIES IN INDIA

( to EMPLOYEE / Family Members)
In Govt Hospital or
Premium paid Other case
local authority hospital or for Health
Insurance under
Hospital
Govt. approved hospital or approved
maintained
scheme
by employer
Hospital approved by CCIT
(For prescribed disease only)
Exempt upto
Fully Exempt Fully Exempt Fully Exempt `15,000/- in P/Y
Excess taxable
MEDICAL FACILITIES OUTSIDE INDIA to Employee / Family member
Medical Expenses of Stay Expenses Travel Expenses

Patient of Patient and One attendant of Patient with One attendant
(total two persons) (total two persons)
Tax free to extent Tax free to extent Tax free

permitted by RBI permitted by RBI if employee’s GTI UPTO `2,00,000/-
(before including such travel expenses)
Special Points :
1. Family for above purpose means
- Spouse & children of employee
- Parents, brother & sister of employee who are dependent on employee.
2. Hospital includes dispensary, clinic or nursing home.
3. Expenditure on medical treatment by the employer can be by way of payment or as reimbursement.
4. Medical allowance is fully taxable.
Page 103
RETIREMENT BENEFITS
Retirement benefits consists of following

1. Gratuity
2. Pension
3. Leave salary
4. Compensation on voluntary retirement/Retrenchment compensation
5. Provident fund / Superannuation funds
GRATUITY
Gratuity is a kind of retirement benefit, like provident fund or pension. It is a payment, which is intended to
help an employee after his retirement whether the retirement is the result of the completion of age of
retirement or some physical disability. The general principle underlying gratuity schemes is that by faithful
service over a long period the employee is entitled to claim a certain amount as retirement benefit. Thus it is
earned by an employee as a reward for long and meritorious service.
 Gratuity to be included under Salary = Amount of Gratuity less Exemption u/s. 10(10)
Exemption u/s. 10(10):
Type of Employee of Employee covered under Other Employees

Employee Central & State payment of Gratuity Act, (not covered under earlier
Govt., Local 1972 categories)
Authority
Minimum of Following: Minimum of Following:
i. Actual Gratuity received. i. Actual Gratuity received.
Exemption 100% of Gratuity
Amount received is ii. `10,00,000 ii. ` 10,00,000
Exempt
iii. [15 X Completed yrs of iii [15 X Completed yrs of
service Including part service Excluding part]
excess 6 mths] X
X [Average monthly SALARY /
[last month SALARY/26 30]
SALARY = Basic Salary + SALARY = Basic +

Definition 100% DA DA(retirement Benefits) +
of Salary N.A Commission % of turnover
Page 104
1. Commission received as a fixed

percentage of turnover would
Special form part of the salary [Gestetner
point Duplicators Pvt. Ltd. v CIT
(SC)]
2.Average Monthly Salary =

Average of last 10 months
immediately preceding the
month of leaving service
SPECIAL POINTS:
 Where an employee had received gratuity in any earlier years and had claimed exemptions u/s 10(10)
in respect of the gratuity received earlier also, he will still be entitled to this exemption but the limit
of `10,00,000 shall be reduced by the amount of exemption availed in the earlier year.
 If gratuity is received from more than one employer in the same previous year, the limit of
`10,00,000 would apply to the aggregate of gratuity received from one or more employers
 Any gratuity paid to an employee, while he continues to remain in service with the same employer is
taxable under the head “Salaries” because gratuity is exempt only on retirement or on his becoming
incapacitated or on termination of his employment or death of the employee.
PENSION
 Refers to Periodic Payment made by the employer after retirement or death of the employee as a reward
for past services rendered by the employee
 Pension can be Uncommuted or Commuted
TAX TREATMENT OF UNCOMMUTED PENSION
Pension payable to an employee periodically e.g. every month, after retirement from service. This pension
is known as uncommuted pension.
 It is Fully Taxable in the hand of all employees, whether government or non-government.
Page 105
TAX TREATMENT OF COMMUTED PENSION
Sometimes the employee wants to have a lump-sum payment in lieu of certain portion of monthly pension,
which he would have otherwise received monthly. The lump-sum payment which he receives on foregoing
the monthly pension is known as commuted value of the pension. Commutation is done having regards to
age of recipient, state of his health ,rate of interest and tables of mortatility.
 Though it is also taxable, exemption u/s 10(10A) can be claimed by the employee
Exemption u/s 10(10A):
 Treatment for employees of Government, local authority & Statutory Corporations :

Commuted pension received by these employees is 100% Exempt
 Treatment in the case of Other Employees
Commuted value of pension received is exempt to the following extent:
(a) If receives Gratuity : 1/3 of Normal commuted pension
(b) If he does not receive Gratuity : 1/2 of Normal commuted pension
Normal Commuted pension = Actual commuted pension x 100

% of commutation
SPECIAL POINTS:
 The pension discussed above is different from “Family Pension”

While the pension paid by the employer to the employee is known as pension, the monthly payment
by the employer to the family of such employee after his/her death is known as family pension.
The family pension is taxable as Income from other source
Deduction against such family pension : 1/3rd of family pension or `15,000, whichever is less.
 Pension received from a United Nations organization is not taxable.
 Exemption of Commuted pension is also available to Judges of High courts and Supreme Court.
Page 106
LEAVE SALARY
Employees are entitled to various types of leave on the job. These leaves may either be availed by the
employee or may not be availed. If they are not availed, they can also be encashed.
Such leave which the employee gets encashed is taxable under head salary
Encashment of leave during tenure of service:
Leave encashment by an employee, while he continues to be in service, is fully taxable for all categories of
employees [Whether Govt. employee or a Private employee]
Encashment of unavailed leave at the time of retirement/ resignation
This is also taxable but employee can claim exemption u/s Section 10(10AA)
Exemption u/s 10(10AA)
I. Central Government/ State Govt. Employees:

It is fully exempt from tax.
II. Other Employees (i.e. Private employees including employees of local authority and statutory
corporation)
It is exempt to the extent of the minimum of the following four amounts:
(a) Leave encashment actually received
(b) `3,00,000
(c) 10 X Average Monthly SALARY
(d) Unavailed Leave X Average Monthly SALARY

30
Unavailed leave =
Step 1 : [Total Leaves entitled by employer]

or
[ 30 days leave per Completed Year of Service, Excluding part]
whichever is less
Step 2 : Leaves actually taken + leaves encashed while in service
Step 3 : Step 1 – Step2 is unavailed leave
Page 107
Meaning of Salary: Basic + DA(retirement Benefits) + Commission % of turnover
Average Monthly Salary: is to be calculated on the basis of the average of salary (as valued above) drawn
by the employee during the period of 10 months immediately preceding the date of his retirement.
SOME SPECIAL POINTS
 Exemption to Govt employee will still be available if he joins a private organisation after retiring
from government service.
 If the employee had availed exemption of leave salary in earlier previous year, then the limit of
` 3,00,000, shall be reduced by the amount of exemptions availed earlier.
 Where the leave encashment is received by the employee from more than one employer in the
same previous year, the limit of `3,00,000 would apply to the aggregate of leave encashment
received from one or more employers.
 Any leave salary to the legal heirs of the deceased employee in respect of earned leave standing to
the credit of such employee at the time of his death is not taxable (both for private and Govt.
employees).
 Even if there is voluntary retirement (e.g resignation) from services, the provisions of section
10(10AA) will apply.
RETRENCHMENT COMPENSATION
 Compensation received at the time of retrenchment under Industrial dispute Act or under any other act
or rule, order or notification
 Amount of Compensation to be included under Head Salary

Amount of Retrenchment Compensation Less Exemption u/s10 (10B)
Exemption u/s.10 (10B) :

Minimum of following is exempt
i) Actual Compensation received.
ii) `5,00,000/-.
iii) [15 X Completed yrs of service including part excess of 6 mths] X[ Average Monthly Salary/26 ]
Average Monthly salary : Average of last 3 months preceding date of retrenchment
Salary includes all but does not include bonus & employers PF contribution
Special point
 If compensation received by workman in accordance with specified scheme of Central government ,

then such compensation is fully exempt.
Page 108
COMPENSATION ON VOLUNTARY RETIRMENT
 Refers to compensation received on voluntarily retirement or termination of service before the date of
actual retirement.
 Voluntary retirement compensation to be included under head Salary
= Voluntary Retirement Compensation Less Exemption u/s.10(10C)
Exemption u/s. 10(10C):
Types of Employee  Employees of Central or State Govt or Local Authority or Statutory

corporation
 Company or Co-operative Society
 Declared University, IIT, Notified IIM or Notified institutions
Conditions to be satisfied  Compensation received on Voluntary Retirement and

 The scheme of Voluntary Retirement should be as per rule 2BA.
Amount of Exemption - Actual Compensation received/receivable

Least of following
- 5,00,000
- 3 months Total SALARY X Completed years of service (Part Ignored
- Current SALARY per month X Balance months of service left
SALARY = Basic + DA(retirement Benefits) + Commission % of

turnover
Special Points :
1. [Rule 2BA] : The scheme of Voluntary Retirement should be framed in accordance with below
guidelines.
i. Employee should have completed 10 yrs of service or 40 yrs of age. [This condition
is not applicable in the case of an employee of a public sector company]
ii. Scheme should be applicable to all employee (except Directors)
iii. Scheme should be drawn to result in overall reduction in existing strength of employees.
iv. Vacancy caused by voluntary retirement should not be filled up.
Page 109
v. Retiring employee shall not be employed in other concern of same management.
If the guidelines are not followed , exemption shall not be available
2. Exemption under 10(10C) can be claimed only Once by the Assessee.
TYPES OF PROVIDENT FUND
Provident fund is of four types:
I. Statutory Provident Fund: Statutory provident fund is set up under the provisions of the Provident
Funds Act, 1925. Generally, this provident fund is maintained by Govt., Semi-Govt. offices like
local authorities, universities, other recognised educational institutions, statutory corporations and
nationalized banks, etc.
II. Recognised Provident Fund: This provident fund is meant for private sector employees. This fund
is set up under the employee provident fund and miscellaneous act, 1952.According to this act,any
establishment employing 20 or more employees is under an obligation to register itself under this act.
An employer employing less than 20 persons,can also start a P.F. scheme if both employer and
employee want to do so.
An establishment who wants to start a R.P.F scheme has two alternatives.
a) Set up provident fund as per scheme mentioned under the P.F.Act,1952.
b) Set up Provident fund under its own scheme. In this case approval of the provident fund
commissioner is required together with approval of commissioner of Income Tax. If both the
approval is granted,it is called Recognised provident fund
III.
Unrecognised Provident Fund: It is that provident fund which is set up under own scheme (as in
(b) above) and which is not approved by Commissioner of Income tax.
IV. Public Provident Fund: This fund is set up under Public provident act,1968.Every individual
(including a salaried employee) can contribute to this fund. An account under this scheme can be
opened at a branch of the State Bank of India or at a branch of any of the authorized nationalized
banks. The accumulated sum is repayable after 15 years. This provident fund carries compound
interest (tax-free) at prescribed rate. Interest is credited every year but is payable only at the time of
maturity.
Page 110
TAX TREATMENT OF PROVIDENT FUNDS
Statutory Provident Fund (SPF)

Employees Employer’s Interest on Payment of
Contribution Contribution Provident Fund Accumulated balance
Deduction u/s 80C from GTI is Not Taxable Not Taxable Exempt u/s 10(11)
available to employee
Recognised Provident Fund (RPF)

Employees Contribution Employer’s Interest on Payment of
Contribution Provident Fund Accumulated balance
Deduction u/s 80C from GTI Exempt upto 12% Exempt upto
is available to employee of SALARY 9.5% p.a Exempt u/s 10(12)
Excess Taxable Excess Taxable (Refer special point

under Salary under Salary below)
Note : SALARY = Basic + DA(retirement Benefits) + Commission % of turnover
Un Recognised Provident Fund (URPF)

Employees Employer’s Interest on Payment of accumulated balance.
Contribution Contribution Provident Fund
Deduction u/s Not Taxable Not Taxable Taxable in P/Y of Receipt
80C is NOT - Employers contribution + interest on it
available to taxable as profit in lieu of salary u/s 17(3)
employee
- Interest on Employee contribution taxable
under I/O/S
Public Provident Fund (PPF)

ASSESSEE Employer’s Interest on Payment of
Contribution Contribution Provident Fund Accumulated balance
Deduction u/s 80C from No employers Exempt from Fully exempt
GTI is available to assessee contribution Tax 10(11)
Special point : Accumulated balance of RPF is exempt only if :

i. Service of atleast 5 yrs (Current employer & Former employer) OR
ii. Termination due to :

- ILL health or
- Discontinuance of employer business or
- Other reason beyond employee control or
iii. Takes up new employment & Accumulated balance transferred to new RPF A/c under new employer.
If none of above situations exist, then amount shall be treated as if PF is unrecognised since Beginning
Page 111
INCOME DEEMED TO BE RECEIVED IN INDIA: (Section 7)
Following incomes shall be deemed to be received in India in P/Y even in absence of actual receipt:
(i) Interest credited to RPF, in excess of 9.5% pa.
(ii) Employer Contribution to a RPF in excess of 12% of salary of the employee;
(iii) Transferred balance in a RPF to the extent specified.
(iv) Employer Contribution to the account of an employee under a pension scheme u/s 80CCD.
TRANSFERRED BALANCE
Where the employee is a member of unrecognised provident fund, which is accorded recognition by the
Commissioner of Income tax for the first time, the outstanding balance under unrecognised fund is
transferred to recognised provident fund. Such balance is called transferred balance. which is taxable in p/y
of Conversion
To calculate the taxable amount, if any, the Unrecognised provident fund shall be treated as
recognised fund since the beginning.
Calculation of Transferred balance
It Includes the following

1. Employer contribution in URPF in excess of 12% till date of conversion
2. Interest in excess of 9.5% till date of conversion
Special point : Employee shall be eligible for deduction u/s 80C for all contributions after the date of
recognition, but no deduction shall be available on the contributions prior to recognition.
OTHER THEORETICAL POINTS OF THE CHAPTER
(1) Profits in lieu of salary [Section 17(3)]
Profit in lieu of salary

Terminal /retrenchment Keyman Amount during Payment from Other sums
Compensation Insurance Pre & Post URPF or from
Policy employment URSF
From employer/former Amount Amount from On account of All other sums
employer in connection with received under employer before employer due or received
termination or for above joining or after contribution from employer
modification of terms of (including leaving his and Interest
employment Bonus) service. thereon.
Page 112
(2) KEYMAN POLICY OF LIC
 Sec 10(10D) : Keyman insurance policy" means a life insurance policy taken by a person on life
of keyman and includes such policy which has been assigned to a person, at any time during the
term of the policy with or without any consideration.
‘Keyman’ is an Employee/Director/Other person whose service are perceived to have a significant

effect on the profitability of the business.
‘Keyman Insurance Policy’ is an insurance policy taken by a organisation on the life of keyman in
order to protect the business against the financial loss, which may occur from his premature death.
 Sec 10(10D) exemption for Life insurance receipts is not available for Keyman Insurance Policy.
 Any sum received by company from such policies is taxable under Business or profession u/s 28
 Any sum received by the employee is taxable as profits in lieu of salary u/s 17(3)
 In cases of other persons such as a Chairman, or a Director, where the employer-employee relationship
does not subsist the amount received is taxable as income from other sources u/s 56(2)
(3) Remuneration for extra duties:

Where an employee does some extra work for his employer, and gets some extra payment from him,
it is taxable as salary income.
(4) Voluntary payments to employees:

Any voluntary payment by employer to his employee is taxable as salary income if these payments
are made with reference to his services. This receipt is taxable even though payment may not be the
legal obligation of the employer.
(5) Salary & Residential Status :
 Income under the head “Salaries” is deemed to accrue or arise at the place where the service in respect
of which it accrues is rendered.
 Under Section 9 : Salary in respect of service rendered in India is deemed to accrue or arise in India
even if it is paid outside India
 Pension paid abroad is deemed to accrue in India, if it is paid in respect of services rendered in India.
 leave salary paid abroad in respect of leave earned in India is deemed to accrue or arise in India.
 However, there is a departure from the aforesaid rule.

Salary paid by the Indian Government to an Indian national is deemed to accrue or arise in India, even
if service is rendered outside India. Deeming provisions of section 9 are applicable only in respect of
salary and not in respect of allowances and perquisites paid or allowed by the Government to Indian
nationals working abroad, as such allowances and perquisites are exempt under section 10(7)
Page 113
(6) Overtime payments:

Just like remuneration for extra duties, any payment for extra time worked is also taxable as salary
income.
(7) Salary To Foreign Citizens : Sec 10(6)
Following remuneration to foreign citizens is exempt from tax
1. Salary of Diplomatic Personnel:

 Remuneration as an
 official or staff
 of an Embassy, High commission, or trade representation of a foreign State,
Special point :
Exemption is available if
b. Corresponding Indian officials in that foreign country enjoys a similar exemption &
c. they are not engaged in any other business, profession or employment in India
2. Salary of Foreign Employees :

 Remuneration as an employee of a foreign enterprise
 for services rendered by him during his stay in India
Special point :
Exemption is available if
a. The Foreign enterprise is not engaged in any business in India &
b. His stay in India does not exceed a period of 90 days in such previous year
3. Salary received by a ship’s crew :

 Remuneration received by non-resident
 as ship’s crew,
Special point : Exemption is available if
provided his total stay in India does not exceed 90 days during the previous year, is exempt from tax.
4. Remuneration of a foreign trainee :

 Remuneration by employee of a foreign Government
 during his stay in India
 if remuneration is received in connection with training
 in an office owned by (a) Government or (b) Govt company (c) statutory corporation
Page 114
(8) Relief when salary is paid in arrears or in advance, etc. [Sec.89(1)]
Where, by reason of any portion of an assessee’s salary being paid in arrears or in advance or by reason of
his having received in any one financial year salary for more than 12 months, his income is assessed at a rate
higher than that at which it would otherwise have been assessed, the relief to be granted u/s 89(1) shall be as
under:
(A) : Where any portion of the assessee’s salary is received in arrears or in advance
Step 1: Calculate the tax payable of the previous year in which the arrears/advance
Salary is received
a. On Total income inclusive of additional salary.
b. On Total income exclusive of additional salary.
The difference between (a) and (b) is the tax on additional salary included in the total income.
Step 2: Calculate the tax payable of every previous year to which the additional salary relates
a. On total income including additional salary of that particular previous year.
b. On total income excluding additional salary.
Calculate the difference between (a) and (b) for every previous year to which the additional salary relates and
aggregates the same.
Step 3: The excess between the tax on additional salary as calculated under step 1 and 2 shall be the relief
admissible u/s 89(1). If there is no excess, no relief is admissible.
If the tax calculated in step 1 is less than tax calculated in step 2, the assessee need not apply for relief.
(9) Foregoing of salary and Surrender of salary
Foregoing of Salary
Section 15 taxes salary on “due” basis even if it is not received. If, therefore, an employee foregoes his
salary, it does not mean that salary so foregone is not taxable. Once salary has accrued to an employee its
subsequent waiver does not make it exempt from tax liability.
Surrender of salary : If an employee opts to surrender his salary to the central government under the
voluntary surrender of Salaries (exemption from Taxation ) Act,1961,the salary so surrendered would be
excluded while computing employees taxable income. Benefit of tax exemption in respect of salary so
surrendered is available to all employees whether they are employed in private sector or public sector.
Page 115
MCQ SALARY
BASIC CONCEPTS
(1) Which is the charging section of Income under the head salaries?
(2) Which of the following income is chargeable to income tax under the head salaries?
(a) Salary due (b) Advance Salary
(c) Arrears of Salary (d) All of these.
(3) Any salary due from an employer or a former employer to an assessee in the previous year whether paid or not is known as -
(a) Salary due (b) Advance Salary

(c) Arrears of Salary
(d) All of these. Ans.(a)
(4) Income is taxable under the head salaries only if there exists ________________ relationship between the payer and payee.
(a) Employer - Employee

(b) Principal- Agent
(c) Agent - Principal
Page 116
MCQ SALARY
(5) A teacher receives remuneration for setting question paper for examination. What is the chargeability position of this remuneration?
Choose the most appropriate answer.
(a) It will be chargeable under the head salaries.
(b) It will be chargeable under the head income
from other sources.
(c) It will not be charged to tax under any head. (d) It will be allowed as deduction.
(6) Which section gives the definition of salary?

(a) Section 15 (b) Section 17(1)
(c) Section 10 (d) None of these.
(7) Which amongst the following is not included under the inclusive definition of salary?
(a) Wages (b) Any annuity or pension
(c) Employer's contribution in RPF in excess of (d) None of these.
12 % of salary
(8) Mr. A joins a job on 1-7-2017 at monthly salary of `25,000. His salary becomes due on last day of each month. His taxable salary for A
Y 2018-19 will be -
(a) `3,00,000 (b) `2,25,000

(c) `2,50,000 (d) `2,00,000
(9) Mr. A joins a job on 1-7-2017 at monthly salary of `20,000. His salary becomes due on first day of next month. His taxable salary for
AY 2018-19 will be-
(a) `1,60,000 (b) `1,80,000

(c) `2,20,000 (d) `2,40,000
(10) Mr. A joins a job on 1-7-2016 at monthly salary of `20,000 in A Ltd. He got an increment of `1,000 in the month of July 2016. His salary
becomes due on last day of each month. His taxable salary for AY 2018-19 will be-
(a) `2,49,000 (c) (b) `2,48,000

`2,40,000 (d) `2,52,000
(11) Mr. A joins a job on 1-7-2016 at monthly salary of `20,000 in A Ltd. He got an increment of ` 1,000 in the month of July 2017. His salary
becomes due on first day of next month. His taxable salary for AY 2018-19 will be-
(a) ` 2,49,000 (b) ` 2,48,000

(c) ` 2,40,000 (d) ` 2,52,000
(12) Salary of S (`40,000 per month) becomes due on the last day of the month but is paid on 7th of next month. Also, salary of April, 2018 and
May, 2018 is received in advance in March, 2018. What will be his gross income for A.Y. 2018-19?
(a) `5,60,000
(b) `4,80,000
(c) `4,40,000
(d) `5,20,000
(13) Mr. A joins a job in the grade of `20,000-500-25,000-1,000-40,000-1,500-60,000 on 1-7-2006 which becomes due on last day of each
month. His taxable salary for AY 2018-19 will be ----------
(a) `3,09,000 (c) (b) `2,97,000

`3,08,000 (d) `3,21,000
(14) Mr. A joins a job in the grade of ` 20,000-500-25,000-1,000-40,000-1,500-60,000 on 1-7-2006 which becomes due on first day of next
month. His taxable salary for AY 2018-19 will be-
(a) `3,09,000 (b)`2,97,000

(c) `3,08,000 (d) `3,21,000
Page 117
MCQ SALARY
(15) Which of the following income is taxable under the head 'income from salary' - (Dec. 2011)
(a)' Salary received by a partner from firm (b) Salary received by a Member of Parliament
(c) Salary of a Government Officer (d) None of the above.
(16) Mr. A joins a job in the grade of ` 20,000-500-25,000-1,000-40,000-1,500-60,000 on 1-7-2006 which becomes due on first day of next
month. He is also dearness allowance of 100 of salary. His taxable salary for AY 2018-19 will be-
(a) ` 6,18,000 (b) ` 5,94,000

(c) ` 6,16,000
(d) ` 6,42,000
(17) Pankaj joins service on 1" April, 2013 in the grade of 15,000 - (1,000) - 18,000 - (2,000) - 26,000. He shall be paying tax for
the year ended on 31" March, 2018 on the total salary of - (Dec. 2015)
(a) ` 2,16,000 (b) ` 2,40,000

(c) ` 2,28,000
(d) ` 1,80,000
(18) Anjan joins a service is the grade of ` 15,600 - 39,100 plus grade pay of ` 6,000 on 01-08-2017. He also gets dearness
allowance @ 107 of salary. His tax liability for assessment year 2018-19 will be - (Dec. 2014)
(a) ` 11,243 (b) ` 5,940

(c) Nil (d) ` 9,030
ALLOWANCES
(19) ------------------- is granted to an employee by his employer to meet expenditure actually incurred on payment of rent.
(a) Dearness Allowance (b) House Rent Allowance

(c) City Compensatory Allowance (d) None of these.
(20) Which amongst the following is a fully taxable allowance?
(a) Conveyance allowance (b) Travelling allowance

(c) Medical allowance (d) Research allowance
(21) For an employee in receipt of hostel expenditure allowance for his three children, the maximum annual allowance exempt under Section
10(14) is-
(a) ` 10,800 (b)` 7,200

(c) ` 9,600
(d) ` 3,600
(22) For an employee in receipt of education allowance for his three children, the maximum annual allowance exempt under Section 10(14) is
---------------------
(a) ` 1,200 (b) `2,400

(c) ` 4,800
(d) `1,600
(23) Sneha is an employee in a private company. In the previous year she received salary ` 1,80,000 and house rent allowance of ` 60,000. She
is residing with her parents. Her taxable house rent allowance will be -
(a) Nil (b) ` 60,000

(c) ` 42,000
(d) ` 18,000
(24) Murali employed in Megha Ltd., Delhi. He is paid house rent allowance of ` 9,000 per month in financial year 2016-17.
His salary for the purpose of computation of house rent allowance relief may be taken as ` 20,000 per month. Murali pays actual rent of
` 10,000 per month. How much of the house rent allowance is tax-free - (June 2016)
(a) ` 108,000 (b) ` 1,20,000
(c) ` 96,000 (d) ` 60,000
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MCQ SALARY
(25) Children education allowance received by an employee from his employer is ` 80 per month per child for 3 children.
Taxable education allowance will be - (Dec. 2014)
(a) ` 960
(b) ` 480
(c) Nil
(d) `1,200
(26) Chandan, a handicapped employee receives ` 1,500 per month as transport allowance from his employer. His actual expenditure on
transport is ` 1,000 per month. The amount of transport allowance taxable under the head income from salaries will be ------
(Dec. 2014)
(a) ` 18,000 (b) Nil
(c) ` 6,000 (d) ` 8,000.
(27) Calculate the exempt HRA from the following details : X is entitled to a basic salary of ` 50,000 p.m. and dearness allowance of `
10,000 p.m., 40 of which forms part of retirement benefits. He is also entitled to HRA of ` 20,000 p.m. He actually lives with his
parents in Mumbai and pays rent of ` 20,000 p.m.
(a) Nil
(b) `1,75,200
(c) ` 64,800
(d) ` 2,40,000
(28) Raman purchased a residential house property in Ahmedabad on loan for which he paid an interest of ` 50,000 during the previous
year. He is working in Delhi and getting an HRA of ` 4,000 per month. He can claim exemption/ deduction for -----------
(June, 2015)
(a) Only HRA (b) Only interest paid
(c) Either interest paid or HRA but not both (d) Both HRA and interest paid.
(29) Y received children education allowance of ` 500 pm for 1 of his children. Calculate taxable amount of children education
allowance for the assessment year 2018-19 if entire ` 500 is spent by Y.
(a) Nil
(b) ` 4,800
(c) ` 6,000
(d) ` 3,600
(30) Arun, a resident of Meerut, receives ` 38,000 per annum as basic salary. In addition, he gets ` 12,000 p.a. as dearness allowance,
which does not form part of basic salary, 5 commission on turnover achieved by him (turnover achieved by him during the
relevant previous year is ` 6,00,000) and ` 7,000 per annum as house rent allowance. He, however, pays ` 8,000 per annum as
house rent. The quantum of house rent allowance exempt from tax is - (June 2007)
(a) Nil
(b) ` 8,000
(c) ` 7,000
(d) ` 1,200
(31) Ramesh a resident of Iaipur, receives ` 25,000 p.m. as basic salary. In addition, he gets ` 10,000 p.m. as dearness allowance, which
form part of basic salary and ` 18,000 p.m as house rent allowance. He, however, pays ` 20,000 p.m. as house rent. The quantum
of house rent allowance taxable is ----------------------------
(a) ` 48,000 (b) ` 6,000 (d)

(c) Nil ` 24,000
(32) The maximum exemption in respect of transport allowance granted to an employee to meet his expenditure for the
purpose of commuting between the place of his residence and the place of his duty shall be - (June, 2009)
(a) ` 1,200 per month (c) (b) ` 1,400 per month (d)
` 1,600 per month ` 1,800 per month
(33) The maximum exemption in respect of transport allowance granted to an blind employee to meet his expenditure for the
purpose of commuting between the place of his residence and the place of his duty shall be - (June, 2009)
(a) ` 1,600 per month (b) Nil

[c) ` 3,200 per month (d) ` 20,000 per month
Page 119
MCQ SALARY
(34) Rajesh ,an employee of transport company receives ` 25,000 p.m. as basic salary. In addition, he gets ` 12,000 p.m. as transport
allowance to meet his personal expenditure incurred in course of his official duty of running the transport from one place to
another. He has expended ` 60,000 for the said purpose during the previous year. He is not in receipt of daily allowance. The
quantum of transport allowance taxable is -
(a) ` 43,200 (b) `24,000

(c) ` 1,44,000 (d) ` 84,000
(35) Kamlesh an employee of XYZ Ltd. receives ` 25,000 p.m. as basic salary. In addition, he gets ` 12,000 p.m. as dearness allowance
and ` 15,000 p.m as uniform allowance. He has expended ` 60,000 to meet expenditure incurred on purchase and maintenance of
uniform during the previous year. His taxable salary is -
(a) ` 3,00,000 (b) ` 4,44,000

(c) ` 6,24,000 (d) ` 5,64,000
(36) Sahil an employee of XYZ Ltd. receives ` 25,000 p.m. as basic salary. In addition, he gets ` 15,000 p.m. as dearness allowance and
` 240 p.m as for three children as education allowance. His taxable salary is -
(a) ` 4,80,000 (b) ` 4,86,240

(c) ` 4,80,480 (d) ` 4,80,960
(37) Naveen an employee of XYZ Ltd. receives ` 30,000 p.m. as basic salary. In addition, he gets ` 10,000 p.m. as dearness
allowance,not forming part of salary and ` 2,000 p.m as fixed medical allowance. His taxable salary is -
(a) ` 5,04,000 (b) ` 4,89,000

(c) ` 4,80,000 (d) ` 3,84,000
(38) Sneha is an employee in a private company. In the previous year she received salary ` 1,80,000 and entertainment allowance
` 12,000. She spent ` 6,000 on entertainment. Under section 16(ii), she is entitled to deduction of -
(a) ` 12,000 (b) ` 6,000

(c) ` 5,000 (d) Nil.
(39) Manav receives ` 50,000 as basic salary from the government during the financial year 2017-18 and receives ` 9,000 by way of
entertainment allowance which he spends in full for official purposes. The amount deductible under section 16(ii) in re spect of
the allowance will be ------------- (Dec. 2010)
(b) ` 9,000
(a) ` 5,000 (c)
` 10,000
(40) Ravi is receiving ` 10,000 as medical allowance from his employer. Out of this, he spends ` 5,000 on his own medical treatment,
` 2,000 on the medical treatment of his dependent wife and another ` 3,000 for the medical treatment of his major son who is not
a dependent on him. The amount of medical allowance taxable in his hand is - (June 2016)
(a) ` 10,000 (b) ` 5,000

(c) ` 3,000 (d) Nil
PERQUISITES
(41) Any benefit or an amenity provided to the employee by the employer directly or indirectly whether in cash on in kind in
addition to salary & wages is known as ------------------
(a) Perquisite (c) (b) Allowance

Deduction (d) Exemption
(42) Who amongst the following is considered to be a specified employee?

(a) An director employee of the company. (b) An employee having the substantial interest in
the company.
(c) An employee whose income chargeable under (d) All of the above.
the head salary excluding value of all non-
monetary benefits exceeds ` 50,000.
Page 120
MCQ SALARY
(43) Rent free accommodation provided to employee by the employer is
(a) Exempt from tax. (b) Taxable in case of specified employees only.
(c) Taxable in case of non specified employee. (d) Taxable whether the employee is a specified
employee or non specified employee.
(44) Any sum paid by the employer in respect of any obligation, for which such payment would have b een payable by the employee is
(c) Taxable in case of non specified employee. (d) Taxable whether the employee is a specified
(45) The amount of any contribution to an approved superannuation fund by the employer in respect of the employee is
exempt from tax upto - (June, 2009)
(a) ` 1,00,000 (b) ` 1,50,000

(c) ` 2,00,000 (d) Nil
(46) Credit card facility provided to employee by the employer is _
(c) Taxable in case of non specified employees only. (d) Taxable whether the employee is a specified
(47) Manav receives ` 50,000 p.m. as basic salary from the government during the financial year 2017-18 and has been provided rent
free accommodation in [aipur (population exceeds 25 lakhs). The license fee determined by the Government for such
accommodation is ` 1,000 p.m. The market rent of such accommodation is ` 5,000 p.m. The taxable value of rent free
accommodation will be _
(a) ` 12,000
(b) ` 60,000
(c) ` 90,000
(d) Nil
(48) Kapil gets salary of ` 12,000 p.m. and is provided with rent-free unfurnished accommodation at Pune (population 20 lakh). House
is owned by employer, fair rental value of which is ` 1,400 p.m. House was provided with effect from 1 5lJuly, 2017. Value of the
perquisite of rent-free accommodation will be - (Dec. 2015)
(a) ` 21,600 (b) ` 10,800

(c) ` 16,200 (d) ` 12,600
(49) Satish is employed as chief enginer in Gama Ltd., Chennai w.e.f. 1 st April, 2017 for a consolidated salary of ` 60,000 per month.
He is provided with rent-free unfurnished accommodation owned by the employer from 1 51 July, 2017 onwards. The value of
taxable perquisite is ------------ (June 2016)
(a) ` 1,08,000 (b) ` 81,000

(c) ` 72,000 (d) ` 54,000
(50) Paresh receives ` 25,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 10,000 p.m. (not forming
part of retirement benefit) and has been provided rent free accommodation in Jaipur (population exceeds 25 lakhs) which is
owned by employer. The market rent of such accommodation is ` 5,000 p.m. The taxable value of rent free accommodation will
be ----------
(a) ` 63,000 (b) ` 45,000

(c) ` 60,000 (d) ` 30,000
(51) Rakesh receives ` 25,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 10,000 p.m. (forming part
of retirement benefit) and has been provided rent free accommodation in Alwar (population is ` 15lakhs) which is owned by
employer. The market rent of such accommodation is ` 5,000 p.m. The taxable value of rent free accommodation will be -
(a) ` 42,000 (b) `31,500

(c) ` 60,000 (d) ` 63,000
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MCQ SALARY
(52) Sunny receives ` 15,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of `5,000 p.m. forming part of
retirement benefit and has been provided rent free accommodation, which is owned by employer, in Tonk (population is 8 lakhs). The
market rent of such accommodation is ` 1,000 p.m. The taxable value of rent free
accommodation will be -----------------------
(a) ` 18,000 (b) ` 13,500
(c) ` 12,000 (d) ` 36,000
(53) Ravi receives ` 25,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit and has been provided rent free accommodation, which is taken on rent, in Tonk (population is 8 lakhs). The
employer has paid monthly rent of ` 4,000. The taxable value of rent free accommodation
will be -
(a) ` 36,000 (b) ` 48,000
(c) ` 72,000 (d) `45,OOO
(54) Chhavi receives ` 25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit and has been provided rent free accommodation, which is taken on rent, in Delhi (population exceeds 25 lakhs). The
employer has paid monthly rent of ` 10,000. The taxable value of rent free
accommodation will be -
(a) ` 36,000 (b) ` 48,000
(c) `72,000 (d) ` 1,20,000
(55) Chhaya receives ` 25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit and has been provided, accommodation owned by employer in Delhi (population exceeds 25 Iakhs). The employer
has charged rent of ` 4,000 p.m. from Chhaya. The taxable value of concessional
accommodation will be -
(a) ` 24,000 (b) ` 48,000
(c) ` 72,000 (d) Nil

(56) Kavya receives ` 25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided accommodation owned by employer with effect from I." October 2016 in Delhi (population
exceeds 25Iakhs). The market rent of such accommodation is `2,000 p.m. The taxable value of rent free accommodation for A/Y
2018-19 will be -
(a) ` 36,000 (b) `12,000
(c) `72,000 (d) ` 48,000

(57) Garima receives ` 25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided accommodation in hotel in Delhi (population exceeds 25 lakhs). The employer has paid
monthly rent of `8,000 for such hotel accommodation. The taxable value of concessional accommodation for AY 2017-18 will be -
(a) ` 1,15,200 (b) ` 96,000

(c) ` 72,000 (d) ` 48,000
(58) Savita receives ` 25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided accommodation in Delhi (population exceeds 25 lakhs) with effect from 01-04-2017. The
accommodation is owned by employer. The employer has also provided furniture original cost ` 50,000 (WDV ` 40,500) with effect
from 1-10-2017. The market rent of such accommodation is `12,000 p.m. The taxable value of concessional accommodation for AY
2018-19 will be -
(a) ` 74,500 (b) `77,500

(c) ` 76,050 (d) ` 74,025
(59) Remote area means an area that is located at least --------------------------kilometers away from a town having a population not
exceeding --------------------------based on latest published all-India census.
(a) 20, 40,000 (b)40, 20,000
(c) 40, 40,000 (d) 20, 20,000
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MCQ SALARY
(60) When the employee is provided accommodation in a hotel for a period not exceeding---------------------- days on account of his
____________________________________________________________________________________ _
transfer from one place to another, then the value of such perquisite shall be Nil.
(a) 10 (b) 15
(c) 90 (d) 60
(61) Accommodation provided to employee working at mining site which, being of a temporary nature and having plinth
area not exceeding ------------------sq. feet, is located not less than ------------------kms. away from the local limits of any
municipality or a cantonment board shall not be taxable.
(a) 800, 8 (b) 1000,8

(c) 800,40 (d) 800,20
(62) Where on account of transfer of employee from one place to another, he is provided with accommodation at the new place of posting
while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such
accommodation which has the lower value for a period not exceeding days.
(a) 60 (b) 90
(c) 30 (d) 120
(63) Ramesh, an employee of Gauri & Co. of Delhi, received the following payments during the previous year ended 3r t March, 2018 :
Basic salary : ` 2,40,000 and dearness allowance: 40 of basic salary (40% forming part of salary). Rent-free unfurnished
accommodation provided by employer for which rent paid by employer being ` 50,000. The value of taxable perquisite in the hands of
Ramesh will be ------------------
(Dec. 2014)
(a) ` 41,760 (b) `50,000

(c) ` 36,000 (d) ` 52,500.
(64) Employer provides a car (below 1.6 Ltr. capacity) alongwith a driver to X partly for official and partly for personal purpose. The
expenses incurred by the company are: Running and maintenance expenses - ` 32,000 & Driver's salary : ` 36,000.The Taxable value of
LAR taxability for assessment year 2018-19 will be-
(a) ` 21,600 (b) ` 10,800

(c) ` 32,400 (d) ` 39,600
(65) Garima receives ` 2,500 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of ` 1,500 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity exceeds 1.6 Its) owned by employer for her personal use.
Expenditure incurred by the employer on running and maintenance of the motor car during the relevant previous year amounted `
15,000. The taxable value of car facility for AY 2018-19 will be -------------------
(a) ` 15,000 (c) (b) ` 21,600

` 28,800 (d) Nil
(66) Reshma receives ` 50,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of ` 25,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity exceeds 1.6 Its) owned by employer for her personal use. The
original cost of car is ` 6,00,000 (WDV ` 5,10,000). Expenditure incurred by the employer on running and maintenance of the motor car
during the relevant previous year amounted ` 75,000. The salary of driver paid by the employer - ` 96,000. The taxable value of car
facility for AY 2018-19 will be _
(a) ` 2,31,000 (c) (b) ` 39,600

` 2,22,000 (d) ` 1,71,000
(67) Sushma receives ` 50,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of ` 25,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity exceeds 1.6lts) owned by employer for her personal use as well as
official use. The original cost of car is ` 6,00,000 (WDV ` 5,10,000). Expenditure incurred by the employer on running and maintenance
of the motor car during the relevant previous year amounted ` 75,000. The salary of driver paid by the employer –
` 96,000. The taxable value of car facility for A Y 2018-19 will be -------------
(a) ` 2,31,000 (b) ` 39,600
(c) ` 2,22,000 (d) ` 1,71,000
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MCQ SALARY
(68) Karishma receives ` 25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity does not exceed 1.6 Its) owned by employer for her personal use.
The original cost of car is ` 3,50,000 (WDV ` 3,15,000). Expenditure incurred by the employer on running and maintenance of the motor
car during the relevant previous year amounted ` 25,000. The salary of driver paid by the employer - ` 48,000. The taxable value of car
facility for A Y 2018-19 will be -
(a) ` 1,08,000 (b) `32,400
(c) ` 1,04,500 (d) `33,600
(69) Shraddha receives `25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity does not exceed 1.6lts) owned by employer for her personal as
well as official use. The original cost of car is ` 3,50,000 (WDV `3,15,000). Expenditure incurred by the employer on running and
maintenance of the motor car during the relevant previous year amounted `25,000. The salary of driver paid by the employer - `48,000.
The taxable value of car facility for AY 2018-19 will be-
(a) ` 1,08,000 (b) `32,400
(c) `1,04,500 (d) `33,600
(70) Neerja receives `25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity does not exceed 1.6lts) owned by employer for her personal use.
The original cost of car is ` 3,50,000 (WDV `3,15,000). Expenditure incurred by the employer on running and maintenance of the motor
car during the relevant previous year amounted `25,000. The salary of driver paid by the employer - ` 48,000. The employer recovers `
2,000 p.m. from the employee. The taxable value of car facility for AY 2018-19 will be-
(a) `1,08,000 (b) `84,000
(c) `80,500 (d) `32,400
(71) Shailja receives `30,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity exceeds 1.6 Its) owned by employer for her official use. The
original cost of car is ` 3,50,000 (WDV `3,15,000). Expenditure incurred by the employer on running and maintenance of the motor car
during the relevant previous year amounted ` 25,000. The salary of driver paid by the employer - ` 48,000. The taxable value of car
facility for A Y 2018-19 will be -
(a) Nil (b) `84,000
(c) `80,500 (d) `32,400
(72) Kareena receives `30,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity exceeds 1.6lts) owned by employer for commuting between office
and residence. The original cost of car is `3,50,000 (WDV ` 3,15,000). Expenditure incurred by the employer on running and
maintenance of the motor car during the relevant previous year amounted `25,000. The salary of driver paid by the employer - `48,000.
The taxable value of car facility for AY 2018-19 will be -
(a) `32,400 (b) `84,000
(c) `80,500 (d) Nil
(73) Priyanka receives ` 30,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. She has been provided motor car (engine capacity exceeds 1.6lts) owned by employer for her personal use. The car
is self driven by her. The original cost of car is ` 3,50,000 (WDV ` 3,15,000). Expenditure incurred by the Priyanka on running and
maintenance of the motor car during the relevant previous year amounted ` 25,000. The taxable value of car facility for AY 2018-19 will
be-
(a) ` 31,500 (b) `10,800
(c) `35,000 (d) `21,600
(74) Sunil receives ` 30,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of `15,000 p.m. forming part of
retirement benefit. He has been provided motor car (engine capacity exceeds 1.6lts) owned by employer for his personal as well as
official use. The car is self driven by him. The original cost of car is ` 3,50,000 (WDV ` 3,15,000). Expenditure incurred by Sunil on
running and maintenance of the motor car during the relevant previous year amounted `25,000. The taxable value of car facility for AY
2018-19 will be -
(a) ` 31,500 (b) `10,800
(c) ` 35,000 (d) `21,600
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MCQ SALARY
(75) Paresh receives ` 30,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit. He has been provided motor car (engine capacity does not exceed 1.6lts) owned by employer for his personal as well
as official use. The original cost of car is ` 3,50,000 (WDV ` 3,15,000). Expenditure incurred by Paresh on running and maintenance of
the motor car during the relevant previous year amounted ` 25,000. The salary of driver paid by the employer amounted ` 48,000. The
taxable value of car facility for A Y 2018-19 will be _
(a )`83,000 (b) ` 18,000

(c) ` 10,800 (d) ` 7,200
(76) Sahil receives ` 30,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit. He owns a motor car (engine capacity does not exceed 1.6 Its) which is used by him for personal purposes. The
original cost of car is ` 3,50,000. Expenditure incurred by employer on running and maintenance of the motor car during the relevant
previous year amounted ` 25,000. The salary of driver paid by the employer amounted ` 48,000. The taxable value of car facility for A Y
2018-19 will be -
(a) `73,000 (b) ` 55,000

(c) ` 40,600 (d) Nil
(77) Abdul receives ` 30,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit. He owns a motor car (engine capacity does not exceed 1.6 Its) which is used by him for personal as well as official
purposes. The original cost of car is ` 3,50,000. Expenditure incurred by employer on running and maintenance of the motor car during
the relevant previous year amounted ` 25,000. The salary of driver paid by the employer amounted ` 48,000. The taxable value of car
facility for A Y 2018-19 will be _
(a) `33,400 (b) ` 73,000

(c) ` 40,600 (d) ` 32,400
(7S) Tapas receives ` 30,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit. He owns a motor car (engine capacity exceeds 1.6 Its) which is used by him for personal as well as official purposes.
The original cost of car is ` 3,50,000. Expenditure incurred by employer on running and maintenance of the motor car during the
relevant previous year amounted ` 25,000. The salary of driver paid by the employer amounted ` 48,000. The taxable value of car facility
for AY 2018-19 will be -
(a) ` 33,400 (b) ` 73,000

(c) ` 40,600 (d) `32,400
(79) Mr. A is provided with two cars, to be used for official and personal work by his employer ABC Ltd. The following information is
available from the company records:
Car 1` Car2 `
Engine Capacity I.8Its 1.8lts
Cost of the Car 6,00,000 4,00,000
Running and maintenance (Borne by the company) 40,800 28,000
Salary of driver (Borne by the company) 24,000 24,000
The taxable monetary emoluments of Mr. A are ` 90,000. The taxable 'Perk' in respect of Cars on the assumption car 2, is exclusively
used by 'N for personal purpose will be -
(a) ` 1,31,600 (b) ` 1,57,200

(c) ` 72,000 (d) ` 2,16,800
(80) Mr. Ramesh is provided with two cars, to be used for official and personal work by his employer ABC Ltd. The following information
is available from the company records:
Car 1` 1.8 Car2`

Engine Capacity Its 1.6 Its
Cost of the Car 12,00,000 8,00,00
Running and maintenance (Borne by the company) 40,800 0 28,000
Salary of driver (Borne by the company) 96,000 84,000
Page 125
MCQ SALARY
The taxable monetary emoluments of Mr. A are ` 9,00,000. The taxable 'Perk' in respect of Cars will be -
(a) ` 2,31,600 (b) ` 2,89,200

(c) ` 4,48,800 (d) ` 72,000
(81) Jasveer receives ` 30,000 p.m. as basic salary from ABC Ltd. He is also provided dearness allowance of ` 15,000 p.m. forming part of
retirement benefit. He has been provided cook for which the actual cost to employer is ` 60,000 Jasveer has paid ` 20,000 to the cook.
The taxable value of cook perquisite will be -
(a) ` 60,000 (b) ` 80,000 (d)

(c) ` 40,000 Nil
(82) Manoj receives ` 30,000 p.m. as basic salary from ABC Ltd. He is also provided dearness· allowance of ` 15,000 p.m. forming part of
retirement benefit. He has been provided free electricity facility for which the actual cost to employer is ` 58,000. The employer has
recovered ` 8,000 from Manoj on account of such facility. The taxable value of electricity
perquisite will be -
(a) ` 58,000 (b) ` 66,000 (d)
(c) ` 50,000 Nil
(83) Mahesh receives ` 30,000 p.m. as basic salary from Delhi Public School. He is also provided dearness allowance of ` 15,000 p.m.
forming part of retirement benefit. His son is studying in the school for which the employer charges ` 200 p.m. The cost of such
education in a similar institution in the locality is ` 3,500 p.m. The taxable value of education
facility will be -
(a) ` 39,600 (b) ` 27,600 (d)
(c) ` 42,000 Nil
(84) Ashraf is an employee of Moon Public School. His daughter, Zara, is studying in the said school at a concessional fees of
` 600 per month (Actual fee : ` 4,000 per month). The amount taxable in the hands of Ashraf will be - (June, 2015)
(a) ` 48,000 (b) ` 7,200 (d) `

(c) Nil 40,800.
(85) Ashok took an interest-free loan of ` 15,000 from B Ltd. (the employer). Assuming that the market rate of interest on
similar loan is 10. the taxable value of the perquisite in the hands of Ashok will be - (June, 2015)
(b) ` 1,500
(a) ` 150 (c)
Nil
(86) During the previous year 2017-18, Barun received a watch worth ` 20,000 from his employer. The taxable value of the
watch will be _ (June, 2015)
(a) ` 15,000 (b) ` 20,000

(c) Nil (d) None of the above.
(87) Rajesh receives ` 30,000 p.m. as basic salary from Delhi Public School. He is also provided dearness allowance of ` 15,000 p.m. forming
part of retirement benefit. His son is studying in the school for which the employer charges ` 200 p.m. The cost of such education in a
similar institution in the locality is ` 1,200 p.m. The taxable value of education facility will be-
(a) ` 14,400 (c) (b) ` 12,000 (d)

` 16,800 Nil
(88) Suresh is pilot of Jet airways. He receives ` 30,000 p.m. as basic salary. He is also provided dearness allowance of ` 15,000 p.m. forming
part of retirement benefit. He has been provided transport facility in the conveyance owned by the company. The amount charged to
general public on account of such facility is ` 25,000. The employer has recovered ` 5,000 from Suresh. The cost to employer is ` 18,500.
The taxable value of transport facility will be -
(a) ` 25,000 (b) ` 20,000 (d)

(c) ` 18,500 Nil
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MCQ SALARY
(89) Kamal is employee of Kampala Roadways Pvt. Ltd. engaged in transportation of passengers. He receives `30,000 p.m. as basic
salary. He is also provided dearness allowance of `15,000 p.m. forming part of retirement benefit. He has been provided transport
facility in the conveyance owned by the company. The amount charged to general public on account of such facility is `25,000.
The employer has recovered `5,000 from Kamal. The cost to employer is ` 18,500. The taxable value of transport facility will be -
(a) `25,000 (b) `20,000

(c) `18,500 (d) Nil
(90) "Family" for the purpose of medical facility means –

(b) children of that individual
(a) spouse of that individual
(c) Parents, brothers and sisters of the individual (d) All of the above or any of them wholly or
mainly dependent on the individual.
(91) Ms. Janhvi is provided with an interest free loan by her employer for the purchase of a ho use. The value of the perquisite
shall be - (June 2016)
(a) Simple interest computed at the rate charged by the (b) Simple interest computed at the rate charged
Central Government to its employees on 1st April of by State Bank of India on 1st April of the
the previous year
previous year
(c) Simple interest computed at the rate charged by
(d) Simple interest computed at the rate
National Housing Bank on 1st April of the previous
determined by the employer on 1st April of previous
year
year.
(92) Kamal is employee of Apollo Hospitals Pvt. Ltd. He receives `30,000 p.m. as basic salary. He is also provided dearness allowance
of `15,000 p.m. forming part of retirement benefit. The employer has incurred an expenditure of `25,000 on medical treatment of
his minor child and `75,000 on medical treatment of his brother not dependent on Kamal in the hospital maintained by the
employer. The taxable value of medical facility will be -
(a) ` 25,000 (b) `75,000

(c) ` 85,000 (d) `60,000
(93) Any sum paid by the employer in respect of an expenditure incurred by an employee on his medical treatment or treatment of any
of his family member in private hospital is exempt upto -
(a) `25,000 (b) `15,000

(c) `30,000 (d) `60,000
(94) Himalaya Ltd. reimburses the following expenditure on medical treatment of the son of an employee Karan. The
treatment was done at UK : (June 2005)
(i) Travelling expenses `1,15,000.
(ii) Stay expenses at UK permitted by RBI `45,000 (Actual expenses `70,000). (iii)
Medical expenses permitted by RBI `50,000 (Actual expenses `70,000).
The taxable perquisites in the hands of Karan, if his annual income from salary was `1,56,000 will be -
(a) `2,55,000 (b) `45,000
(c) `1,60,000 (d) Nil
(95) Mr. M was granted an option on 1-7-2016 by the company to purchase 500 equity shares at a price of `250 per share. The period
during which the option can be exercised to purchase 500 shares at a pre-determined price of ` 250 per share commencing on
1-7-2016 and ending on 31-3-2018. Mr. M exercised the option on 15-3-2017 to purchase 500 shares. Fair market value on the said
date was ` 500 on the Bombay Stock Exchange and ` 600 on the National Stock Exchange. The NSE has recorded the higher
volume of trading in that share. The company has allotted him 500 shares on 24th April, 2017. The fair market value on the date
of allotment was `800 per share on NSE and `850 on the BSE, that has recorded the higher volume of trading in that share. The
taxable value of employees stock option plan will be -
(a) ` 1,25,000 (b) ` 1,75,000

(c) `2,75,000 (d) `3,00,000 )
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MCQ SALARY
(96) Ashish is employee of ABC Pvt. Ltd. He receives ` 30,000 p.m. as basic salary. He is also provided dearness allowance of ` 15,000pm.
forming part of retirement benefit. The employer has provided interest free loan of ` 1,00,000 on 1-4-2017 for medical treatment of
specified diseases. The rate of interest charged by SBI on such loan is 12% p.a. The entire loan is outstanding during the previous year.
The taxable value of perquisite will be -
(a) ` 12,000 (b) ` 1,00,000
(c) ` 1,12,000 (d) Nil
(97) Interest-free loan to an employee, where the amount of loan does not exceed anyone of the following, shall be treated as
the tax-free perquisite in all cases under section 17(2) - (June, 2009)
(a) ` 10,000
(b) ` 15,000
(c) ` 20,000
(d) ` 25,000
(98) A Ltd. has advanced an interest free loan of ` 5,00,000 to B for purchase of car on 1-5-2017. B has been repaying the loan in instalments
of ` 20,000 p.m. on the 1st of next month. Compute the value of perquisite on account of interest assuming the interest charged by SBI is
10% p.a.
(a) ` 34,833 (b) ` 36,667

(c) ` 40,000 (d) ` 50,000
(99) Prakash obtained interest-free loan of ` 20,000 from his employer company for purchasing a two-wheeler. The market rate of interest on
such loan is 20% per annum. The lending rate of State Bank of India is 12.5 and that of the private sector banks is 16. The taxable
amount of this perquisite will be computed at the rate of - (Dec. 2010)
(b) 16%
(a) 20%
(d) Nil rate.
(c) 12.5%
(100) Aakash obtained interest-free loan of ` 2,00,000 from his employer company for purchasing a four-wheeler on 1-10-2017.
The market rate of interest on such loan is 20 per annum. The lending rate of State Bank of India is 12.5 and that of the private sector
banks is 16. The entire loan is outstanding as on 31-03-2018. The taxable amount of this perquisite for AY 2018-19 will be-
(a) ` 12,500
(b) `25,000
(c) ` 20,000
(d) ` 16,000
(101) Gift to an employee, where the amount of gift is below anyone of the following, shall be treated as the tax-free perquisite in all cases
under section 17(2) -
(a) ` 5,000
(b) ` 50,000
(c) ` 25,000
(d) ` 20,000
(102) The value of free food and non-alcoholic beverages provided by the employer to an employee during working hours provided in a
remote area shall be -
(a) Exempt upto ` 50 per meal. (b) Fully taxable
(c) Fully exempt (d) Exempt upto ` 20,000
(103) Prakhar is employee of ABC Pvt. Ltd. He receives ` 30,000 p.m. as basic salary. He is also provided dearness allowance of ` 15,000 p.m.
forming part of retirement benefit. The employer has provided free refreshment during working hours. The expenditure incurred by the
employer is ` 25,000. The company works for 300 days during the year. The taxable value of perquisite will be -
(a) ` 25,000 (b) ` 10,000

(c) ` 15,000 (d) Nil
(104) Ramesh is employee of ABC Pvt. Ltd. He receives ` 30,000 p.m. as basic salary. He is also provided dearness allowance of ` 15,000 p.m.
forming part of retirement benefit. The employer has provided free lunch during office hours and cost per meal is ` 150. The company
works for 300 days during the year. The taxable value of perquisite will be -
(a) ` 45,000 (c) (b) ` 30,000

` 15,000 (d) Nil
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(105) Sachin is employee of ABC Pvt. Ltd. He receives `30,000 p.m. as basic salary. He is also provided dearness allowance of `15,000
p.m. forming part of retirement benefit. The employer has provided health club facility for which expenditure incurred by the
employer is `45,000 and `15,000 is recovered from the employee. The taxable value of perquisite will be -
(a) `45,000 (b) `30,000

(c) `60,000 (d) Nil
(106) Gyanesh is employee of ABC Pvt. Ltd. He receives `30,000 p.m. as basic salary. He is also provided dearness allowance
of`15,000 p.m. forming part of retirement benefit. The employer has paid credit card fees of `15,000 and also amount of `35,000
on account of credit card bills of purchases made by Gyanesh for his personal purposes. `5,500 is recovered from Gyanesh by the
employer. The taxable value of perquisite will be -
(a) `44,500 (b) `50,000

(c) `29,500 (d) Nil
(107) Surbhi is an employee of ABC Pvt. Ltd. She receives `50,000 p.m. as basic salary. She is also provided dearness allowance of
`15,000 p.m. forming part of retirement benefit. The employer has provided furniture original cost `1,25,000 (WDV `1,00,000)
for her personal use with effect from lSI August 2017. The taxable value of perquisite for AY 2018-19 will be-
(a) `12,500 (b) `10,000

(c) `8,333 (d) `6,667
(108) Ananya is an employee of ABC Pvt. Ltd. She receives `50,000 p.m. as basic salary. She is also provided dearness allowance of
`15,000 p.m. forming part of retirement benefit. The employer has provided computer original cost `65,000 (WDV `26,000) for
her personal use with effect from lSI July 2017. The taxable value of perquisite for AY 2018-19 will be-
(a) `6,500 (b) `2,600

(c) `4,875 (d) Nil
(109) Kamini is an employee of ABC Pvt. Ltd. She receives `50,000 p.m. as basic salary. She is also provided dearness allowance of
`15,000 p.m. forming part of retirement benefit. The employer has transferred motor car on 1 51 September 2017 for `25,000. The
car was purchased by the employer on 1 51 October, 2015 for `3,00,000. The taxable value of perquisite for AY 2018-19 will be-
(a) `2,15,000 (b) ` 1,71,000

(c) `2,45,000 (d) ` 2,45,250
(110) Aaysha is an employee of ABC Pvt. Ltd. She receives `50,000 p.m. as basic salary. She is also provided dearness allowance of
`15,000 p.m. forming part of retirement benefit. The employer has transferred furniture on 1 st September 2017 for `5,000. The
furniture was purchased by the employer on 1 st October, 2014 for `2,00,000. The taxable value of perquisite for AY 2018-19 will
be
(a) `1,55,000 (b) `1,57,000

(c) `1,36,667 (d) `1,42,150
(111) Joy Ltd. transfers a honda city car to hits employee Happy after using it for 4 years and 10 months, for `2,10,000. Cost of
the car is `10,00,000. The value of taxable perquisite in the hands of Happy is - (Dec. 2014)
(a) `1,17,680 (b) `1,99,600

(c) Nil (d) `7,90,000
(112) Palak is an employee of ABC Pvt. Ltd. She receives `50,000 p.m. as basic salary. She is also provided dearness allowance of
`15,000 p.m. forming part of retirement benefit. The employer has transferred computer on 1 st September 2017 for `5,000. The
computer was purchased by the employer on 1 st October, 2016 for `50,000. The taxable value of perquisite for AY 2018-19 will
be-
(a) `45,000 (b) `17,917

(c) `50,000 (d) Nil
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PROFITS IN LIEU OF SALARY, GRATUITY, EARNED LEAVE SALARY, PENSION,

LEAVE TRAVEL CONCESSION AND VRS COMPENSATION
(113) In which of the following case the gratuity received is not taxable?
(a) Government employees (b) Employees covered by Payment of Gratuity Act, 1872
(d) None of these.
(c) Any other employee
(114) Under Section 10(10) of the Income-tax Act, 1961, the maximum amount of gratuity received which is not chargeable to tax
shall be -
(a) ` 3,50,000 (b) `3,00,000
(c) ` 2,50,000 (d) ` 10,00,000
(115) What is the specified limit in case of employees covered by the Payment of Gratuity Act, 1972?
(a) ` 3,00,000 (b) ` 3,50,000
(c) ` 10,00,000
(d) ` 5,00,000
(116) Saurabh is an employee of XYZ Ltd. He retired on 17th Nov. 2017 after rendering service of 38 years, 6 month and 1 day.
Calculate the number of completed years if Saurabh is covered under the Payment of Gratuity Act.
(a) 37 years (b) 39 years
(c) 38 years (d) 38 years 6 months 7 days.
(117) Palak is an employee of ABC Pvt. Ltd. She receives `50,000 p.m. as basic salary. She is also provided dearness allowance of `
15,000 p.m. forming part of retirement benefit. She received gratuity of ` 25,000 during the continuity of employment. The
taxable portion of gral:uity will be -
(a) ` 25,000 (b) ` 15,000

(c) ` 12,500 (d) Nil
(118) Mr. Sunil is a private sector employee. He received ` 12,00,000 as gratuity. He retired on 16th February 2018 after rendering 25
years and 7 months of service. His basic salary was ` 30,000 p.m. His dearness allowance was ` 15,000 p.m (40% forms part of
retirement benefit). He is not covered under Payment of Gratuity Act, 1972. The amount of gratuity exempt will be -
(a) ` 5,40,000 (b) ` 10,00,000

(c) ` 4,50,000
(d) ` 12,00,000
(119) Mr. Raj is a government employee. He received ` 25,00,000 as gratuity. He retired on 16th February 2018 after rendering 25 years
and 7 months of service. His basic salary w.e.f. 01-10-2017 was ` 30,000 per month (prior to that ` 25,000 p.m.). His dearness
allowance was ` 15,400 p.m. The amount of gratuity taxable will be -
(a) Nil (b) ` 18,19,000
(c) ` 20,85,000
(d) ` 25,00,000
(120) Mr. Kalicharan is a private sector employee. He received ` 18,00,000 as gratuity. He retired on 16th February 2018 after rendering
25 years and 7 months of service. His basic salary was ` 30,000 p.m. His dearness allowance was ` 15,000 p.m. He is covered
under Payment of Gratuity Act, 1972. The amount of gratuity exempt will be -
(a) Nil (b) ` 10,00,000
(c) ` 18,00,000 (d) ` 6,75,000
(121) Mr. Pran is a private sector employee. He received ` 12,00,000 as gratuity. He retired on 16th February 2018 after rendering 25
years and 7 months of service. His basic salary was ` 30,000 p.m. His dearness allowance was ` 15,000 p.m. (40% forms part of
retirement benefit). He is not covered under Payment of Gratuity Act, 1972. The amount of gratuity taxable will be -
(a) `4,50,000 (b) `10,00,000

(c) `7,50,000 (d) ` 12,00,000
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(122) The maximum exemption under section 10(10AA) in case of leave encashment is - (1 marks, CS June, 2011)
(a) ` 3,50,000 (b) `3,00,000

(c) ` 10,00,000 (d) `5,00,000
(123) For the purpose of calculation of average salary in case of exemption of leave encashment the average salary drawn
during the period of 10 months immediately preceding the ………………….of retirement.
(a) Month (b) Date
(c) Week (d) Year
(124) What is the annual leave entitlement specified in the Income Tax Act?
(a) 1.5 months (b) 40 days
(c) 30 days (d) None of these.
(125) The amount of exemption for leave encashment in case of Government employee is -
(a) Actual amount of leave encashment received. (b) Fully exempted from tax
(c) ` 3,00,000 (d) 10 months average salary preceding the month
of retirement
(126) Salary received in lieu of unavailed leave during service shall be - (Dec. 2012)
(a) Fully taxable (b) Fully exempted
(c) Partially taxable (d) None of the above.
(127) Mr. Bansal was employed in M/ s. ABC & Associates. After completing 40 years and 7 months of service he retired on
31"October 20l6. The particulars are as under-
(i) Salary at the time of retirement - ` 10,000 p.m,
(ii) Average monthly salary for 10 months ending on 31st October 2017 - `9,500 p.m.
(iii) Leave entitlement – 1.5 months for each completed year of service.
(iv) Leave encashment received for 25 months on basis of salary at the time of retirement - `2,50,000. The
amount of Leave encashment exempt will be -
(a) `2,50,000 (b) `95,000
(c) ` 47,500 (d) `3,00,000
(128) Mr. Kamal was employed in M/ s ABC & Associates. He received `1,00,000 as earned leave salary. He retired on 16 th February
2018 after rendering 24 years and 7 months of service. His basic salary was `15,000 p.m. His dearness allowance was `10,000 p.m
(forms part of retirement benefit). Leave entitlement 1.5 months for each completed year of service. The amount of taxable
earned leave salary:
(a) Nil (b) `1,00,000
(c) `25,000 (d) `50,000
(129) Where the employee is not in receipt of gratuity what will be the exemption?
(a) 1/3rd of the commuted value of the pension (b) 1/2 of Commuted value of the pension which
which he is entitled to receive he is entitled to receive
(c) Wholly exempt (d) Wholly taxable
(130) Bimal is employed in a factory at a salary of `2,400 per month. He also gets dearness allowance @ ` 600 per month and bonus @
`200 per month. He retired on 31st ' December, 2017 and received `75,000 as gratuity under the Payment of Gratuity Act, 1972
after serving 31 years and 4 months in that factory. The amount of gratuity exempt under the Incometax Act, 1961 will be –
(Dec. 2014)
(a) ` 75,000 (b) `53,654

(c) ` 21,346 (d) `10,00,000.
(131) X retired on 15-4-2017 from a company. He was entitled to a pension of `4,000 p.m. At the time of retirement, he got 75% of the
pension commuted and received `1,20,000 as commuted pension. Compute the taxable portion of the commuted pension if he is
entitled to gratuity.
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(a) ` 66,667 (b) ` 53,333

(c) ` 1,20,000 (d) ` 78,667
(132) Akash is entitled to get a pension of ` 6,000 per month from a private company. He gets 60% of the pension commuted and
receives ` 3,60,000. He also receives ` 2,00,000 as gratuity from the same employer. The taxable portion of commuted value of
pension will be - (Dec. 2014)
(a) ` 1,60,000 (b) Nil

(c) ` 3,60,000 (d) ` 60,000
(133) Anand is entitled to get a pension of ` 600 per month from a private company. He gets three-fifth of the pension commuted and
received ` 36,000. He did not receive gratuity. The taxable portion of commuted value of pension is (June, 2012)
(a) ` 16,000 (b) ` 6,000 (d) `

(c) ` 18,000 12,000.
(134) An employee of a company, who was entitled for a gratuity of ` 8,00,000, also received ` 12,00,000 by commuting 40 of his
pension. The taxable amount of commuted pension is - (June 2016)
(a) ` 2,00,000 (b) ` 4,00,000

(c) ` 12,00,000 (d) ` 22,00,000
(135) Mr. Jain retires from a Private service on 1" August 2017. At the time of his retirement after 28 years and 8 months of service, he
was getting the salary of ` 34,000 per month. He gets pension of ` 10,000 per month upto 31st December 2017. With effect from 1st
January 2018 he gets 4/5th of his pension commuted for ` 12,00,000. Determine his gross salary taxable for A Y 2018-19 will be-
(a) ` 6,42,000 (b) ` 6,66,000

(c) ` 5,86,000 (d) ` 1,92,000
(136) Rohan retires from private service on 30th April, 2017 and his pension has been fixed at ` 1,500 p.m. He gets 1/2 of his pension
commuted during January, 2018 and receives ` 75,000. He also gets ` 60,000 as gratuity. The total pension taxable including
commuted value will be - (Dec. 2015)
(a) ` 16,500 (b) ` 41,500

(c) ` 39,250 (d) ` 14,250
(137) What is the specified limit in case of exemption for retrenchment compensation under section 10(10B).
(a) ` 3,00,000 (b) ` 4,00,000 (d)

(c) ` 3,50,000 ` 5,00,000
(138) The exemption of Voluntary Retirement compensation is available to an employee who has completed ______________ years
of service or completed…………………years of age except in case of employees of public sector company.
(a) 10,40 (b) 10,50

(c) 8,40 (d) 10,58
(139) The maximum amount of compensation received at the time of voluntary retirement exempt from tax is - (June 2013)
(b) ` 5,00,000
(a) ` 2,00,000
(d) The actual amount received as compensation. Ans.(b)
(c) ` 10,00,000
(140) Mr. Amit avails the benefit of LTC and went by air (economy class) on a holiday in India on 25-01-2018 along with his wife and
three children consisting of son aged 2 years and twin daughters of 6 years age. Total cost of tickets reimbursed by his empl oyer
was `1,00,000 (` 55,000 for 2 adults and ` 45,000 for the three children). The amount taxable in hands of Amit will be -
(a) ` 15,000 (b) ` 1,00,000

(c) ` 45,000 (d) ` 55,000
Ans.(a)
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(141) Which of the following is not correct about the approved superannuation fund _
(June, 2015)
(a) Employees' contribution qualifies for deduction (b) Any amount contributed by the employer is
under section 80C exempt from tax
(c) Interest on accumulated balance is exempt from (d) Under some circumstances, payments from the fund
income-tax
are chargeable to income-tax Ans.(b)
(142) Statutory provident fund is set up under the provisions of the Provident Funds Act, 1925 is applicable to _
(a) Government organizations (b) Semi-Government organizations,

(c) Local authorities, (d) All of the above Ans.(d)
(143) Mr. Jain retires from a Private service on J" August 2017. At the time of his retirement after 28 years and 4 months of service, he was
getting the salary of ` 34,000 per month. He gets ` 5,00,000 (including accumulated interest of ` 1,00,000) from recognised provident
fund. The employer and Mr. Jain has made a matching contribution. Compute his Income from salary for Assessment Year 2018-19-
(a) ` 1,36,000
(b)` 6,36,000
(c) ` 3,86,000
(d) ` 3,36,000 Ans.(a)
(144) Mrs. Meena retired from service with Sky Ltd. on 31stJanuary, 2018. She received the following amounts from unrecognised provident
fund: (i) Own contribution ` 1,50,000; (ii) Interest on own contribution ` 21,000; (iii) Employer's contribution ` 1,10,000; and (iv)
interest on employer's contribution ` 15,000. How much of the receipt is chargeable to tax as income from salary - (June 2016)
(a) ` 21,000
(b) ` 15,000
(c) ` 1,25,000
(d) ` 1,71,000 Ans.(c)
(145) Mr. Jain retires from a Private service on I" August 2017. At the time of his retirement after 28 years and 4 months of service, he was
getting the salary of ` 34,000 per month. He gets ` 5,00,000 (including accumulated interest of ` 1,00,000) from unrecognised provident
fund. The employer and Mr. Jain has made a matching contribution. Compute his Income from salary for Assessment Year 2018-19 :
(a) ` 1,36,000
(b) ` 6,36,000
(c) ` 3,86,000
(d) ` 3,36,000 Ans.(c)
(146) Deduction ul s 80C on employee's contribution is not available in case of :

(a) Statutory Provident Fund
(b) Recognised Provident Fund
(c) Unrecognised Provident Fund
(d) Public Provident Fund
(147) Employer's contribution to recognised provident fund is taxable in excess of ______________ of salary:
(a) 12% (b) 9.50%
(c) 9 %
(d) 8.50%
(148) For the year ended 3rt March, 2018 Paresh receives a salary of ` 2,80,000. Paresh's contribution to employee'S recognised provident
fund account is ` 59,000 and matching contribution has been made by employer. Taxable income of Paresh will be - (Dec. 2014)
(a) ` 2,46,400 (b) `3,05,400

(c) ` 3,39,000 (d) ` 2,80,000.
(149) Lump sum payment at the time of retirement or termination of service received from unrecognised provident fund to the extent it
consists of interest on employees contribution is :
(a) Taxable as salary
(b) Taxable under Income from other sources (d)
(c) Fully exempt from tax
Taxable as business Income
(150) Mr. A (65 years) submits the following information for the Assessment year 2018-19 :
Gross salary - ` 8,80,000
Income from other sources - ` 60,000
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MCQ SALARY
Contribution to PPF - ` 70,000

Compute the tax liability of A.
(a) ` 99,000 (b) ` 97,000
(c) ` 96,820 (d) ` 99,970
(151) Government of India paid salary of ` 5lakh and allowances/perquisites valued at ` 2.20 lakh to a person who is citizen of India for
the services rendered by him outside India for 5 months during the previous year. His total income chargeable to tax would be
(Dec. 2015)
(a) ` 7,20,000 (b) ` 5,00,000

(c) ` 6,10,000 (d) Nil
(152) Anil is employed in a company with annual salary of ` 8,60,000 (computed). The company paid income-tax of ` 37,000 on his
non-monetary perquisites. He paid ` 1,20,000 to recognised provident fund during the year 2017-18. His total income would be
(Dec. 2015)
(a) `7,77,000 (b) ` 7,40,000

(c) `7,97,000 (d) ` 7,60,000
TRUE/FALSE
(154) No deduction is allowable from income from salary. (June 2009)

Ans: False: Deductions of Entertainment Allowance and tax on employment are allowed under Section 16 under the head
'Income from salaries'.
(155) Allowances paid by any employer outside India would be wholly exempted from income tax. (Dec. 2012)
Ans: False: According to section 10(7) of the Income-tax Act, allowances or perquisites paid or allowed as such outside India by
the Government to a citizen of India for his services rendered outside India would be wholly exempt from tax.
(156) Allowances payable to Central Government employees for serving outside India are fully taxable as salary. (June, 2013)
Ans: False: Allowances payable to Central Government employees for serving outside India are fully exempt under Section
10(7) of the Income-tax Act, 1961.
(157) R, a chartered accountant is employed with R Ltd., as an internal auditor and requests the employer to call the
remuneration as internal audit fee. R shall be chargeable to tax for such fee under the head:
(A) Income from Salaries
(B) Profit and gains from Business and Profession
(C) Income from other Sources.
(D) Income from Salaries or Profit and gains from Business and Profession as desired by R
(158) R Ltd, pays a salary of `2,80,000 to his employee G and undertakes to pay the Income Tax amounting to `3,090
during the previous year 2017-18 on behalf of G. The gross Salary of G shall be:
(A) `2,80,000
(B) `2,83,090
(C) `2,76,910
(D) `2,83,400
(159) R was employed on 1.7.2011 in the grade of `15,000-400-17,000-500-22,000. His gross salary for A/Y 2018-19 shall be:
(A) `1,99,200
(B)`2,04,000
(C) `2,08,500
(D) `2,10,000
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160 R was employed from 1.8.2014 in the grade of `15,000-400-17,000-500-22,000 and his salary was fixed at `16,200
from the date of joining. His gross salary for the assessment year 2018-19 shall be:
(A) `1,99,200
(B) `2,04,000
(C) `2,08,000
(D) `2,10,000
161 R, who is entitled to a Salary of `15,000 p.m., took an advance of `40,000 against the salary in the month of March
2018. The gross salary of R for assessment year 2018-19 shall be:
(A) `2,20,000
(B) `1 ,80,000
(C) `2,25,000
(D) none of the above three
162 R, who is entitled to Salary of `20,000 p.m. took advance salary from his employer for the months of April and May
2018 along with Salary of March 2018 on 31.3.2018. The gross salary of R for assessment year 2018-19 shall be:
(A) `2,40,000
(B) `2,80,000
(C) `2,20,000
163 R is employed with G Ltd., at a salary of `25,000 p.m.. As G Ltd., was in financial crisis, it paid the salary of January
2017 to March 2018 to R only in July 2018. The gross salary of R for assessment year 2018-19 shall be:
(A) `3,00,000
(B) `2,25,000
(C) 3,75,000
164 Salary of R is `30,000 p.m. R had taken Salary in advance for the months of April 2016 to June 2016 in March 2016
itself. The gross salary of R for assessment year 2018-19 shall be:
(A)` 3,60,000
(B) `2,70,000
(C) `3,90,000
165 Salary of R becomes due on 1st of next month and it is paid on 7th of that month. For assessment year 2018-19, the
salary of R shall be taken from:
(A) April 2017 to March 2018
(B) March 2017 to February 2018
(C) February 2017 to January 2018
166 R who was working with another company joined the present employer w.e.f. 1.5.2017 at a Salary of `20,000 p.m. His salary
becomes due on first of next month. He was also entitled to a pension of `8,000 p.m. from his former employer as he retired on
31.3.2017. His pension is taxable on due basis. His gross salary for assessment year 2018-19 shall be:
(A) `2,20,000
(B) `3,16,000
(C) `2,96,000
(D) `3,36,000
167 The Government of India announced increase in the D.A on 15.3.2017 with retrospective effect from 1.5.2012 and the
same were paid on 6.4.2017. The arrears of D.A. shall be taxable in the previous year:
(A) 2016-17
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MCQ SALARY
(B) 2017-18
(C) in respective previous years to which these relate
(D) 2018-19
168 Gratuity shall be fully exempt in the case of:

(A) Central and State Government employee
(B) Central and State Government employees and employees of local authorities
(C) Central and State Government employee, employee of local authorities and employee of statuary corporation
(D) Central and State Government employees and employees of statutory corporation
169 An employee is covered under Payment of Gratuity Act, 1972:

(i) Salary for purpose of calculating 15 days salary for each completed year of service shall be:
(A) last drawn Salary
(B) average Salary of last 10 months
(C) average Salary of last 12 months
(D) average Salary of last 3 completed years.
(ii) Salary for the above purpose shall:

(A) include dearness allowance and fixed percentage of commission on turnover achieved by the employee
(B) not include Dearness allowance
(C) include dearness allowance to the extent the terms of employment provide
(D) include dearness allowance and commission
(iii) If the employee has completed service of 16 years 6 months and 5 days, the number of completed year shall be
taken as:
(A)16years
(B) 17 years
(C) 16 years 6 months and 5 days.
(iv) If he has completed exactly 16 years and 6 months, the completed year shall be:
(A) 16 Years
(B) 17 Years
(C) 16 Years and 6 months
(v) For purpose of computing 15 days' salary, the number of days in a month shall be taken as:
(A) 30 days
(B) 26 days
(C) 31 days
(vi) The maximum exemption of gratuity shall be:
(A) `6,00,000
(B) `3,50,000
(C) `10,00,000
(D) 20 months Salary
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170 An employee is neither a Government employee nor covered under Payment of Gratuity Act, 1972.
(i) Salary for purpose of calculating half month shall be taken as:
(B) 'average salary of 10 months immediately preceding the month of retirement
(C) average salary of each completed year
(D) average salary of 10 months immediately preceding the date of retirement
(ii) Salary for the above purpose:

(A) shall include dearness allowance and fixed percentage of commission on turnover achieved by the employee
(B) shall not include dearness allowance
(C) shall include dearness allowance to the extent the terms of employment so provide and fixed percentage of commission on
turnover achieved by the employee
(D) shall include dearness allowance to the extent the terms of employment so provide
(iii) If the employee has completed 16 years and 8 months of service, the number of completed years shall be taken as:
(A) 17years
(B) 16 years
(C) 16 years and 8 months
(iv) The maximum exemption of gratuity shall be:

(A) `6,00,000
(B) `3,50,000
(C) `10,00,000
(D) 20 months salary
171 R, who claimed the exemption of gratuity in the past to the extent of `3,00,000, was entitled to the gratuity from the present/second
employer amounting to `6,00,000 in the previous year 2017-18 as he retired on 25.10.2017. R shall be entitled to exemption to the
maximum extent of:
(A) `7,00,000
(B) Nil
(C) `6,00,000
(D)`10,00,000
172 R worked with a previous employer for 3 years but was not entitled to any gratuity. He worked with the present employer for 8 years
and 7 months. The completed years of service for calculating exemption of gratuity shall be taken as:
(A) 11 years
(B) 8 years
(C) 9 years
(D) 12 years
173 For purpose of calculating exemption of gratuity, salary shall include:

(A) fixed commission
(B) commission if it is a fixed percentage on turnover
(C) both fixed commission and fixed percentage of commission on turnover
174 Un-commuted pension received by a Government employee is:

(A) exempt
(B) taxable
(C) partially taxable
(D) taxable upto 50% of the uncommuted pension
175 Commuted pension received shall be fully exempt in case of:

(A) Government employee
(B) Government employee or an employee of local authority
(C) Government employee or an employee of local authority or an employee of statutory corporation
Page 137
MCQ SALARY
176 (i) An employee was also entitled to gratuity. He got 60% of his pension commuted and received a sum of `12,00,000 as commuted
pension. The exemption in his case shall be:
(A) `12,00,000
(B) `4,00,000
(C) `6,66,667
(D)`10,00,000
(ii) What shall be exemption if he was not entitled to any gratuity?
176 An employee who was not entitled to gratuity, got 30% of his total pension commuted in the past. He wishes to
commute another 25% of his total pension in the previous year. He shall be allowed exemption to the extent of:
(A) Nil
(B) 20
(C) 255
(D) 31/3 %
177 Encashment of leave salary at the time of retirement is fully exempt in the case of:
(A) Central Government employee
(B) State Government employee
(C) Both Central and State Government employees
(D) Government employee and employee of local authority.
178 Tick the incomes which will be included in the meaning of salary for encashment of leave salary to other employees.
(A) D.A
(B) Dearness allowance to the extent the terms of employment so provide
(C) Bonus
(D)Taxable allowance
(E) Fixed commission
(F) Commission if fixed percentage on turnover
(G) Fixed percentage of commission on net profits
179 Salary for exemption of leave encashment shall be taken as:

(B) average Salary of 10 months immediately preceding the month of retirement
(C) average Salary of 10 months immediately preceding the date of retirement.
(D) average basic Salary of 10 months immediately preceding the date of retirement.
180 The maximum exemption in case of leave encashment shall be:

(A) `2,40,000
(B) `3,50,000
(C) `3,00,000
(D) `10,00,000
181 An employee availed the exemption of leave encashment of `1,00,000 in the past. He received from the second
employer a sum of `2,50,000 as encashment of leave. He will be entitled to exemption to the extent of:
(A) Nil
(B)`2,50,000
(C)`2,00,000
(D)`1,40,000
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MCQ SALARY
182 Compensation received on voluntary retirement is exempt under 10(1OC) to the maximum extent of:
(A) `2,40,000
(B) `3,50,000
(C) `5,00,000
(D) `10,00,000
183 (i) If rent is paid for a house situated in Delhi, the house rent allowance shall be exempt to the maximum extent of:
(A) 40% of salary
(B) 50% of Salary
(C) 60% of Salary
(D) 75% of Salary
(ii) What shall be exemption if the rent is paid for a house in Ghaziabad.
184 Mr. Ashwin retired on 31-10-2016 after rendering 35 years of service in PLN & Co. Ltd. He received gratuity of Rs. 18
lakhs. He is governed by Payment of Gratuity Act,1972. The monetary limit eligible for exemption is : (June 2017)
(A) Rs. 10 lakhs
(B) Rs. 18 lakhs
(C) Rs. 3,50,000
(D) Nil Ans a
185. Mr. A is employed in ABS Transports as cabin driver. He is paid Rs. 15,000 every month in the whole of previous year 2016- 17
as allowance for meeting his personal expenditure in the course of running the goods vehicle. Mr. A does not receive any other
amount by way of daily allowance. The amount of allowance eligible for exemption is : (June 2017)
(A) Rs. 1,80,000

(B) Rs. 1,20,000
(C) Rs. 1,26,000
(D) Nil Ans b
186. Mr. Arjun employed in KL (P) Ltd. At Mumbai was provided rent-free accommodation by the employer who owned such
accommodation. The salary income of Mr. Arjun for the purpose of computing the perquisite value is Rs. 8 lakhs. The perquisite
value of rent-free accommodation in the hands of Mr. Arjun is :
(June 2017)
(A) 10% of salary i.e. Rs, 80,000
(B) 7.5% of salary i.e. Rs, 60,000
(C) Nil
(D) 15% of salary i.e. Rs, 1,20,000 Ans. d
187. During the previous year, the employee was reimbursed Rs. 24,000 as medical expenses incurred by him which includes Rs. 7,000
spent in Government hospital. The taxable perquisite in this case shall be : (June 2017)
(A) Rs. 9,000
(B) Nil
(C) Rs. 2,000
(D) Rs. 24,000 Ans. A
188. The employee is provided with furniture costing Rs. 1,50,000 along with house w.e.f. 1-7-2016. The value of the furniture to be
included in the valuation of unfurnished house shall be : (June 2017)
(A) Rs. 11,250
(B) Rs. 15,000
(C) Rs. 22,500
(D) Rs. 16,875 Ans. A
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MCQ SALARY
189. Interest credited to statutory provident fund shall be : (June 2017)

(A) Fully exempt
(B) Exempt upto 8.5% p.a.
(C) Fully taxable
(D) Exempt upto 9.5% Ans. A
190. Ashwin Co. Ltd contributed 15% of the salary of the employee Virat towards recognized provident fund. The amount
liable to tax as perquisite in the hands of Virat would be ....................... of contribution.
(June 2017)
(A) 5%
(B) 3%
(C) Nil
(D) any sum exceeding Rs. 1,50,000 Ans. B
1.B 2.D 3.A 4.A 5.B 6.B 7.D 8.B 9.A 10.A
11.B 12.A 13.A 14.C 15.C 16.C 17.B 18.B 19.B 20.C
21.B 22.B 23.B 24.C 25.A 26.B 27.B 28.D 29.B 30.D
31.A 32.C 33.C 34.A 35.D 36.D 37.A 38.D 39.A 40.A
41.A 42.D 43.D 44.D 45.B 46.D 47.A 48.B 49.B 50.A
51.A 52.A 53.B 54.C 55.A 56.A 57.B 58.A 59.B 60.B
61.A 62.B 63.A 64.C 65.D 66.A 67.B 68.A 69.B 70.B
71..A 72.D 73.C 74.B 75.B 76.A 77.C 78.A 79.A 80.A
81.A 82.C 83.A 84.D 85.C 86.B 87.D 88.D 89.B 90.D
91.B 92.B 93.B 94.C 95.B 96.D 97.C 98.B 99.D 100.A
101.A 102.C 103.D 104.B 105.D 106.A 107.C 108.D 109.A 110.A
111.B 112.A 113.A 114.D 115.C 116.B 117.A 118.C 119.A 120.D
121.C 122.B 123.B 124.C 125.B 126.A 127.C 128.B 129.B 130.B
131.A 132.A 133.B 134.A 135.A 136.C 137.D 138.A 139.B 140.A
141.B 142.D 143.A 144.C 145.C 146.C 147.A 148.A 149.B 150.C
151.B 152.B 153. 154. 155. 156. 157.A 158.B 159.C 160.C
161.B 162.B 163.A 164.B 165.B 166.C 167.B 168.B 169.(i)a(ii)a(iii)b 170.(i)B(ii)c
(iv)a(v)b(vi)c (iii)b(iv)c
171.C 172.A 173.B 174.B 175.C 176.(i)c(ii)d 177.C 178.B&F 179.C 180.C
176. B
181.C 182.C 183.(i) b
(ii)a
Page 140
INCOME UNDER THE HEAD P/G/B/P
CHAPTER – 5
INCOME UNDER THE HEAD PROFIT
& GAINS OF BUSINESS OR PROFESSION

Sec 28 Basis of Charge
Sec 29 Computation of Business Income
Sec 30 Building used for business
Sec 31 P&M, F&F used for business
Sec 32 Depreciation
Sec 32AC Investment in new plant & machinery
Sec 33AB Tea/coffee/rubber devp. Account
Sec 33ABA Site restoration fund
Sec 35 Scientific research
Sec 35(2AA) Weighted deduction for cont. to national laboratory etc
Sec 35(2AB) Company assessee , In house scientific research
Sec 35ABB Telecommunication licence
Sec 35AC Expenditure on eligible projects or schemes
Sec 35AD Deduction for specified business
Sec 35CCA Expenditure on rural devp. Programmes
Sec 35CCC Expenditure on Agricultural extension project
Sec 35CCD Expenditure on Skill Development Project
Sec 35D Amortization of preliminary expenses
Sec 35DD Amortization in case of Amalgamation/demerger
Sec 35DDA Amortization of expenditure in case of VRS
Sec 35E Expenditure on prospecting for minerals
Sec 36 Allowable deductions
Sec 37(1) General deductions
Sec 37(2B) Expenditure to political party
Sec 38 Building, P&M,F&F not exclusively for business
Sec 40 Deductions not allowable
Sec 40A(2) Expenditure to specified persons
Sec 40A(3) Payment other than by account payee cheque
Sec 40A(7) Disallowance for provision for gratuity
Sec 41 Deemed profits chargeable to tax
Sec 43(1) Actual cost
Sec 43(2) Meaning of Paid
Sec 43(3) Meaning of Plant
Sec 43(4) Scientific research
Sec 43(6) Written Down Value
Sec 43B Certain deductions on Actual Payment Basis
Sec 43C Sale consideration in case of Real Estate Transactions
Sec 44AA Books of account
Sec 44AB Audit of accounts
Sec 44AD/AE Deemed business incomes
Sec 44B Non resident shipping business
Sec 44BB Non resident business of exploration of mineral oil
Sec 44BBA Non resident aircraft business
Sec 44BBB Foreign company in civil construction business
Page 141
PGBP – 1 : BASICS
Section 28 : Following Incomes are chargeable under “P/G/B/P”
a) Profit of any Business or Profession carried by assessee at any time during P/Y
b) Partner of a Firm.
Any Interest, Salary, Bonus, Commission, or any type of remuneration due /received from Firm.
c) Compensation due or received.

 Termination/Modification of agreement for managing a Company.
 Termination/modification of terms of Agency.
 Vesting in Govt, management of any property/business under any law.
d) Non-Compete fees & Exclusivity rights.

Any sum received/receivable in Cash or Kind under an agreement for:
1) Not carrying out any activity in relation to any business or profession,

2) Not sharing any know-how, patent, copyright etc., and any similar right.
e) Benefits/Perquisites in cash or kind arising from carrying on business or profession
f) Sum received under Keyman Insurance Policy including bonus on such policy
g) Export Incentives like

 Sale of Import license.
 Cash assistance against Export.
 Duty drawback of Customs/Excise.
 Profit on transfer of duty entitlement pass book scheme
h) Income derived by trade, professional association from Specific services performed for its member.
i) Any sum in relation to capital asset which is allowed as deduction u/s 35AD
Page 142
Special Points:
1. Sec 2(13) : Business includes any Trade, Commerce or manufacture or any Adventure or concern
in the nature of trade, commerce or manufacture
2. Sec 2(29BA) : Manufacture means
A change in non living physical object or article
- Resulting in transformation of object or article into a New and Distinct object or article having a
different name, character or use
- Bringing into existence of a new object or article with a Different chemical composition or integral
structure
3. Sec 2(36): Profession includes vocation
4. Illegal Business : From Income Tax point of view, even profits of illegal business are taxable under
P/G/B/P.
5. Speculation Business : Where speculative transaction is of such a nature as to constitute a business,

such speculation business shall be deemed to distinct & separate from any business.
6. Business Loss :Business Income includes business losses provided they are of revenue nature, real
losses & are incidental to carrying on business
Method of Accounting (Sec. 145)
 Income under head P/G/B/P & Income under head Other Sources is to be calculated on basis of Cash
or Mercantile basis of accounting regularly employed by the assessee
 And in accordance with Income computation & Disclosure standards notified by Central Government
Where the AO is not satisfied about the

 correctness or completeness of the accounts of assessee, or
 where the method of accounting have not been regularly followed by the assessee
 Income has not been computed in accordance with the standards notified
 the AO may make an assessment u/s 144
Page 143
Income computation & Disclosure standards notified by Central Government

ICDS I : Accounting Policies
ICDS II : Valuation of Inventories
ICDS III : Construction Contracts
ICDS IV : Revenue Recognition
ICDS V : Tangible Fixed Assets
ICDS VI : Effects of Changes in Foreign Exchange Rates
ICDS VII : Government Grants
ICDS VIII : Securities
ICDS IX : Borrowing Costs
ICDS X : Provisions, Contingent Liabilities and Contingent Assets
PGBP – 2: ALLOWABLE DEDUCTIONS
Section 32 : DEPRECIATION
Depreciation shall be allowed if all the following conditions are satisfied:
1. Specified Assets :Only the following types of assets are eligible for Depreciation.
 Tangible Assets : Building, Machinery, Plant or Furniture.
 Intangible Assets : Know-how, patent, copyright, trademark, licence, franchise or other rights
2. Purpose: The specified assets should be used for Business or Profession of assessee.
3. Ownership: The specified assets can be Wholly or partly owned by assessee during the previous year.
4. Basis of Depreciation: Depreciation shall be calculated as
[Rate of Depreciation ] X [ WDV of the Block Of Asset as on last day of the P/Y ]
BLOCK OF ASSET
 Group of assets falling within a class of assets
 Comprising of Tangible assets and Intangible assets
 In respect of which same percentage of depreciation is prescribed.
Page 144
WRITTEN DOWN VALUE (WDV)
WDV of block of assets at the beginning of relevant P/Y A

Add : Actual Cost of asset belonging to that block acquired during P/Y B
Less : Money Receivable on assets sold, discarded, demolished or
destroyed during previous year including Scrap Value C
WDV of the block of asset as on the last day relevant P/Y A+B-C
Special point: Where the income of an assessee is derived in Part from Agriculture & in Part from
P/G/B/P, for computing WDV, the total amount of depreciation shall be computed as if the entire income is
derived from the business of the assessee under the head P/G/B/P
RATES OF DEPRECIATION
TYPES OF ASSETS %
Depreciation
Building :
- Residential 5%
- Non Residential 10 %
- Temporary Structure 100 %
Furniture & Fittings including Electrical Fittings 10%
Plant & Machinery :
- Books owned by assessee carrying on Profession, being annual publications 100%
- Books owned by assessee carrying on Business of running lending Libraries 100%
- Air & Water Pollution control equipments 100%
- Energy saving device, renewal energy device 80%
(Wind Mills Installed on or after 1/4/12 depreciation reduced to 15%)
- Books owned by assessee carrying on Profession, other than annual publications
60%
- COMPUTER including computer software
60%
- Aero planes
40%
- Motor car, buses, lorries etc used for hire
30%
- Ships
20%
- Motor car used for Business & Profession
15%
- General rate of other machinery
15%
Intangible Assets : 25%
Page 145
Special Points :
1. Plant Includes Ships, Vehicles, Books, Scientific Apparatus & Surgical Equipment used for business or
profession and does not include Tea Bushes, Live Stock , Building or furniture & fixtures.
2. Building includes Roads, Bridges, Wells, Tube wells.
3. Residential Building mean building in which atleast 2/3rd of built-up area is used for residential
purposes.
Depreciation Restricted to 50%
 Where assets acquired during previous year
 and put to use for less than 180 days in that previous year
 Then depreciation on that asset restricted to 50% of normal rate
 for that previous year only
Additional Depreciation
a. General Case :
 Assessee engaged in the business of manufacture or production of any article or thing or “In
business of Generation, Transmission or Distribution of power
 New Machinery or plant acquired and installed (other than ships & aircraft)
b. Specific case :
 Assessee, sets up an undertaking for manufacture or production of any article or thing,

 On or after the 1st day of April, 2015
 In any backward area notified by Central Government in this behalf,
 In Andhra Pradesh or Bihar or Telangana or West Bengal,
 Acquires and installs any new machinery or plant (other than ships and aircraft)
 for the purposes of the said undertaking
 during 1/4/15 and 31/3/2020 in the said backward area
Page 146
c. Conditions to be satisfied:
i. P&M should not be used by any person in India or outside India before date of installation by
assessee.
ii. P&M not installed in office premises or in residential accommodation including a guest house.
iii. P&M should not be an office appliance or road transport vehicle.
iv. Whole of actual cost of P&M not allowed as deduction under P/G/B/P of any one previous year.
d. Quantum of Increased Depreciation

General case : 20% for the P/Y in which conditions are satisfied
(If acquired and put to use for less than 180 days then 10% & balance 10% next year
Special case : 35% for the P/Y in which conditions are satisfied
(If acquired and put to use for less than 180 days then 17.5% & balance 17.5% next year
Proportionate Depreciation
 In case of succession` of Partnership Firm by a Company u/s 47 or
 Conversion of Private Company or Unlisted Public Company into a LLP u/s 47
 Succession of Proprietary Concern by a Company u/s 47or
 Amalgamation or De merger or
 Other cases of Succession otherwise on death
 Depreciation allowable for the P/Y in which the above succession takes place
 Shall be apportioned between the Predecessor & Successor
 On the basis of Number of days the assets used by them during that P/Y.
Page 147
Section 50 : Short Term Capital Gain for Block Assets
Whenever a depreciable asset of block is sold, the Sales consideration is Subtracted from WDV of block
to which such asset belongs.
CASE 1 CASE 2
1. All Assets of block are transferred during P/Y 1. Some Assets of block are transferred during
P/Y & Sale proceeds of assets transferred >
(Opening w.d.v + Actual cost
2. Block Ceases to exist & no depreciation shall
be provided for that P/Y 2.Block will Exist at NIL value & no
depreciation shall be provided for that P/Y
3.Closing WDV is Short term capital Gain or 3.Closing WDV is Short term capital gain
Loss
Depreciation for Undertaking engaged in Generation of Power
Such undertaking has the option either to claim depreciation
 On W.D.V basis on block of assets or
 On S.L.M basis on the actual Cost of assets
 Such option has to be exercised before furnishing ROI for the assessment year in which
undertaking starts to generate power. (Once such option is exercised it will be final and later
on cannot be changed)
Sale of assets by such undertaking
 Depr. Claimed and provided on WDV basis : Treatment under block
 Depr. Claimed and provided on SLM basis :
Step 1 : Find out Opening Value as on 1/4/2016 (Cost of asset less deduction claimed in prior p/y)
Page 148
Step 2 :
Sale price < Sale Price > Opening W.D.V

Opening W.D.V
Deemed Business Income (Balancing Charge) taxable u/s 41
Loss is Terminal in P/Y of sale :
Depriciation Selling price or Deduction Claimed, less
allowed as deduction
in the P/Y of sale. Capital Gain : Selling price > Cost
Short term or long term depending upon period of holding
Section 43(1) : Actual Cost
Means actual cost of the asset to the assessee reduced by that portion of the cost, which is met directly
or indirectly by any other person or authority
Explanations to section 43(1) Notional Actual Cost

Asset ceases to be used for Scientific research & now to be used for B/P Actual Cost to Assessee
of the Assessee. Less: Deduction claimed
u/s.35
Asset belonging to other person is gifted or inherited by the Assessee Actual cost to other person
Less: Deduction allowed to
previous owner as if only asset
in block
Asset belonging to other person , used for the purpose of his business or Amount determined by AO
profession is transferred to Assessee and AO is satisfied that transfer is with prior approval of Joint
to reduce Income tax liability Commissioner
Building belonging to assessee brought into B&P during P/Y Actual cost Less Depr
allowable as if building used
for B&P since its acquisition.
Interest paid or payable for acquiring an asset Will not be added to actual
cost after asset first put to use.
Where an asset is acquired on which Excise, Custom Duty is repayable Actual cost reduced by Excise,
Custom Duty repayable
Where portion of cost of an asset met by Central Government,
State Government, Authority or other person
 If Subsidy, Grant etc., is directly related to the asset Actual cost reduced by
value of subsidy
 If Subsidy, Grant etc., is not directly related to an asset but a Actual cost reduced by
consolidated sum proportionate amount of
subsidy.
Capital asset on which deduction has been allowed u/s 35AD NIL
Page 149
If there is any payment exceeding Rs. 10000/- in a day for purchase of any asset or to any creditor for
purchase of such asset, otherwise than through an a/c payee cheque or a/c payee bank draft or use of
ECS through a bank account then such payment will not //be considered for determining actual cost of
asset as per Sec. 43(1) for the purpose of Sec. 28 to 41, therefore depreciation will not be allowed on
such payment exceeding Rs. 10000/-.
MISCELLANEOUS ISSUES OF DEPRECIATION
1. Is it mandatory to claim depreciation:
Explanation to Sec. 32 : Depreciation provisions shall apply whether or not the assessee has claimed
deduction for depreciation.
2. Carry forward and set off of unabsorbed depreciation [ Sec. 32(2) ]
1. Deduct current year depreciation from current year income under P/G/B/P.
2. If current year P/G/B/P is insufficient deduct balance depreciation from other head of income for
same previous year.[Except Salary & Casual income]
3. Even if incomes under other heads insufficient, it is unabsorbed depreciation which will be
carried forward for any number of assessment years.
4. In the next assessment years ,b/f unabsorbed depr will be added to current year depreciation and
again step 1 to step 4 will be followed
However, if B/F losses are also there in a previous year along with B/F unabsorbed depr, then priority of set
off shall be as follows
 1st setoff current year depreciation
 Then setoff brought forward losses
 Then setoff unabsorbed depreciation.
Special point :
1. The business or profession of which depreciation was computed need not be carried on in the previous
year in which b/f depr is set off.
2. Depreciation can be c/f only by the same assessee.i.e Assessee who has claimed the deduction for
depreciation and the assessee who wants to carry forward the depr. must be the same.
Exceptions to 2nd point:

a) Firm succeeded by a company u/s 47
b) Proprietary concern succeeded by a Company u/s 47
c) Amalgamation or Demerger
Page 150
PGBP – III : Other Allowable deductions
Section 30 : Rent, Repairs, Taxes & Insurance for Buildings used for B&P
If assessee is a Owner, following deductions shall be allowed to him

 Revenue Repairs
 Municipal Taxes ( Subject to 43B)
 Insurance Premium for insurance of building
If assessee is a TENANT, following deductions shall be allowed to him
 Rent & following expenses if borne by him
 Revenue Repairs
 Municipal Taxes
 Insurance Premium for insurance of building
Section 31 : Machinery, Plant & Furniture used for B&P
 Following deductions shall be allowed:
 Revenue Repairs
 Insurance Premium of such Plant, Machinery & Furniture
Asset not exclusively used for Business or Profession [ Sec. 38(2) ]
 Where Building, Machinery, Plant or Furniture

 Not exclusively used for Business or Profession
 Then deduction u/s. 30, 31, 32
 Shall be restricted to such fair proportion as AO may determine for purpose of business or profession.
Page 151
Sec 32 AC : Investment Allowance for New Plant or Machinery
1.Assessee Company engaged in the business of manufacture or production of any article or thing
2.Investment
& Deduction WEF A/Y 15/16 upto A/Y 17/18
Acquires and installs Eligible P&M between 1/4/14 to 31/3/2017 and actual cost > 25
crore ,than deduction @ 15% of actual cost shall be allowed
If installation of the new assets are in a year other than the year of acquisition, the
deduction shall be allowed in the year in which the new assets are installed.
3.Eligible New plant or machinery (other than ship or aircraft) Excluding :

P&M
(i) P&M which before its installation by assessee was used either within or outside India by
any other person
(ii) P&M installed in any office premises or any residential accommodation, including
guest house
(iii) Office appliances including computers or computer software
(iv) Any vehicle or
(v)P&M, whole of actual cost allowed as deduction (whether by way of

depreciation/otherwise) in computing income of Business/Profession of any P/Y
4. Eligible If P&M is transferred except under amalgamation or demerger, within 5 years from date of
P&M sold its installation, deduction allowed shall be deemed as Business Income of p/y of transfer
in addition to taxability of gains arising on account of transfer of such new asset.
Where P&M is transferred under amalgamation or demerger within 5 years from date of its
installation, the above provision shall apply to amalgamated company or resulting company
as they would have applied to amalgamating company or demerged company.
Sec 32 AD : Investment allowance for New plant & machinery in backward area
Assessee, sets up undertaking for manufacture of any article ,

1.Assessee  on or after 1.4.2015
 in any backward area notified by Central Government ,
 in Andhra Pradesh or Bihar or Telangana or West Bengal
Page 152
2.Investment  Acquires and installs eligible P&M
 during 1/4/15 and 31/3/2020 in backward area
3.Deduction 15% of actual cost of Eligible P&M in p/y in which it is installed

4.Eligible P&M Same as U/s 32AC
5. Eligible P&M sold Same as u/s 32AC
Sec 33AB / ABA : Deduction for Business of Tea/Coffee/Rubber/Exploration
Section 33AB : Tea/coffee/rubber Devp. A/c. 33ABA : Site Restoration Fund

1 Assessee Growing and Manufacturing Tea or Prospecting or Extraction or
Coffee or Rubber in India production of Petroleum or Natural
Gas or both in India
2 Conditions Deposit with NABARD or Deposit in
Special Deposit Account under within SBI in a special Account or
6 months from end of P/Y or before due In a site restoration account
date of ROI, whichever is earlier before end of P/Y
3 Deduction Amount deposited under point 2 or Amount deposited under point 2 or
40% profits of such business before 20% profits of such business before
33AB, whichever is less 33ABA, whichever is less
Section 35 : Expenditure on Scientific Research
Scientific research carried out by assessee

i.e. In-house Scientific Research (has to be related to Assessee Business)
Pre commencement Post commencement

( 3 years prior to date of commencement of (On or after date of commencement)
Business)
Prescribed Revenue Capital All Revenue Capital Expenditure
expenditure Expenditure Expenditure Sec 35(1)(iv)
35(1)(i) Sec35(1)(iv) 35(1)(i)
Salary(excluding
perquisites) of Research Any Capital All Revenue Any Capital
Staff & expenditure Expenditure expenditure except
Purchase of Material for except Land Land
scientific Research only
Deduction in P/Y of Deduction in Deduction in P/Y in Deduction in P/Y in

commencement P/Y of which incurred which incurred
commencement
Page 153
Calculation of Deduction u/s 35

1. Revenue expenditure on scientific research is 100% allowed as deduction irrespective of profits.
2. Capital expenditure on scientific research are allowed as deduction subject to availability of profit.
3. Set off & Carry forward same as unabsorbed depreciation
Section 35 (2AB)
 Company Assessee ( Engaged in Manufacture of any article except specified under XI schedule )
 Incurred expenditure (Except on Land & Building) on in house scientific research approved by
prescribed authority
 Weighted deduction of 200 % of such expenditure will be allowed
Contributions/Donations for Research to Approved Associations

(Related or Unrelated to Assessee business)
Sec. 35(1)(ii) Sec. 35(1)(iii) Sec. 35 (2AA) Sec 35(1)(iia)
Approved Research Approved Research National Laboratory or

Indian company
association/ University association /University, University or IIT for
having main object
/College for scientific Institution for Social approved Scientific
of scientific
research science or statistical Research Programme
research & devp. &
research approved by
prescribed
authority
175% of amount paid 125% of amount paid 200% of amount paid 125% of amount
allowed allowed allowed paid allowed
WEF A/Y 21/22 : WEF A/Y 21/22 : WEF A/Y 21/22 : WEF A/Y 21/22 :
100% 100% 100% 100%
Special point : Deduction u/s 35 shall not be disallowed if subsequent to payment ,approval of such
association, institution, etc is withdrawn.
Sec 10(21) : Exemption of Income of Research Association
Any income of Research Association approved u/s 35 shall be exempt provided that Research association
applies its Income &Invest in funds u/s 11
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SALE OF ASSET USED FOR SCIENTIFIC RESEARCH
Option 1 : Sold without using for business
Step 2 :
Opening W.D.V
Deemed Business Income taxable u/s 41 in P/Y of sale :
Loss is Selling price or Deduction Claimed, less
Short term or long term depending upon period of
holding
Special Point : Business income shall be taxable in the previous year of transfer even if business is not in
existence in that previous year
Option 2 : Sold after using for business
Step 1 : The cost of asset will be added to value of block to which it belongs.
The cost added to value of block will be
Actual Cost to Assessee
Less: Deduction claimed u/s.35(1)(iv)
Step 2 : Sale price will be deducted from value of WDV of the block to which it belongs
Section 35 ABB : Expenditure for obtaining Telecommunication License
Capital Expenditure ACTUALLY INCURRED to acquire Telecom license

Before commencement of business After commencement of business
Period of Deduction Period of Deduction

Deduction shall be available from P/Y in Deduction from P/Y in which license fee
which business commences to P/Y in which actually paid to P/Y in which license expires
license expire
Amount of deduction Amount of deduction
= License fees actually paid = License fees actually paid

No. of previous years in above period No. of previous years in above period
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TAX TREATMENT ON SALE OF LICENSE
Option 1 : Whole license sold
Computation of Profit /Loss on sale
Step 2 :
Opening W.D.V
Deemed Business Income taxable in P/Y of sale :
Short term or long term depending upon period of holding
Option 2 : Part license sold
Computation of Profit /Loss on sale
Step 2 :
Opening W.D.V
Deemed Business Income taxable in P/Y of sale :
in balance P/Y of life Capital Gain : Selling price > Cost
of license Short term or long term depending upon period of
holding
Special point :
Business income shall be taxable in the previous year of transfer even if business is not in existence in
that previous year
Sec 35ABA : Expenditure for obtaining right to use spectrum for telecommunication services.
1.Deduction : Capital expenditure, incurred for acquiring any right to use spectrum for telecommunication
services
2. Applicability of Sec 35ABB : The provisions of section 35ABB, shall apply as if for the word “licence”,
the word “spectrum” had been substituted.
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3. Failure to comply : Where, in a previous year, any deduction has been claimed and granted to the
assessee, and, subsequently, there is failure to comply with any of the provisions of this section, then,—
(a) Deduction shall be deemed to have been wrongly allowed;
(b) AO may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for
the said previous year and make the necessary rectification;
Section 35 AC: Expenditure on Eligible projects or schemes
 Expenditure incurred for payment
 To Public Sector Co , Local Authority, Institution approved by National Committee,
 For carrying out eligible project/scheme
 For promoting Social/Economic Welfare or upliftment of Public.
 Deduction shall be available Provided certificate is obtained from receiver & attached by assessee with
ROI
Special point:
1. Company assessee can also incur expense itself on such eligible project or scheme
2. Deduction u/s 35AC shall not be disallowed if subsequent to payment ,approval of such institution or
project is withdrawn.
3. No deduction under this section shall be allowed w.e.f A/y 18/19
Sec 35AD : Deduction of Capital Expenditure of Specified Business
Assessee 1) Setting up & operating Cold Chain facility
2) Setting up & operating Warehousing facilities for storage of agriculture

produce
3) Laying & operating Cross-country Natural Gas/Crude/Petroleum

pipeline network for distribution, including storage facility
4) Building and operating a Hotel of two-star or above category anywhere in

India
(Where the assessee builds a hotel of two-star or above category &
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subsequently, while continuing to own the hotel, transfers the operation

thereof to another person, assessee shall be deemed to be carrying on
Hotel Business)
5) Building and operating a Hospital with at least one hundred beds for
patients
6) Developing and building a Housing project under a scheme for slum

redevelopment or rehabilitation framed by Government and notified by
Board
7) Developing and building a housing project under a scheme for

affordable housing framed by Government and notified by Board
8) Production of fertilizer in India & investment in a new plant or in a

newly installed capacity in an existing plant
9) Setting up and operating an inland container depot or a container freight

station notified or approved under Customs Act
10) Bee-keeping and production of honey and beeswax
11) Setting up and operating a warehousing facility for storage of sugar
12) Laying and operating a slurry pipeline for the transportation of iron ore
13) Setting up and operating a semi-conductor wafer fabrication

manufacturing unit and is notified by the Board
14) Developing or operating and maintaining or developing, operating and

maintaining, any infrastructure facility (on or after 1/4/17)
Business is owned by Indian company or statutory corporation & has

entered into agreement with Government / local authority
Infrastructure facility means—

(i) Road , toll road, bridge or rail system;
(ii) Highway project ;
(iii) Water supply project, water treatment system, irrigation project,

sanitation and sewerage system ;
(iv) Port, airport, inland waterway, inland port
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Deduction 100% Capital expenditure for above business incurred after commencement
including Pre commencement Capital Expenditure
150% deduction for business mentioned in point (1) , (2) ,(5) , (7) , (8)
Exclusions Does not include expenditure on land, goodwill or financial instrument
Conditions 1. It is not set up by Splitting up or Reconstruction of existing business
2. Atleast 80% of P&M should not be Previously used for any purpose
Exception to 2nd Condition

- P&M used outside India by any person other than the assessee &
- Such P&M is imported into India &
- No deduction of depreciation on that P&M has been allowed to any person
for any period prior to the date of installation by assessee
Limitations If deduction is allowed under this section, such expenditure will not be
allowed as deduction under other provision.
Sale of asset Sum received/receivable on account of destruction/ demolition/ discard/

transfer of such Capital asset shall be deemed as P/G/B/P u/s 28
If sold after using for other business :

Actual Cost = Nil
Min Use of Any asset on which deduction allowed shall be used only for specified
Asset business, for 8 years beginning with p/y in which such asset is acquired or
constructed.
Otherwise following shall be Deemed income chargeable under PGBP of

P/Y in which the asset is so used =
Deduction allowed earlier,

Less : Depreciation that would have been allowed u/s 32, assuming no
deduction under this section was allowed
Set off & C/F of -Loss of Specified Business can be set off against profits of other specified
Loss of business business only.
(Sec 73A) -Unabsorbed loss will be c/f & set off against profits of specified business of
subsequent A/Y
-C/F & set off for Unlimited period of A/Y
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Section 35 CCA : Payment to Associations for Rural Development Plans
Deduction for payment of sum to

Association whose Association engaged Rural Development National Urban
object is to undertake in Training of Fund set up by Poverty Eradication
Rural Development persons for Central Govt. Fund Set up by
Program approved by implementing Rural Central Govt.
prescribed authority Development Program
Deduction u/s 35CCA shall not be disallowed if subsequent to payment ,approval of such institution or
programme is withdrawn
35CCC : Expenditure on Agricultural extension project
(1) Where assessee incurs any expenditure on agricultural extension project notified by CBDT , then,
there shall be allowed a deduction of 150% such expenditure.
(2) Where a deduction under this section is allowed for any A/Y , such expenditure will not be allowed as
deduction under any other provisions.
(3) W.E.F A/Y 21/22 : 100% deduction
35CCD : Expenditure on skill development project
(1) Where a company incurs any expenditure (except land or building) on any skill development project
notified by CBDT, then, there shall be allowed a deduction of 150% such expenditure.
(2) Where a deduction under this section is allowed for any A/Y , such expenditure will not be allowed as
deduction under any other provisions.
(3) W.E.F A/Y 21/22 : 100% deduction
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Section 35 D: Amortization of Preliminary Expenses
1 Assessee Indian Company or Non Corporate Resident

Before commencement of business or
2 Expenditure After commencement of business for
when incurred - Extension of existing undertaking or
- Setting up of new unit
3 Specified Expenditure (i) Feasibility report (ii) Project report (iii) Market/Other Surveys
(iv) Engineering Services (v) Legal Charges for drafting agreements
(Expenditure under
point i to iv, can be For Company Assessee, also expenditure on Memorandum & Articles,
incurred by assessee Legal Fees for registration, expenses on public issue
himself or by concern
approved by CBDT)
4 Qualifying amount of Non-Corporate resident Assessee
Specified Expenditure A. Total of Specified expenditure or
B. 5% of Cost of Project
A or B, whichever is less
Indian Company
A. Total of Specified expenditure or
B. 5% of Cost of Project or 5% of Capital employed, Higher
A or B, whichever is less
5 Period of Deduction Qualifying Amount in 5 equal annual installments
starting from P/Y of commencement or completion of extension or
setting up new unit (as the case may be)
6 Compulsory Audit Audit of accounts by C.A for the previous year in which expenditure
(Not applicable for incurred & attach C.A report with ROI for the 1st yr.
Company, Cooperative
society)
Special Points:
1. Cost of Project : Means Actual cost of FIXED ASSETS as per books of accounts on last day of P/Y
in which business is commenced or extension is completed or new unit is Set up, as the case may be
2. Capital Employed : Means Aggregate of Issued share capital, Debentures, Long term borrowings as
on the last day of same P/Y as mentioned above
3. L T Borrowings : Means
a) Money borrowed from Govt. or IFCI or ICICI or Banking / Approved financial institution, repayable
in not less than 5 years
b) Money borrowed in foreign currency for purchase of P&M outside India, repayable after 7 years
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Section 35 DD : Expenditure in case of Amalgamation or Demerger
 Indian Company incurs expenditure wholly & exclusively for amalgamation or demerger.
 Deduction shall be allowed of such expenditure in 5 equal annual installments starting from P/Y of
amalgamation or demerger
Section 35 DDA : Expenses incurred under Voluntary Retirement Scheme
 Any assessee incurs expenditure for payment of sum under V.R.S.
 Deduction shall be allowed of such expenditure in 5 equal annual installments starting from the P/Y in
which amount paid.
Section 35 E: Deduction for Prospecting Minerals
 Indian Company or non-corporate Resident assessee engaged in Production of any specified mineral.
 Incurs Expenditure for Prospecting or Extraction or Production during year of Commercial

production or 4 p/y years prior to such commercial production
 Expenditure does not include the following:
1. Expenditure of a Capital nature on which depreciation is admissible u/s 32.
2. Expenditure on acquisition of site
3. Any expenditure which is met directly or indirectly by any other person or authority
 Deduction: 10% of qualifying expenditure allowed for 10 years starting from p/y of production
 Maximum deduction allowed each year : 10% of qualifying expenditure or Income from such
Business before 35E, whichever is less.
 Unallowed qualifying expenditure carried forward for next year & added to next year installment.
However after 10th year no deduction shall be allowed
 Audit of accounts by C.A for the previous year in which expenditure incurred & attach C.A report with
ROI for the 1st yr. (Not applicable for Company, Cooperative society)
Page 162
Special Point:
1. For the purposes of this section,—

(a) “Operation relating to prospecting” means any operation undertaken for the purposes of
exploring, locating of deposits of mineral, and includes any such operation which proves to be
infructuous or abortive
Sec. 43B: Certain deductions on Actual Payment Basis
 Overriding other provisions of IT Act
 If assessee is maintaining accrual basis of accounting
 Specified Expenses which are allowable under other sections
 Shall be allowed only in Previous year in which such expenditure is actually paid
Specified Expenses
Tax, Employer Bonus or Interest on Loan from Interest on any loan Payment Sum payable
duty Contribution to Commiss Public Financial or advance from of leave to Indian
under Provident fund, ion Institution, schedule bank or Salary to Railways for
any law Superannuation to State Financial cooperative banks employee use of
fund, Gratuity employee Corporation or state other than a railway
Fund or
industrial investment primary assets
welfare fund
corporation agricultural credit
society or a
primary
cooperative
agricultural and
rural development
bank
Special point :
 Provision of Sec. 43B Shall not apply
 for the P/Y in which liability to pay such sum was incurred
 If such sum is Actually Paid by Assessee
 On or before the due date of return u/s. 139(1)
 And evidence of such payment is furnished along with ROI
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Section 36(1) : Expenses allowed from Business/Profession
1. Premium for insurance of Stock in trade used for Business or Profession.
2. Premium by employer for Health insurance of his employees by any mode other than cash under a
approved scheme
3. Bonus or Commission to employee provided such bonus or commission is not payable as Dividend.
(Subject to sec 43B)
4. Interest on Capital Borrowed for the purpose of Business or Profession. (Subject to sec 43B)
5. Prorata amount of Discount on a Zero Coupon Bond.
6. Employer contribution towards Recognised Provident Fund or Approved Superannuation Fund or

Approved Gratuity Fund. (Subject to sec 43B)
7. Employer contribution towards a pension scheme u/s 80CCD, on account of an employee upto 10%
Salary of the employee in the previous year. [Refer Chapter Deductions] (Subject to sec 43B)
8. Sum received by employer as employee contribution to Provident Fund, Superannuation Fund or under
other welfare fund provided such amount is credited by employer in account of employee upto due date
of relevant fund
Special Point :
Sec 2(24) : Amount received by employer from employee as contribution to Provident Fund,
Superannuation Fund or other welfare fund ,shall be treated as deemed income of such employer.
If the employer satisfies condition of sec 36(1) then he will be entitled to deduction of such amount.
9. Animals used for Business or Profession (not as S.I.T) & have died or become useless for such purpose
Deduction of Difference between actual cost to such assessee & realisation (if any) from sale of carcass
of such animal.
10. Bad debt is written off as irrecoverable in accounts of assessee during p/y Provided such debt should
have been taken into account for computing income of any P/Y
Page 164
Special Points :
1. Where assessee deals in money lending or is a Bank, income condition need not be satisfied.
2. No deduction is allowed for provision made for bad & doubtful debt (Except Next deduction)
3. Sec. 41(4) : Subsequent recovery of written off bad debt.

 Where deduction claimed upto 36(1)for any previous year
 and subsequently amount is recovered,
 than such amount shall be the income under P/G/B/P
 of P/Y in which recovered.
However,
a) Assessee claiming Bad Debt & who recovers the bad debt should be same
b) It is not necessary business is in existence in previous year of recovery.
11. Provision for bad and doubtful debts made by—

(a) Bank or a co-operative bank : Upto 7.5% of Gross Total Income (computed
before making this deductio) + upto 10% of aggregate average advances made by
rural branches of such bank
(b) Foreign Banks/Public financial institution/Sate financial corporation/State industrial

investment corporation/Non Banking financial company : Upto 5% of Gross Total
Income (computed before making this deduction )
12. Special reserve created and maintained by a specified entity,
Deduction : Least of following

a) 20% of profits derived from eligible business computed under head "PGBP" (before
making this deduction)
b) Profit transferred to special reserve account:
c) 2 x {[Paid up share capital + General reserves as on last day of P/Y] – [Balance of special
reserve A/c on 1st day of P/Y] }
Special Point :
(a) "Specified entity" means ,
(i) Financial corporation u/s 4A of the Companies Act;
(ii) Financial corporation which is a public sector company;
(iii) Banking company;
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(iv) Co-operative bank other than a primary agricultural credit society or a primary
co-operative agricultural and rural development bank;
(v) Housing finance company; and
(b) "Eligible business" means ,

(i) providing long-term finance for
(A) industrial or agricultural development;
(B) development of infrastructure facility in India; or
(C) development of housing in India;
(c) "long-term finance" means any loan where the terms under which moneys are loaned
for repayment along with interest during a period of not less than five years;
13. Expenditure incurred by Company
 for promoting Family Planning among Employees
 If expenditure is Revenue Expenditure : 100% allowed in P/Y in which incurred
 If expenditure is Capital Expenditure :Allowed in 5 equal installments from P/Y in which incurred
Special Points:
Sale of family planning capital assets treatment same as sale of scientific research capital asset
14. Security Transaction Tax (STT) on Transaction arising in course of Business or profession.
*STT is levied on Listed Equity Shares & Listed units

of Equity Oriented Mutual Funds
Dealer in share/Units Shares/units for Investment

Income as Business Income Income as Capital Gains
STT allowed as deduction from LTCG STCG

Business Income Exempt u/s @15%
10(38) u/s 111A
Business
Income Taxable STT not allowed as deduction
at Slab rates from STCG
Page 166
15. Commodities Transaction Tax (CTT) in respect of Specified Commodities Transactions if the
income arising from such transactions is chargeable under Business or Profession.
Special Point :
Commodities Transaction Tax is levied on every taxable commodities transaction, being sale of
commodity derivative @ 0.01 % on value of such transaction & such tax shall be payable by the seller.
Specified Commodities Transaction means a transaction of sale of commodity derivatives in respect of

commodities, other than agricultural commodities, traded in recognised associations.
16. Expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for
purchase of sugarcane at a price which is equal to or less than price fixed or approved by Government.
.
Sec. 37(1) : GENERAL DEDUCTION
If an expenditure fulfills ALL the below conditions it will allowed u/s 37(1)
 If not covered under Sec. 30 to Sec. 36
 If incurred during P/Y wholly & exclusively for B/P
 If not of Capital Nature
 If Not a personal expense of Assessee
Special Points:
1. Expenditure of any purpose which relates to any Offence or which is prohibited by law shall not be
allowed a deduction
2. Sec 37(2B) : Expenditure on advertisement in any Newspaper,Magazine,souvenir, pamphlet etc. of a

political party is not allowed as deduction
3. Any expenditure incurred on corporate social responsibility u/s 135 of Companies Act, 2013 shall
not be allowed as deduction u/s 37(1)
Page 167
PGBP – IV : Disallowances
Sec. 40(a) : Expenses not deductible
Overriding Sec 30 to Sec 38
1. Expenditure to Non resident without TDS
 Expenditure during P/Y of Interest ,Royalty, fees for technical services or other sum chargeable
under this act ( other than salary)
 Payable to Non-Resident
 No Deduction of such expenses shall be allowed if
 Tax has been not been deducted at source or after deduction has not been deposited upto due date
of return(DDR) u/s 139(1)
 However, if deducted in later p/y or deducted earlier but deposited after DDR, then deduction
will be allowed in p/y in which it is actually deposited
2. Expenditure to Resident
 Incurs Any Expenditure subject to TDS during P/Y
 Payable to a Resident
 30% of such expenditure shall be disallowed allowed if
 Tax has not been deducted at source or after deduction has not been deposited Upto Due Date of
Return u/s 139(1)
 However ,if deducted in later p/y or deducted earlier but deposited after above DDR ,
then 30% of such expenditure shall be allowed as deduction in previous year in which it is
actually deposited.
Special point : If Payer fails to deduct tax for above payment to resident payee but is not deemed
as assessee in default as resident payee has directly paid the tax , than it shall be deemed that
payer has deducted & paid the tax on such sum on date of furnishing of return of income by the
resident payee
3. Income Tax shall not be allowed as deduction.
Page 168
4. Royalty / Licence fee / Service fee / Privilege fee / Service charge by State Government undertaking to
State Government
Special point :
State Government undertaking includes—
(i) Corporation established under any Act of State Government
(ii) Company in which more than 50%of paid-up equity share capital is held by State Government
(iii)Undertaking in which State Government has the right to appoint the majority of the directors
5. Tax u/s.10(10CC) on Non Monetary Perquisite shall not be allowed deduction.
6. Any consideration to a non-resident for a specified service on which equalisation levy is

deductible & such levy has not been deducted or after deduction, has not been paid upto due
date u/s 139(1)
Provided that where in respect of any such consideration, the equalisation levy has been deducted
in any subsequent year or has been deducted during P/Y but paid after due date u/s139(1), such
sum shall be allowed as deduction in computing income of P/Y in which such levy has been paid.
Sec. 40A(2) : Expense greater than Market value
 Expenditure by which payment made /is to be made to Specified Person

 AO may disallow so much expenditure as he consider Excessive or Unreasonable
 Having regard to
 FMV of goods or service for which payment made or legitimate needs of business.
Special Points :
1. Specified Persons :
i. Where assessee is an Individual.

- His Relative
- Entity In which such Individual or his Relative has Substantial Interest
Page 169
ii. Where Assessee is :
COMPANY/FIRM/AOP/BOI/HUF [A]
INDIVIDUAL CO./FIRM/AOP/ CO./FIRM/AOP/

COMPANY
Director/ ANY OR BOI/HUF BOI/HUF
Partner/ PERSON RELATIVE OR OR
Member Director/Partner/ Director
OR Member /Partner/Member
Relative OR OR
their Relative their Relative
[B] In whose Provided
business Individual having In which [A] Provided Provided
Substantial Substantial has Co, firm etc has S.I Director, Partner,
interest held Interest in [A] substantial in[A] Member
by [A] or[B] interest has S.I in [A]
2. A Person has Substantial Interest in
 Company, if he holds at any time during the P/Y beneficial ownership of at least 20% Equity
Shares in that company
 Other than company, if he is at any time during the P/Y entitled to at least 20% profits
3. Disallowance u/s 40A(2) shall be made in respect of a specified domestic transaction referred to in
section 92BA, if such transaction is not at arm's length price as defined in 92F.
Sec. 40A(3): Expenditure in cash
o Expenditure of a sum in excess of ` 10,000 AND
 Payment or aggregate of payments made to a person in a day, in excess of ` 10,000 otherwise than by
account payee cheque or account payee bank draft or use of ECS through a bank account
o Then No Deduction of such expenditure shall be allowed
Special Point : The limit for Payment for plying, hiring or leasing goods carriages is `35,000
Page 170
Special Point :
 Where an expenditure is allowed during any previous year
 and in subsequent previous year
 the assessee makes payment in respect thereof
 in excess of twenty thousand rupees otherwise than by an account payee cheque or account payee bank
draft or use of ECS through a bank account
 the payment so made
 shall be Deemed to be P/G/B/P Income of subsequent P/Y

Exceptions to Sec. 40A(3) : Rule 6DD
No disallowance in the following cases even if payment greater than 10,000 is made otherwise by Account
payee cheque or Account payee bank draft or use of ECS through a bank account
a) Payment to Banks, LIC
b) To Government.
c) Payment through letter of credit, telegraphic transfer, bill of exchange, ECS, credit card or debit card
d) Payment to cultivator or producer of agriculture, forest, animal husbandry, dairy, poultry farming or fish
products.
e) Payment for purchase of products manufactured by producer without aid of power in a cottage industry.
f) Payment in a village or town not served by any bank on date of payment to a person who resides in such
village or carrying on his business, profession or vocation in such village
g) Payment to an employee or his legal heir of gratuity, retrenchment compensation or similar terminal
benefit provided aggregate of such amount does not exceed ` 50,000
h) Payment on the day on which banks were closed on account of holiday or strike.
If there is any payment exceeding Rs. 10000/- in a day for purchase of any asset or to any creditor for
purchase of such asset, otherwise than through an a/c payee cheque or a/c payee bank draft or use of
ECS through a bank account then such payment will not //be considered for determining actual cost of
asset as per Sec. 43(1) for the purpose of Sec. 28 to 41, therefore depreciation will not be allowed on
such payment exceeding Rs. 10000/-.
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Sec. 40A(7 ) : Disallowance for Gratuity
No deduction shall be allowed of any provision made by the Assessee being an Employer for payment of
Gratuity to his employees unless provision made
o Towards Approved Gratuity Fund or
o For payment of gratuity actually becoming payable during P/Y
Sec 40A(9):Employer contribution towards funds required by law
No deduction shall be allowed of sum paid by employer towards the setting up/formation or as contribution
to any fund not required to be kept under law
Sec. 40(b) : Salary /Interest by Firm to Partner
 Partnership firm/LLP shall be allowed deduction of
 Salary, Bonus, commission or other remuneration to Working Partner and
 Interest to Any Partner
 Subject to certain conditions
Working Partner : Individual who is actively engaged in conducting the affairs of Business or Profession
of the firm of which he is a partner.
Analysis of sec 40(b)
Type Salary/Bonus/Commission/other Remuneration Interest on Capital

Partner Working Partner All Partner
Partnership Authorized by the terms of Partnership Deed Authorized by the terms of

deed Partnership Deed
Prospective Such payment should relate to period after date Such payment should relate to
of Partnership Deed. period after date of Partnership
Deed
Amount of Book Profits Maximum Deduction
deduction First 3,00,000 ` 1,50,000 or
(Including Loss) Upto 12 % P.a
90% Book profits
(whichever is more)
Balance Book 60% of Book Profit

profit
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Computation of Book Profits
1. Compute Net profit of firm under head P/G/B/P after making adjustments as per Sec 29 to 43D
2. Add Remuneration to working partner (if Debited to P&L A/C)
Tax treatments in Hands of Partner
Type of Payment Working Partner Non working Partner

Taxable to extent allowed as
Salary from firm deduction to firm Not Taxable
Interest from firm Taxable upto 12% Taxable upto 12%
Share of Profit Exempt U/s 10(2A) Exempt u/s 10(2A)
PGBP –V : Miscellaneous
Sec 41 : Deemed Profits Chargeable to tax
Sec. 41(1): Recovery of Loss/Deductions etc. allowed earlier
 Deduction allowed in any P/Y for loss/Expense or Trading liability
 Subsequently during any P/Y, same assessee or his successor
 Obtains any amount in respect of such loss/expense (in cash or other manner) or some benefit in
respect of such trading liability through remission or cessation thereof
 Then such amount or benefit shall deemed to be P/G/B/P of P/Y in which received
Special Points : Provision of sec 41(1) will apply even if business is not in existence
Sec. 41(2) : Balancing Charge (discussed earlier)
Sec. 41(3) : Sale of Capital Asset used for Scientific Research. (discussed earlier)
Sec. 41(4) : Recovery of Bad Debt. (discussed earlier)
Sec. 41(5) : Loss of P/Y in which business cease to exist can be set off from Deemed incomes u/s. 41(1),
(3), (4). (Exception to rule that business loss can be carried forward for 8 years only)
Page 173
Sec. 44AA : Maintenance of accounts
Sec 2(12A):Books or books of accounts includes ledgers, day-books, cash books, account-books and other
books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other
form of electro-magnetic data storage device
Specified Profession Non specified Profession / Business

Gross Receipt exceeds `1,50,000 Individual/HUF :
in ALL the 3 years immediately
Other Gross Receipt exceeds `25,00,000 Other
case case
preceding P/Y OR
P/G/B/P exceeds `2,50,000
OR
in Any of 3 years preceding P/Y
OR
where profession is newly setup in
P/Y, above limits are likely to
exceed for that P/Y
exceed for that P/Y
Other than Individual/HUF :
Gross Receipt exceeds `10,00,000

OR
P/G/B/P exceeds `1,20,000
in Any of 3 years preceding P/Y
OR
exceed for that P/Y
Specified books of accounts has Such books of accounts has be maintained that Not
to be maintained for that P/Y will enable the AO to compute his TI required to
(i.e. Cash Book, & Ledger) maintain
any books of
accounts
Special Points :
1. Specified profession : Legal, Medical, Engineering, Architectural, Accountancy, Technical

Consultancy, Interior decoration or other notified profession
2. Specified books of accounts :

a. Journal (if accounts on mercantile basis).
b. Cash Book & Ledger.
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c. Carbon copies of bill issued exceeding `25

d. Original bills or receipts received for exp. incurred exceeding `50
e. Payment vouchers prepared and signed for exp. incurred upto `50
These books are required to be kept and maintained for 6 years from end of relevant A/Y
3. A person carrying on Medical Profession, in addition to above shall maintain :

f. A daily case register in Form 3C.
g. A stock register showing inventory as on the 1st and last day of p/y of stock of drugs, medicines and
other consumable accessories used for profession.
Sec. 44AB: Compulsory Audit of Accounts
PROFESSION:
Compulsory audit of accounts for that P/Y in which Fees/Gross receipts exceeds `50,00,000
BUSINESS:
Compulsory audit of accounts for that P/Y in which Sales/Gross receipts exceed `1,00,00,000
Income claimed to lower than the presumptive limit
Where the assessee is covered under section 44AD, 44ADA, 44AE, (44BB or 44BBB)5 and claims that the
profits and gains from business are lower than the profits and gains computed on a presumptive basis. In such
cases, the normal monetary limits for tax audit in respect of business would not apply.
Special Points:
Accounts have to be audited u/s. 44AB by a CA before due date u/s 139(1) and also the audit report is to be
furnished on or before the said date.
COMPUTATION OF P/G/B/P ON PRESUMPTIVE BASIS
SEC 44AD SEC 44ADA SEC 44AE

1. Overriding Sec 28 to 43C Sec 28 to 43C Sec 28 to 43C
2. Assessee Resident Individual, Resident Resident Individual, Any Assessee (Resident/Non

HUF or Resident Partnership Firm Resident HUF or Resident Resident)
Excluding LLP Partnership Firm Excluding
3. Business Any Business except business u/s Specified Profession u/s Plying, Hiring or Leasing
44AE 44AA goods carriage
EXCEPTION :
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(i) Specified Profession u/s

44AA or
(ii) income of commission or

brokerage
(iii) Agency business

4. Limitations Provided Gross receipts/turnover Provided Gross receipts Owns not more than 10 goods
does not exceeds 2 Cr does not exceeds 50 lacs carriage at any time during p/y
5. Deemed 8 % of Gross Receipts/ Turnover 50% of the total gross ` 7,500/- pm (or part) for every
P/G/B/P in P/Y however he can claim his receipts
good carriage owned during
income to be 6% of the total
p/y
payments received digitally i.e.
through Cheque/DD/Debit
cards/Credit cards or any other
cashless mode.
6. Deductions No deduction u/s Sec. 30 to 38 No deduction u/s Sec. 30 to No deduction u/s Sec. 30 to 38
under shall be allowed from Deemed 38 shall be allowed from shall be allowed from Deemed
PGBP income Deemed income income
7. B/F losses Set off of Brought Forward losses Set off of Brought Forward Set off of Brought Forward
Shall be available losses Shall be available losses Shall be available
8. Benefits If assessee declares Deemed If assessee declares If assessee declares Deemed
income or any amount higher Deemed income or any income or any amount higher
,then no requirement to maintain amount higher ,then no ,then no requirement to
books u/s 44AA or to get audit u/s requirement to maintain maintain books u/s 44AA or to
44AB books u/s 44AA or to get get audit u/s 44AB
audit u/s 44AB
Special point :
1. Sec 44AD : Where assessee declares profit for any P/Y u/s 44AD & he declares profit for any of 5 P/Y
succeeding such P/Y not in accordance with sec 44AD, he shall not be eligible to claim the benefit of this
section for 5 subsequent P/Y from P/Y in which the profit has not been declared.
Example:
Let us consider the following particulars relating to a resident individual, Mr. A,being an eligible assessee
whose gross receipts do not exceed ` 2 crore in any of the assessment years between A.Y.2018-19 to
A.Y.2020-21 -
Particulars AY 2018-19 AY 2019-20 AY 2020-21

Gross receipts 1,80,00,000 1,90,00,000 2,00,00,000
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Income offered 14,40,000 15,20,000 10,00,000

for taxation
% of Gross 8% 8% 5%
Receipts
Offered income Yes Yes No
as per
presumptive
taxation scheme
u/s 44AD
In the above case, Mr. A, an eligible assessee, opts for presumptive taxation under section 44AD
for A.Y.2018-19 and A.Y.2019-20 and offers income of Rs.14.40 lakh and Rs. 15.20 lakh on gross
receipts of Rs.1.80 crore and Rs1.90 crore, respectively. However, for A.Y.2020-21, he offers
income of only Rs. 10 lakh on turnover of Rs. 2 crore, which amounts to 5% of his gross receipts.
He maintains books of account under section 44AA and gets the same audited under section
44AB. Since he has not offered income in accordance with the provisions of section 44AD(1) for
five consecutive assessment years, after A.Y. 2018-19, he will not be eligible to claim the benefit of
section 44AD for next five assessment years succeeding A.Y.2020-21 i.e., from A.Y.2021-22 to
2025-26.
Eligible assessee to whom above provisions are applicable & whose total income exceeds exemption limit,
shall be required to keep and maintain such books of account u/s 44AA & get them audited and furnish a
report of such audit as required u/s 44AB.
2. Sec 44AE : Assessee covered u/s 44AE & disclosing lower profits than deemed profits, shall be
required to keep and maintain such books of account u/s 44AA & get them audited and furnish a report of
such audit as required u/s 44AB
Sec 44ADA : Profits and gains of profession on presumptive basis.
1. Overriding : Notwithstanding anything contained in sections 28 to 43C
2. Assessee : Resident in India, who is engaged in specified profession u/s 44AA & whose Gross receipts is
upto 50 lakh in a P/Y.
3.Sum Deemed as business profits : 50% of Total Gross Receipts in P/Y or sum higher claimed to have
been earned by the assessee
Page 177
4. Deductions : Deduction u/s 30 to 38 shall be deemed to have been allowed and no further deduction
under those sections shall be allowed.
5. WDV of block : The WDV of any asset used for purposes of profession shall be deemed to have been
calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the
depreciation for each of the relevant A/Y.
6. Lower Profits : An assessee who claims that his profits from profession are lower than deemed profits &
whose total income exceeds exemption limit shall be required to keep & maintain such books of account and
other documents u/s 44AA and get them audited and furnish a report of such audit as required u/s 44AB.
Sec 43CA : Sale consideration in case of Real Estate Transactions
 Consideration on transfer of land or building or both

 Not being a capital asset
 is less than the Stamp duty valuation by any authority of a State Government ,then
 Such value shall be deemed to be full value of the consideration for computing Business Profits
Option available to Assessee

 Assessee can claims before AO that
 Stamp duty Valuation exceeds FMV of property
 On the date of transfer &
 Such value has not been disputed in any Appeal/Revision or
 No reference is made before any authority, court or the High Court, Than
 AO may refer the valuation of Asset to a Valuation Officer and
 Provisions of Wealth tax Act shall apply
Valuation of Valuation Officer

 Valuation of valuation officer is less than Stamp Duty Valuation,
 the value of valuation officer shall be
 taken as the full value of the consideration
Special point : Where Date of agreement for transfer of asset and Date of registration of such transfer are
different, the Stamp duty Value on date of Agreement shall be considered if consideration or part thereof has
been received by any mode other than cash on or before date of agreement for transfer of the asset.
Page 178
Some Sections applicable for Non residents
Sec 44B 44BB 44BBA 44BBB
Overriding Overriding sec 28 Overriding sec 28 to Overriding sec 28 to Overriding sec 28

to 43A 43A 43A to 43A
Assessee Non Resident Non Resident Non Resident Foreign company
Business Operation of Ships Supply of P&M on Operation of Civil construction

hire for prospecting/ Aircraft
extraction/production
of mineral oils
% deemed 7.5 % Indian 10% Indian Income 5 % Indian Income 10 % Income
as Income Income (Due in India + Due (Due in India + Due due in India
(Due in India + outside received in outside received in
Due outside India) India)
received in India)
Option to Yes Yes
claim NO Provided books u/s No Provided books
Lower 44AA , audit u/s 44AB u/s 44AA , audit
profits & scrutiny u/s 143(3) u/s 44AB &
for that A/Y scrutiny u/s 143(3)
for that A/Y
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MCQ PGBP
BASIC CONCEPTS
(1) Which is the charging section of income under the head profits and gains of business or profession?

(2) Export Incentives taxable under this head includes:
(a) Cash Compensatory Support (b) Duty Drawback

(c) Profit on transfer of DEPB (d) All of the above
(3) includes any arrangement or understanding or action in concert whether or not it is formal or in writing or
whether or not it is intended to be enforceable by legal proceedings:
(a) Contract (b) Agreement

(c) Service (d) Profession
(4) Which of the following conditions are to be fulfilled for charging an income under the head profits and gains of business or profession
(a) There should be profits and gains. (b) Business or profession must be carried on by the
assessee.
(c) Business or profession should be carried on at (d) All of the above.
any time during previous year.
(5) Which of the following are included in business according to section 2(13) :
(a) Trade (b) Commerce

(c) Manufacture (d) All of the above
(6) Assessee is having stock existing in the business. Valuation of stock will be at:
(a) Cost price (b) Market price

(c) Cost or market price, whichever is less (d) Cost or market price, whichever is more
(7) Method of accounting to be followed for computing income chargeable under the head PGBP shall be :
(a) Cash system (b) Mercantile system

(c) Cash or mercantile system at the option of (d) None of the above
assessee
(8) Under the Income-tax Act, 1961, 'notional profit' from speculative business is - (June, 2015)
(a) Taxable under the head 'income from profits (b) Taxable under the head 'income from other
and gains of business and profession' sources'
(c) Taxable either as income from other sources or (d) Not taxable.
as income from profits and gains of business
and profession
(9) Transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately
settled otherwise than by the actual delivery or transfer of the commodity or scrips is known as :
(a) Wagering transaction (b) Speculative transaction

(c) Deemed Speculation business (d) None of these
(10) X, Manager of XYZ Ltd. since 2002 was terminated by the company on 1 st August, 2017 by paying a compensation of
200 lakh. Such compensation is ----------------- (Dec. 2015)
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MCQ PGBP
(a) Chargeable under the Wealth-tax Act, 1957 (b) Not chargeable under the Income-tax
(c) Chargeable under section 17(3)(i) (d) Chargeable under section 28(ii)(a). nv
(11) HSK, an LLP had taken keyman insurance policy on the life of its managing partner. The policy got matured on 13 th September,
2017 and an amount of `75lakh was paid by the insurers to the managing partner. The amount so received
on maturity of the policy by the managing partner is - (Dec. 2015)
(a) Fully exempt u/s 10(10D) (b) 50% of 75lakh exempt
(c) ` 75lakh taxable (d) ` 25 lakh exempt and ` 50 lakh taxable
(12) Raman & Co., a partnership firm, received ` 5,00,000 from an insurance company under keyman insurance policy consequent to
demise of partner Pramod. The amount of premium ` 2,30,000 paid earlier was claimed as deduction under section 37 by the
firm. The amount received from the insurance company is - (June 2016)
(a) Tax-free under section 10(10D) (b) Fully taxable as income

(c) ` 2,70,000 is taxable (d) ` 2,30,000 is taxable
(13) Under the head 'profits and gains of business or profession', the method of accounting that should be followed by an
assessee is - (June 2016)
(a) Cash system only (b) Mercantile system only

(c) Hybrid system only (d) Cash system or mercantile system only
DEPRECIATION, WDV, ACTUAL COST ADDITIONAL DEPRECIATION,

UNABSORBED DEPRECIATION & INVESTMENT ALLOWANCE
(14) As per section 30, which expenditure incurred for a building used for the business or profession shall not be allowed as deduction?
(a) Rent, rates and taxes

(b) Insurance of building
(c) Repairs of building
(d) Capital expenditure
(15) Group of assets falling within a class of assets comprising of tangible & intangible assets is known as :
(a) Group of assets (b) Block of assets
(c) Set of assets (d) None of these
(16) Which of the following condition should be fulfilled for claiming depreciation u/ s 32 ?
(a) Asset must be owned wholly or partly by the (b) Asset must be used for the purpose of business
assessee. or profession of the assessee.
(c) Asset should be used during the relevant (d) All of the above.
Assessment year.
(17) Depreciation available, if asset is used for less than 180 days during the year of acquisition shall be of block rate:
(a) 50% (b) 20%

(c) 100% (d) 15%
(18) If the Plant & Machinery is used for less than 180 days in the year of its acquisition, then, at what rate the depreciation on that
asset should be provided under section 32?
(a) 7.5%
(b) 15%
(c) 20
(d) 10%
(19) If the Computer is purchased on 11th May, 2017 then at what rate depreciation will be provided on it?
(a) 60% (b) 100%

(c) 30% (d) 0%
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MCQ PGBP
(20) If the machinery is purchased on 4th October, 2017 then at what rate depreciation will be provided on it?
(a) 60% (b) 7.5%

(c) 15% (d) 10%
(21) The transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned t o the
individual assets and liabilities in the sale is known as :
(a) Lump sum sale (b) Slump sale
(c) Aggregate sale (d) Total sale
(22) What is the rate of depreciation charged on computer software?

(a) 10% (b) 15%
(c) 60% (d) 100%
(23) Rate of depreciation chargeable on fully temporary wooden structure for the assessment year 2018-19 is-
(b) 10%
(a) 5%
(c) 100%
(24) Rate of depreciation chargeable on temporary wooden structure for the assessment year 2018-19 is - (Dec. 2014)
(a) 25% (b) 10%
(c) 100% (d) 50%.
(Dec. 2009)
(25) Under the Income-tax Act, 1961, depreciation on machinery is charged on -
(a) Purchase price of the machinery (b) Market price of the machinery
(c) Written down value of the machinery (d) All of the above.
(26) If a block of assets ceases to exist on the last day of the previous year, depreciation admissible for block of assets will
be _ (June, 2015)
(a) Nil
(b) 50% of the value of the block of assets on the first
day of 'he previous year
(c) The total value of the block of assets on the first (d) 50% of the value of the block of assets on the
day of the previous year last day of the previous year.
(27) Opening WDV of the block of assets was ` 15,00,000. During the year, asset was acquired under this block on 15th June 2017
amounting to ` 10,00,000. Rate of depreciation of the block is l5%. Calculate the amount of depreciation available
during the previous year for the block.
(a) ` 3,25,000 (b) ` 3,75,000
(c) ` 3,00,000 (d) ` 2,25,000

(28) Opening WDV of the block of assets was ` 15,00,000. During the year, asset was acquired under this block on lSth June 2017
amounting to ` 10,00,000. One of the asset falling within the block was sold for ` 5,50,000 on 14-01-2018. Rate of depreciation of the
block is 10%. Calculate the amount of depreciation available during the previous year for the block.
(a) ` l,95,000 (b) ` 2,50,000
(c) ` l,45,000 (d) ` 2,22,500
(29) Opening WDV of the block of assets was ` l5,00,000. During the year, asset was acquired under this block on 15th January 2018
amounting to ` 10,00,000. One of the asset falling within the block was sold for ` 5,50,000 on 14 January 2018. Rate of depreciation
of the block is 10. Calculate the amount of depreciation available during the previous year
for the block.
(a) ` l,95,000 (b) ` 2,50,000
(c) ` l,45,000
(d) ` 2,22,500
(30) Opening WDV of the block of assets was ` 25,00,000. During the year, asset was acquired under this block on 11th October 2017
amounting to ` 15,00,000. Also, moneys payable in respect of asset falling within this block was ` 38,00,000.
Rate of depreciation of the block is 10%.
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MCQ PGBP
Calculate the amount of depreciation available during the previous year for the block.
(a) ` 20,000 (b) `10,000 (d)
(c) ` 1,50,000 ` 15,000
(31) Adhu Ltd. owns machinery (rate of depreciation is 15), the written down value of which as on 1 st April, 2017 is ` 30,00,000. Due to fire,
entire assets in the block were destroyed and the insurer paid ` 25,00,000. The eligible depreciation in respect of this machinery is -
(June 2016)
(a) ` 4,50,000 (b) ` 75,000

(c) ` 5,00,000 (d) Nil
(32) Vaibhav, deriving business income, owns a car whose WDV as on 1 st April, 2016 was ` 3,00,000. This is the only asset in the block of
assets with rate of 15. It is estimated that one-third of the total usage of the car is for personal use in both years. The WDV of the block
of assets as on 31st March, 2018 would be - (June, 2015)
(a) ` 2,16,750 (b) ` 2,43,000

(c) ` 2,55,000 (d) None of the above.
(33) While computing the actual cost of any asset falling within a block, direct costs attributable to bring asset to its present location and
working condition for its intended use (i.e. expenses incurred for acquiring the asset e.g. - freight, insurance, loading and handling etc.
and expenses incurred in connection with the installation of the asset.) shall:
(a) be added to the purchase price (b) be subtracted from the purchase price
(c) be subtracted from WDV (d) be claimed as revenue expenditure.
(34) While computing the actual cost of any asset falling within a block, amount of duty of excise or additional duties of customs levied on it
and included in its cost, in respect of which claim of CENV AT credit has been made and allowed under the CENVAT Credit Rules,
2004, shall be:
(a) Added to the purchase price (b) Subtracted from the purchase price
(c) Added to the WDV (d) Claimed as revenue expenditure
(35) While computing the actual cost of any asset falling within a block, portion of cost of asset which has been met directly by the Central
Government or a State Government or any authority under any law or any other person, in the form of a subsidy or grant or
reimbursement, shall be:
(a) Added to the purchase price (b) Subtracted from the purchase price
(c) Added to the WDV (d) Claimed as revenue expenditure
(36) In which of the following case no depreciation is allowable _
(a) Block exists but WDV ceases to exist. (b) WDV exists but the block ceases to exist.
(c) WDV & Block both ceases to exist. (d) All of the above.
(37) Sunil acquired a building for ` 15 lakh in June, 2015 in addition to cost of land beneath the building of ` 3 lakh. It was used for personal
purposes until he commenced business in June, 2017 and since then it was used for business purposes. The amount of depreciation
eligible in his case for the assessment year 2018-19 would be - (Dec. 2015)
(a) ` 1,50,000 (c) (b) ` 75,000

` 37,500 (d) ` 1,21,500
(38) Ramson Industries acquired a factory building for self use in November, 2017. The value of land underneath the building was ` 5 lakh and
value of building was ` 10 lakh. The amount of eligible depreciation allowable for assessment year 2018-19 is - (June 2016)
(a) ` 1,50,000 (b) ` 25,000

(c) ` 1,00,000 (d) ` 50,000
(39) Q & Co., a sole proprietary concern, was converted into a Company on 1-9-2017. Before the conversion, the sole proprietary concern had
a Block of Plant and Machinery (Rate of Depreciation 15%), whose WDV as on 1-4-2017 was ` 3,00,000. On 1st April, itself a new Plant
of the same Block was purchased for ` 1,20,000. After the conversion, the Company has purchased the same type of Plant on 1-1-2018
for ` 1,60,000.
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MCQ PGBP
Compute the depreciation that would be allocated between the sole proprietary concern and the successor company.
(a)' ` 26,408 : ` 48,592 (b) ` 0 : ` 75,000
(c) ` 75,000 : ` 0 (d) No depreciation for this year
(40) R, an assessee carries on business in respect of which it holds tenancy rights. It carries out improvements to the said building at a cost of
` 2lakhs and claims depreciation@ 10% thereon. Which is the correct answer?
(a) No depreciation available on the ground that (b) Depreciation allowed of ` 20,000.
the assessee is not the owner of the building.
(d) The amount of ` 2,20,000 will be capitalised.
(c) Deduction of ` 2,00,000 available.
(41) XYZ Ltd is engaged in production of textile articles. Opening WDV of the block of assets was ` 15,00,000. During the year, plant was
acquired under this block on 15th June 2017 amounting to ` 10,00,000. One of the asset falling within the block was sold for ` 5,50,000
on 14-01-2018. Rate of depreciation of the block is 15%. Calculate the total amount of depreciation including additional depreciation
available during the previous year for the block.
(a) ` 2,92,500 (c) (b) `4,92,500
` 3,92,500 (d) ` 3,52,500
(42) XYZ Ltd is engaged in production of textile articles. Opening WDV of the block of assets was ` 15,00,000. During the year, plant was
acquired under this block on 15th December 2017 amounting to ` 10,00,000. One of the asset falling within the block was sold for `
5,50,000 on 14-01-2018. Rate of depreciation of the block is 15%. Calculate the total amount of depreciation including additional
depreciation available during the previous year for the block.
(a) ` 2,92,500 (c) (b) ` 3,17,500

` 4,92,000 (d) ` 3,52,500
(43) Mohit purchased an asset for scientific research in the previous year 2008-09 for ` 30,00,000. During the previous year 2017-18 the said
asset ceased to be used for scientific research. Profit from business before depreciation ` 10,00,000 and Written down value of block of
assets 15 as on 1st April, 2017 ` 20,00,000. The scientific research asset if used for business shall be eligible for depreciation @ 15%.
The cost inflation index for 2007-08 is 551 and for 2017-18 is 1125. Compute the total income if the scientific research asset is sold for
` 65,00,000 during 2017-18, assuming that it is sold without using for business.
(a) ` 40,74,770 (b) ` 50,00,000 (d)

Ans.(a)
(c) ` 65,00,000 ` 10,00,000
(44) What shall be your total income in the above case, if the is sold after using for business.
(a) ` 40,31,990 (b) ` 55,00,000

Ans.(b)
(c) ` 65,00,000 (d) ` 10,00,000
(45) Where an asset used for scientific research for more than three years is sold without having been used for other purposes, then the sale
proceeds to the extent of the cost of the asset already allowed as deduction under section 35 in the past shall be treated as _ (June 2016)
(a) Business income (b) Long-term capital gain

(c) Short-term capital gain (d) Exempted income.
(46) In the case of any new machinery or plant (other than ships and aircraft), acquired by an assessee engaged in the business of manufacture
or production of any article or thing as well as assessees engaged in the business of generation or generation and distribution of power,
how much additional depreciation of actual cost of such plant and machinery is
available?
(a) 10% (b) 25%
(c) 5% (d) 20%
(47) In the case of any new machinery or plant (other than ships and aircraft), acquired by an assessee on 01-04-2017 engaged in the business
of manufacture or production of any article or thing in the backward areas of the State of Andhra Pradesh, how much additional
depreciation of actual cost of such plant and machinery is available in AY 2018-19?
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MCQ PGBP
(a) 17.5% (b) 20%
(c) 10% (d) 35%
(48) In the case of any new machinery or plant amounting is acquired by an assessee engaged in the business of manufacture or
production of any article or thing is put to use for less than 180 days, the additional depreciation admissible in FY
2017-18 and FY 2018-19 will be and respectively.
(a) 10%,10% (b) Nil,20%

(c) 20%, Nil (d) 15%, Nil
(49) In the case of any new machinery or plant amounting ` 25,00,000 is acquired by an assessee on 10-12-2017 engaged in the business
of manufacture or production of any article or thing, the additional depreciation admissible in FY 2017-18 and
FY 2018-19 will be and respectively. .
(a) ` 5,00,000 , NIL
(b) Nil, ` 5,00,000
(c) ` 2,50,000 , ` 2,50,000
(d) ` 3,75,000, Nil
(5O) Depreciation claimed by Mr. Gupta while computing profit in profit and loss account: ` 50,000. Depreciation allowable as per
Income Tax Rules : ` 58,000. Calculate the amount of depreciation allowable while computing gross total income of Mr. Gupta.
(a) ` 50,000 (b) ` 58,000

(c) ` 1,08,000 (d) ` 8,000
(51) An assessee was engaged in the business of manufacture of chemicals in Rajasthan. New machinery amounting to ` 5,50,000 was
purchased by it on 1st June, 2017. Calculate the additional depreciation available.
(a) ` 1,10,000 (b) ` 82,500

(c) ` 55,000 (d) Nil
(52) H in the above case the new machinery was purchased on 4th October, 2017, calculate the additional depreciation available.
(a) ` 1,10,000 (b) ` 82,500

(c) ` 55,000 (d) Nil
(53) Calculate the additional depreciation available in the above case for the financial year 2017-18.
(a) ` 1,10,000 (b) ` 82,500

(c) ` 55,000 (d) Nil
(54) An assessee was engaged in trading of goods. New machinery amounting to ` 10,00,000 was purchased by it on }'I June, 2017.
Calculate the additional depreciation available.
(a) ` 1,00,000 (b) ` 2,00,000
(c) Nil (d) ` 2,50,000
(55) Unabsorbed depreciation can be carried forward for:

(c) o years (d) Indefinite period
(56) Investment allowance is allowed as deduction in case investment in new plant and machinery exceeds:
(a) ` 10 crores (b) ` 25 crores
(c) ` 50 crores (d) ` 100 crores
(57) Who is the "eligible assessee" engaged in the business of manufacture or production of any article or thing, who can cla im
investment allowance under Section 32AC?
(a) Company (b) All persons

(c) HUF (d) Assessee whose gross turnover exceeds ` 100
lakhs
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(58) Who is the "eligible assessee" engaged in the business of manufacture or production of any article or thing, who can claim investment
allowance under Section 32AD?
(b) All persons
(a) Company
(d) Assessee whose gross turnover exceeds ` 100 lakhs
(c) HUF
(59) Investment allowance is available at rate of ___________ actual cost of plant and machinery:
(a) 10% (b) 15%
(c) 50% (d) 20%
(60) New plant and machinery shall not include investment made in:
(a) any plant or machinery which before its (b) any plant or machinery installed in any office
installation was used either within or outside India by premises or any residential accommodation
any other person. (including guest house);
(c) any office appliances including computers or (d) All of the above.
computer software; any vehicle; or any plant or
machinery, whose whole actual cost is allowed
as deduction.
(61) Which of the following companies shall be allowed investment allowance U/S 32AD in the previous year 2017-18:
Company P.Y.2017-18
A Ltd. In Punjab 15
B Ltd. In Delhi 20
CLtd. In Andhra Pradesh 50
(a) A, B, C (b) A, B
(c) B, C (d) C
(62) Chola Ltd., engaged in manufacture, acquired machineries for ` 30 crore in July, 2016 and for ` 27 crore in April, 2017.
All the machines were used within 45 days of acquisition. The deduction under section 32AD for the assessment year 2018-19 will be
_ (June 2016)
(a) ` 40,50,000 (b) `45,00,000
(c) ` 85,50,000 (d) ` 54,00,000
(63) Compute the amount of investment allowance under Section 32AD available to industries located in notified backward areas in State of
Andhra Pradesh or Bihar or Telangana or West Bengal if amount invested in new plant and machinery
is ` 30 crore on 1st April 2017 :
(a) ` 3 crore (b) ` 4.5 crore
(c) ` 6 crore (d) ` 2.25 crore
(64) What would be your answer if in the above case amount is invested on 17th October 2017 :
(a) ` 3 crore (b) ` 4.5 crore
(c) ` 6 crore (d) ` 2.25 crore

(65) Under section 32AC if the new asset is sold/transferred within years then amount of deduction allowed in
respect of such new asset shall be deemed to be the income of the assessee chargeable under the head "PGBP" of the previous year in
which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on
account of transfer of such new asset.
(a) 3 (b) 5
(c) 1 (d) 10
(66) XYZ Pvt. Ltd. was engaged in the business of manufacturing fertilizers. Opening WDV of the block of plant and machinery was ` 80
crores. During the year, asset was acquired under this block on 11th July 2017 amounting to ` 150 crore. Rate of depreciation of the
block is 15%. Calculate the amount of investment allowance available.
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(a) ` 22.5 crore
(b) ` 30 crore
(c) ` 150 crore
(d) ` 100 crore
(67) If in the above case, the asset was acquired on 30th December, 2017 then the amount of investment allowance available will be:
(a) ` 22.5 crore (b) ` 30 crore

(c) ` 150 crore (d) ` 100 crore
(68) XYZ Pvt. Ltd. was engaged in the business of manufacturing fertilizers. Opening WDV of the block of plant and machinery was ` SO
crores. During the year, asset was acquired under this block on 11 th Julv 2017 amounting to ` 150 crore. Rate of depreciation of the
block is 15. Calculate the WDV of the block of asset.
(a) ` 100 crore
(b) ` 143 crore (d)
(c) ` 182.5 crore
` 150 crore
(69) XYZ Pvt. Ltd. was engaged in the business of manufacturing fertilizers located in the backward area of State of West Bengal. Opening
WDV of the block of plant and machinery was ` 80 crores. During the year, asset was acquired under this block on 11th July 2017
amounting to ` 150 crore. Rate of depreciation of the block is 15%. Calculate the WDV of the block of asset.
(a) ` 100 crore

(b) ` 165.5 crore
(c) ` 143 crore
(d) ` 150 crore
(70) XYZ Pvt. Ltd. was engaged in the business of manufacturing fertilizers. Opening WDV of the block of plant and machinery was ` SO
crores. During the year, asset was acquired under this block on 11th July 2017 amounting to ` 50 crore. Second hand machinery was
also purchased amounting to ` 70 crores. Rate of depreciation of the block is 15%. Calculate the amount of investment allowance
available.
(a) ` 18 crore (b) Nil
(c) ` 7.5 crore (d) ` 10 crore
CERTAIN SPECIAL DEDUCTIONS - SECTION 33AB TO 35E
(71) What is the amount of deduction in relation to Tea, Coffee and Rubber development A/C u/s 33AB?
(a) 20% of profits of such business. (b) 40% of profits of such business.
(c) 60% of profits of such business. (d) 100% of profits of such business.
(72) XYZ Ltd. has dervied a profit of ` 100 lakhs from the business of growing and manufacturing tea in India. It has deposited a sum of ` 38
lakhs in Tea deposit account .What is the amount of deduction in relation to Tea, Coffee and Rubber development A/C u/s 33AB?
(a) ` 20 lakhs (b) ` 3Slakhs
(c) ` 40 lakhs (d) ` 60 lakhs
(73) XYZ Ltd. has dervied a profit of ` 100 lakhs from the business of growing and manufacturing coffee in India. It has deposited a sum of `
42 lakhs in development account .What is the amount of deduction in relation to Tea, Coffee and Rubber development A/C u/s
33AB?
(a) ` 20 lakhs (b) nSlakhs
(74) If an asset acquired in accordance with the site restoration scheme is sold or otherwise transferred in any previous year before the expiry
of ----------years from year of its acquisition and such part of the cost of asset is relatable to the deduction already allowed under this
section will be deemed to be the profits of business in the year of such sale or transfer:
(a) 5 (b) 4
(c) 8 (d) 10
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(75) The amount of deduction in relation to site restoration fund u/ s 33ABA is :
(a) Aggregate of amounts deposited in special A/ c (b) 20 of profits of such business.
or Site restoration A/ c.
(c) Higher of (a) or (b). (d) Lower of (a) or (b).
(76) The amount of deduction available for revenue expenditure incurred during the previous year, on scientific research related to the
business; and expenditure incurred on scientific research within the 3 years preceding the date in which the business commences by
way of salary of employees/purchase of materials will be:
(a) Amount of expenditure incurred (b) 2 x expenditure incurred

(c) 1.5 x expenditure incurred (d) None of these
(77) Mr. X has incurred revenue expenditure of `5,00,000 during the previous year, on scientific research related to the business. The amount
of deduction admissible under Section 35 will be :
(a) `5,00,000 (b) ` 10,00,000

(d) None of these
(c) `7,50,000
(78) Mr. X has incurred capital expenditure of ` 5,00,000 (which includes ` 1,00,000 on cost of land) during the previous year, on scientific
research related to the business. The amount of deduction admissible under Section 35 will be :
(a) `4,00,000 (c) (b) ` 8,00,000

(d) ` 10,00,000
` 6,00,000
(79) The amount of deduction available for the sum paid to approved scientific research association, university, college or institution whose
object is undertaking of scientific research will be :
(a) 2 times (b) 1.5 times

(c) 1.75 times (d) None ofthese
(80) Where the assessee does not himself carry on scientific research but makes contributions to an approved university, college or
institution, to be used for scientific research related or unrelated to the business of assessee, hence the amount of deduction from
income of business shall be allowed on such contribution to the extent of - (Dec. 2014)
(a) 125% (b) 175%
(c) 100% (d) 200%
(81) Mr. Rajan has incurred expenditure of ` 5,00,000 by way of payment of sum to approved scientific research association whose object is
undertaking of scientific research. The amount of deduction admissible under Section 35 will be :
(a) ` 8,75,000 (b) ` 7,50,000

(d) ` 10,00,000
(c) ` 5,00,000
(82) X Ltd. paid ` 10 lakh to an approved college to be used for scientific research unrelated to its business. The amount
eligible for deduction under section 35(1)(ii) is ---------- (Dec. 2015)
(a) ` 5lakh (b) ` 10 lakh (d)

(c) ` 17.50 lakh Nil
(83) The amount of deduction available for the sum paid to a company having as its main object 'scientific research and development' to be
used by it for scientific research; or Sum paid for social science or statistical research to a university,
college, or institution will be :
(a) 100% of sum paid (b) 200% of sum paid
(c) 150% of sum paid (d) 125% of sum paid

(84) According to section 35(1)(iv) the amount of deduction claimed on capital expenditure on scientific research is:
(a) Amount of expenditure incurred (b) 1.25 x sum paid

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(85) An assessee made a capital expenditure on purchase of land amounting to ` 150 lacs during the previous year on scientific
research related to the business carried on by him. Amount of deduction available to assessee for this expenditure is:
(a) 1 x expenditure incurred (b) 1.25 x sum paid

(c) 1.5 x expenditure incurred (d) NIL
(86) According to Section 35(2AA) the amount of deduction claimed for sum paid to a National Laboratory for approved programme
is :
(a) Amount of expenditure incurred (b) 2 x expenditure incurred

(87) According to Section 35(2AB) expenditure incurred for the manufacture or production of chemical fertiliser:
(a) Amount of expenditure incurred (b) 1.25 x sum paid

(c) 2 x expenditure incurred (d) None of these
(88) Assessee company engaged in the business of bio-technology incurred an expenditure of ` 10,00,000 on scientific research which
includes cost of land of ` 2,00,000. Compute the amount of deduction available.
(a) ` 10,00,000 (b) ` 8,00,000

(c) ` 16,00,000 (d) ` 20,00,000
(89) The amount of deduction available for the expenditure incurred (other than cost of land or building) on scientific research, in-house
research and development facility, by a company engaged in the business of bio-technology or manufacture or production of
article or thing (other than article or thing specified in XI Schedule) will be:
(a) 100% (b) 125%
(c) 200% (d) None ofthese
(90) Assessee company engaged in the business of bio-technology incurred an expenditure of ` 10,00,000 on scientific research which
includes cost of land of ` 2,00,000. The aforesaid company does not maintain books of accounts for research and development
facility and thus has not audited its accounts. Compute the amount of deduction available.
(a) ` 10,00,000 (b) Nil
(c) ` 16,00,000 (d) ` 20,00,000
(91) XYZ Ltd. engaged in the business of providing telecommunication services has incurred a capital expenditure of ` 10,00,000 on
telecommunication licence. The period of licence is 10 years. Compute the amount of deduction available under Section
35ABB during the year.
(a) ` 10,00,000 (b) ` 1,00,000

(c) ` 2,00,000 (d) ` Nil
(92) Deduction in respect of expenditure incurred for obtaining licence to operate telecommunication services shall be availa ble
during the period of :
(a) 5 years (b) License

(c) 10 years (d) 8 years
(93) The amount of deduction available under section 35AC for expenditure incurred on Eligible Projects or Schemes is:
(a) 100% (b) 125%
(c) 200% (d) None of these
(94) Specified business under section 35AD includes:

(a) Cross-country crude or petroleum oil pipeline (b) Slum redevelopment housing
project.network.
(c) Bee-keeping and production of honey and (d) All of the above.
beeswax.
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(95) The amount of deduction available under section 35AD for capital expenditure incurred in business of Cold chain facilities will be :
(b) 125%
(a) 100%
(d) None of these
(c) 150%
(96) The amount of deduction available under section 35AD for capital expenditure incurred in business of Inland Container Depot or a
Container Freight Station:
(a)100% (b) 125%
(c) 150% (d) None of these
(97) Assessee engaged in the business of Cross-country natural gas pipeline network incurred an expenditure on acquisition
of goodwill. Deduction available under section 35AD: .
(a) 100% (b) 125%
(c) 150% (d) Nil

(98) Which of the following is not one of the Specified businesses under section 35AD includes:
(a) Slurry pipe line (b) Semi-conductor wafer fabrication
manufacturing unit
(c) Hotel (d) Sugar factory
(99) Minimum holding period of capital asset acquired under section 35AD is :
(100) Exception to the minimum holding period provision for capital asset under section 35AD is :
Cement industry (b) Infrastructure Enterprise ul s 80-IA

(a)
Company carrying on scientific research and (d) Sick industrial company uls 17(1) of the Sick Industrial
(c) Companies (Special Provisions) Act, 1985
development u/s 80IB
(101) Which of the following business commenced during August, 2016 will not be eligible for deduction under section 35AD - (June, 2015)
(a) Setting-up and operating a cold chain facility (b) A production unit of fertilizer in India
)
(c) Operating of a 1 star hotel in a village (d) Building a hospital of 200 beds.
(102) As per section 35CCA, deduction in respect of payment to association and institutions for carrying out rural development programme is:
(a) 1 x amount paid (b) 1.25 x amount paid
(c) 1.5 x amount paid (d) Nil
(103) Amount of deduction available u/s 35CCC for expenditure incurred on notified Agricultural Extension Project :
(a) 1 times (b) 1.25 times
(c) 1.5 times (d) Nil
(104) Amount of deduction available under section 35CCD for expenditure (excluding expenditure incurred on cost of land or building)
incurred by companies on notified Skill Development Project:
(a) 100% (b) 125%
(c) 150% (d) Nil
(105) What is the qualifying expenditure for deduction in relation to preliminary expenses u] s 35D :
(a) Aggregate amount of eligible expenditure (b) 5% of cost of project
(c) Higher of (a) or (b) (d) Lower of (a) or (b)
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(106) In year 2017-18 an assessee incurred ` 6 lacs as preliminary expenditure in respect of extension of the industrial undertaking.
The cost of fixed assets acquired out of such extension was ` 100 lacs as on 31st March 2018. Calculate the amount 'Of deduction
to be allowed to him in computation of his income for the A.Y. 2018-19.
(a) Nil
(b) ` 1,00,000
(c) ` 1,20,000
(d) ` 6,00,000
(107) Proportion of expenditure allowed as deduction each year in regard to expenditure incurred on Amalgamation or Demerger or
Voluntary retirement scheme:
(a) 1/5th for each 5 successive previous years (b) 1/2 for each 2 successive previous years
(c) 1/10th for each 10 successive previous years (d) Nil
(108) One of the employees of an organisation took voluntary retirement on 15 January 2018 and he was paid ` 15 lacs as
compensation. Calculate the amount of deduction to be allowed in computation of income for the A.Y. 201 8-19.
(a) Nil
(b) ` 15,00,000
(c) ` 3,00,000
(d) ` 1,50,000
(109) An assessee engaged in business of prospecting, etc., for minerals incurred an expenditure of ` 35,00,000 on purchase of land.
The amount of deduction available ul s 35E in the previous year 2017-18 for this expenditure incurred is :
(a) Nil
(b) ` 35,00,000
(c) ` 3,50,000
(d) ` 1,50,000 )
OTHER SPECIFIED DEDUCTIONS & GENERAL DEDUCTIONS - SECTION 36 & 37
(110) Expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in sectio n 135 of the
Companies Act, 2013 is :
(a) An Allowable expenditure (b) Illegal expenditure
(c) Deferred revenue expenditure (d) Not an allowable expenditure
(111) An assessee paid insurance premium against risk of damage or destruction of stocks or stores used for the purposes of h is
business or profession. Such expenditure shall be considered as :
(a) Revenue expenditure
(b) Capital expenditure
(c) Deferred revenue expenditure
(d) Illegal expenditure
(112) Insurance premium was paid by a Federal Milk Co-operative Society on the life of cattle owned by member of such co-
operative society. Such society was engaged in supplying milk raised by its members to such federal milk co-operative society.
Such expenditure shall be considered as:
(113) An assessee purchased a computer on which depreciation is admissible. Such expenditure shall be considered as :
(a) Revenue expenditure (b) Capital expenditure
(c) Deferred revenue expenditure (d) None of the above
(114) One of the employees of the organisation was terminated in the interest of business and was paid one time compensation of
` 75,000. For the organisation such expenditure shall be considered as:
(115) Mis. Kalyani and Company paid ` 84,000 as advertisement in the annual magazine of Bhartiya Janata Party. For the
organisation such expenditure shall be:
(a) Considered as revenue expenditure
(b) Considered as capital expenditure
(c) Considered as deferred revenue expenditure
(d) Disallowed under Section 37(2B)
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(116) Mj s. Raksha & Company paid ` 75,000 as customs duty and ` 84,000 as income tax during the previous year. Calculate the amount of
expenditure allowable:
(a) ` 1,59,000 (b) ` 84,000

(c) ` 75,000 (d) Nil
(117) An employer paid an amount of ` 30,000 as insurance premium on the health of his employees under a scheme framed in this behalf by
GIC. Such payment was made by cash. The insurance amount was of ` 3,00,000. The amount of deduction available to employer:
(a) ` 30,000 (c) ` (b) ` 3,00,000

2,70,000 (d) Nil
(118) An employer paid an amount of ` 10,000 as insurance premium on the health of his employees under a scheme framed by GIC. Such
payment was made by cheque. The insurance amount was of ` 10,00,000. The amount of deduction available to employer:
(a) ` 10,000 (b) ` 10,00,000

(c) ` 1,00,000 (d) Nil
(119) XYZ Ltd. paid a sum of ` 25,000 to Mrs. Seema as employee bonus for services rendered by her which was otherwise have been payable
to her as profit or dividend. The amount allowable as per section 40A(2) was ` 20,000. Calculate the amount of deduction available.
(a) ` 25,000 (c) (b) ` 20,000

` 5,000 (d) Nil
(120) XYZ Ltd. paid a sum of ` 25,000 to Mrs. Seema as employee bonus for services rendered by her. Such amount was actually paid to her
on 15th June 2018. The amount allowable as per section 40A(2) was ` 20,000. Calculate the amount of deduction available.
(a) ` 25,000 (c) (b) ` 20,000

)
` 5,000 (d) NIL
(121) XYZ Ltd. paid a sum of ` 25,000 to Mrs. Geeta as employee bonus for services rendered by her during the Previous Year 2017-18. Such
amount was actually paid to her on 15th October 2018. The amount allowable as per section 40A(2) was ` 20,000. Calculate the amount
of deduction available to her in Previous Year 2017-18.
(a) ` 25,000 (c) (b) ` 20,000

` 5,000 (d) Nil
(122) XYZ Ltd. paid a sum of t 25,000 to Mrs. Geeta as employee bonus for services rendered by her during the Previous Year 2017-18. Such
amount was actually paid to her on 15th August 2018. The amount allowable as per section 40A(2) was ` 28,000. Calculate the amount
of deduction available to her in Previous Year 2017-18.
(a) ` 25,000 (b) ` 28,000

(c) ` 3,000 (d) Nil
(123) Mr. A took a loan of ` 10,00,000 on 15 June 2017 for acquisition of an asset. Such asset was put to use on I" April 2018.
th
Interest paid for the period till the asset was put to use was of ` 60,000. The amount of revenue expenditure available to assessee in
Previous Year 2017-18:
(a) Nil (b) ` 60,000
(c) ` 6,000 (d) ` 10,00,000
(124) Mr. A took a loan of ` 10,00,000 on 15th June 2017 for acquisition of an asset and immediately put the asset on use.
Interest paid for the Previous Year 2017-18 on such loan amounted to ` 65,000. Payment of ` 55,000 against the interest amount was
made on 11th May, 2018 and balance amount was paid on 11th October 2018. The amount of revenue expenditure available to assessee
in Previous Year 2017-18:
(a) Nil (b) ` 65,000

(c) ` 55,000 (d) ` 10,00,000
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(125) The employer made a contribution of ` 25,000 to recognised provident fund for the previous year 2017-18. Such payment was
made on 12th March, 2018. Such expenditure shall be considered as:
(126) Mr. Ram made a contribution of ` 45,000 to a Pension Scheme referred under section 80CCD. The salary of the employee was of
` 4,00,000 in the previous year. Calculate the amount of deduction available to employer in Previous Year 2017-18.
(a) NIL
(b) ` 45,000
(c) ` 40,000
(d) ` 4,00,000
(127) The assessee employer received a sum from his employee as contributions to Provident Fund or Employee State Insurance F und
or Superannuation fund or any other employee-welfare fund. Such sum is first treated as income of the employer and later
claimed as expenditure. Such expenditure shall be considered as:
(128) An assessee was engaged in the business of cattle rearing. He incurred a loss in respect of animals which were used for the
purposes of his business (otherwise than as stock-in trade) and which have died. Such expenditure shall be considered as:

(c) Deferred revenue expenditure (d) Illegal expenditure
(129) Ramesh was engaged in the business of trading of jewellery. During the previous year 2016-17 debt taken into account by him in
computing the income amounted to ` 2,50,000. However, during the previous year 2017-18 it was acknowledged that ` 1,35,000
is to be considered as irrecoverable in the accounts of the assessee. Calculate the amount of bad-debts written off as
irrecoverable to be allowed as a deduction in the previous year 2017-18:
(a) `2,50,000 (b) ` 1,35,000

(c) `1,15,000 (d) No deduction available
(130) Suresh was engaged in the business of trading of jewellery. During the previous year 2017-18 debt accrued to him amounted to
` 2,50,000 which was not taken into account by him while computing the income of the previous year. However, during the year
itself it was acknowledged that ` 1,00,000 is to be considered as irrecoverable from this debtor. Calculate the amount of
bad-debts acknowledged as irrecoverable to be allowed as a deduction in the previous year 2017-18 :
(a) ` 2,50,000 (b) ` 1,00,000

(c) ` 1,50,000 (d) No deduction available
(131) Provision for bad and doubtful debt is allowed as deduction in respect of the following :
(a) Primary agricultural credit society (b) Primary cooperative agricultural and rural
development bank
(c) Public Limited company (d) Non banking finance company
(132) Jaipur Co-operative Bank made a provision for bad and doubtful debts account against the advances made by it. In regard to
advances made by rural branches it made a provision amounting to ` 25,00,000 and in regard to advances made by urban branches
it made a provision amounting to ` 35,00,000. The total credit balance provision for bad and doubtful debts account was of `
60,00,000. The actual bad debts for the previous year against the urban advances only amounted to ` 68,00,000. Calculate the
amount of bad-debts to be allowed as a deduction in the previous year 2017-18:
(a) ` 33,00,000 (b) ` 68,00,000

(c) ` 8,00,000 (d) ` 43,00,000
(133) A scheduled bank incorporated in India had Gross Total Income of A.Y. 2018-19 [before deduction under section 36(1) (viia) of
` 750 lakhs and aggregate average advances made by rural branches of the bank was of ` 150 lakhs. Calculate the amount of
Provisions for doubtful debts to be made in the previous year.
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MCQ PGBP
(a) ` 90 lakhs (b) ` 67.5lakhs
(c) ` 150 lakhs (d) ` 71.25Iakhs
(134) A scheduled bank incorporated in India had Gross Total Income of AY. 2018-19 [before deduction u/s 36(1)(viia)] of ` 750 lakhs
and aggregate average advances made by rural branches of the bank was of ` 150 lakhs. Provision for bad and doubtful debts
under section 36(1)(viia) upto AY. 2017-18 was of` 50 lakhs. Calculate the amount of Provisions for doubtful debts to be made in
the previous year.
(a) ` 90 lakhs (b) ` 67.5lakhs

(c) ` 150 lakhs (d) ` 71.25Iakhs
(135) A scheduled bank incorporated in India had Gross Total Income of AY. 2018-19 [before .deduction under section 36(1) (viia) of`
750 lakhs and aggregate average advances made by rural branches of the bank was of ` 150 lakhs. Provision for bad and doubtful
debts under section 36(1)(viia) upto AY. 2017-18 was of` 50 lakhs. Bad debts written off (for the first time) in the books of
account (in respect of urban advances only) during the previous year 2017-18 was of ` 150 lakhs. Compute the deduction
allowable under section 36(1)(vii) for the AY. 2018-19.
(a) ` 28.751akhs (b) ` 78.751akhs
(c) ` 150 lakhs (d) ` 100 lakhs
(136) A foreign bank had Gross Total Income of AY. 2018-19 [before deduction under section 36(1)(viia)] of ` 1,750 lakhs.
Calculate the amount of Provisions for doubtful debts to be made in the previous year.
(a) ` 175 lakhs (b) ` 87.51akhs
(c) ` 1,750 lakhs (d) No provision to be made
(137) Atul Housing Finance Co. Ltd. for the year ended on 31-3-2018 had Profits from the business computed as per Part D of Chapter
IV of the Act but before claiming deduction u/ s 36(1)(viii) : ` 560 lacs, paid-up share Capital ` 500 lacs, General Reserve ` 100
lacs and balance in reserve created u/ s 36(1)(viii) on 31-3-2017 ` 1,100 lacs. Profits transferred to Special Reserve a/ c was of `
150 lakhs. Compute the amount of deduction avaialable under section 36(1)(viii) :
(a) ` 112lakhs (b) ` 100 lakhs
(c) ` 150 lakhs (d) No deduction available
(138) In the case of companies, capital expenditure incurred for the purpose of promoting family planning amongst the
employees would be deductible to the extent _ (Dec. 2014)
(a) Equal to 1/ 5th in each year for 5 years (b) Equal to 1/6th in each year for 6 years
(c) Equal to 1/4th in each year for 4 years (d) Equal to 1/10th in each year for 10 years.
(139) Assessee company incurred revenue expenditure of ` 15,000 for promoting family planning amongst its employees.
Calculate the amount of deduction available.
(a) ` 3,000 (b) ` 15,000
(c) ` 18,000 (d) No deduction available
(140) Assessee firm incurred revenue expenditure of `15,000 for promoting family planning amongst its employees. Calculate the
amount of deduction available.
(a) ` 3,000 (b) ` 15,000
(141) Assessee company incurred capital expenditure of ` 75,000 for promoting family planning amongst its employees.
Calculate the amount of deduction available.
(a) ` 75,000 (b) ` 15,000
(142) Assessee company incurred capital expenditure of ` 50,000 and revenue expenditure of ` 7,000 for promoting family planning
amongst its employees. Calculate the amount of deduction available.
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(a) ` 50,000 (b) ` 7,000

(143) Contribution was made by PFI towards Credit Guarantee Fund Trust. Such expenditure shall be considered as:
(144) An assessee was engaged in the business of dealing in securities. He had paid Securities Transaction Tax of ` 25,000 on the
securities. Income arising from taxable securities transactions computed under the head "Profits and Gains of Business or
Profession" was of ` 2,50,000. Such expenditure of payment of Securities Transaction Tax shall be considered as:

(c) Speculative transaction expenditure (d) Illegal expenditure
(145) An assessee was engaged in the business of dealing in commodities. He had paid Commodities transaction tax of ` 15,000 in
respect of the taxable commodities transactions. Income arising of ` 3,00,000 from such taxable commodities transactions was
included in the income computed under the head "Profits and gains of business or profession" . Such expenditure of payment of
Commodities transaction tax shall be considered as:
(c) Speculative transaction expenditure (d) Illegal expenditure
(146) The assessee co-operative society was engaged in the business of manufacture of sugar, for purchase of sugarcane an amount of
` 50,000 was incurred by it. The price fixed or approved by the Government for such purpose is ` 95,000. The amount of
deduction admissible will be
(a) ` 1,00,000 (b) ` 50,000 (d)
(c) ` 95,000. Nil
(147) To claim deduction of an expenditure u/s 37, the expenditure incurred must be:
(a) In respect of the business or profession carried (b) Not capital in nature.
on by the assessee.
(c) Not of nature described u] s 30 to 36. (d) All of the above.
(148) An assessee paid penalty of ` 42,000 paid for non-compliance of the provisions of Customs Act. Such expenditure shall be
considered as:
(c) Speculative transaction expenditure (d) Disallowed under Section 37(1)
(149) An assessee incurred expense of tax on non monetary perquisites of employees. Such expenditure shall be considered as:
(a) Revenue expenditure (c) (b) Capital expenditure

Deferred revenue (d) Expressly disallowed
(150) An assessee made an expenditure on issue of shares. Such expenditure, including fees paid to Registrar of Companies, was
incurred to increase the authorized share capital, resulting in expansion of the capital base. Such expenditure shall be
considered as:
(c) Deferred revenue expenditure (d) Expressly disallowed
(151) An assessee incurred an expenditure on stamp duty and registration fees for the issue of bonus shares. Such expenditure shall
be considered as:
(c) Deferred revenue expenditure (d) Expressly disallowed
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(152) XYZ & Co. incurred a liability by giving discount on issue of debentures. Such expenditure shall be considered as:

(153) Assessee company redeemed its debentures on premium. Such expenditure of paying premium shall be considered as:
(154) Expenditure incurred by a hotelier on replacement of linen and carpets in his hotel. Such expenditure shall be consider ed as:

(155) An assessee made a payment of ` 25,000 as a secret commission, prohibited by law, for some offensive purpose. Such
expenditure shall be considered as:
(c) Deferred revenue expenditure (d) Non deductible expenditure
(156) An assessee incurred a sum of ` 35,000 for perfecting title or removing defects in title. Such expenditure shall be considered as:

(157) An assessee incurred a sum of ` 1,10,000 for alteration of the memorandum and articles of association. Such expenditure shall
be considered as:
(158) An assessee incurred a loss of ` 50,000 on account of foreign exchange fluctuations on loans taken from foreign banks for
revenue purposes or trading liabilities. Such loss/ expenditure shall be considered as:
(159) An assessee incurred an expenditure of ` 35,000 on shifting of its administrative office. Such loss/ expenditure shall be
considered as:
(160) Under the Income-tax Act, 1961, which of the following outlays incurred by Sun Ltd. during the previous year ended 31 st
March, 2017 will not be admissible as deduction while computing its business income - (June, 2015)
(a) Contribution to a political party in cash (b) Interest on loan taken for payment of income-tax
(c) Capital expenditure on advertisement (d) All of the above.
SPECIFIC DISALLOWANCES - SECTION 40 & 40A
(161) Mr. Ramesh during the previous year 2017-18 made a payment outside India to a non-resident on which IDS was not paid upto
time allowed under section 200. However, such TDS was deducted and paid on 15th February 2019. When shall deduction of
this expenditure be allowed to assessee?
(a) Previous Year 2016-17 (b) Previous Year 2017-18
(c) Previous Year 2018-19 (d) Not allowed deduction
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(162) Mr. Karan during the previous year 2017-18 made a payment outside India to a non-resident on which IDS was not paid upto time
allowed under section 200. However, such TDS was deducted and paid on 30th September 2018. When shall deduction of this
expenditure be allowed to assessee?
(a) Previous Year 2016-17

(b) Previous Year 2017-18
(c) Previous Year 2018-19
(d) Not allowed deduction
(163) Payments to residents on which tax has not been deducted/ paid shall be disallowed to the extent of ________________ _
(a) 0% (b) 30%

(c) 100% (d) 50%
(164) XYZ Ltd. has made a payment of `10,00,000 to Mr. C a contractor on which tax was not deducted at source during the previous year.
The amount of expenditure to be disallowed under Section 40(a) will be-
(a) `10,00,000 (b) `3,00,000

(c) `5,00,000 (d) Nil
(165) Laxmi & Co. paid `6,10,000 as contract payments to Monu Ltd. during the financial year 2017-18. It did not deduct tax at
source under section 194C. The amount liable for disallowance is - (Dec. 2015)
(a) `6,10,000 (b) `3,05,000

(c) `12,200 (d) `1,83,000
(166) XYZ Ltd. has credited a sum of `10,00,000 to Mr. C a contractor on which tax was deducted at source during the previous year
2017-18. The payment of such IDS was made on 30-09-2018 being the due date of filing return of income. The amount of expenditure
to be disallowed under Section 40(a) in previous year 2017-18 will be :
(a) `10,00,000 (b) `3,00,000

(c) `5,00,000 (d) Nil
(167) Mr. Rakesh paid the income tax due of the previous year 2017-18 on 15th May 2018. When shall deduction of this expenditure be
allowed to him?
(a) Previous Year 2016-17

(b) Previous Year 2017-18
(c) Previous Year 2018-19
(d) Not allowed deduction
(168) Which of the following taxes are allowed as deduction while computing the business income _
(June 2013)
(a) Wealth-tax (b) Income-tax
(c) Sales tax (d) None of the above.
(169) Which of the following taxes are not allowed as deduction while computing the business income _
(a) Excise duty (b) Service tax

(c) Sales tax (d) Equalization levy
(170) Son of Mr. Raghu was appointed as a manager in his firm. Raghu made a payment of salary of `30,00,000 to his son whereas Assessing
Officer is of opinion that such expenditure is excessive or unreasonable having regard to the FMV which comes to be of `24,00,000.
Calculate the amount to be disallowed.
(a) `24,00,000
(b) `30,00,000
(c) `6,00,000
(d) Nil
(171) A person shall be deemed to have a substantial interest in a business or profession, if-
(a) In a case where the business or profession is (b) In any other case, such person, at any time during the
carried on by a company, such person, at any time previous year, is beneficially entitled to not less than
during the previous year, is the beneficial owner of 20% of the profits of such business or profession.
equity shares carrying not less than
20 % of the voting power.

(c) Both of the above.
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(172) Mr. Kishore claims the deduction (on accrual basis) of payment to Lalit of ` 25,000. Next year he paid this amount to Lalit through a
crossed cheque. What are the consequences of this transaction?
(a) This deduction is already claimed. (b) It will be disallowed and deemed to be the
profit and gains of Business and Profession of
the next year.
(c) Deduction can be claimed in next year too. (d) None of these
(173) Ashish made a cash payment of ` 2,85,000 on 28th March, 2018 as the banks were on strike that day and the payment was to be made
urgently. Calculate the amount of expenditure to be disallowed u/s 40A(3).
(a) ` 2,85,000 (b) `2,65,000 (d)
(c) Nil ` 20,000

(174) Under section 40A(3) which of the following payment for an expenditure incurred would not be admissible as deduction
from business income _ (June, 2015)
(a) ` 15,000 paid in cash to a transporter (b) ` 15,000 paid in cash to a dealer in the morning
and ` 10,000 paid in cash to the same dealer in
the evening
(c) ` 40,000 sent through NEFT to the bank account (d) ` 19,000 paid through bearer cheque to the
of the dealer for goods purchased dealer for goods purchased.
(175) When a cash payment of ` 30,000 is made on 10th May, 2017 towards purchase of raw material effected in the earlier year, i.e., on 5th
June, 2015, the amount liable for disallowance under section 40A(3A) would be - (Dec. 2015)
(a) Nil (b) 100% of payment

(c) 20% of such payment (d) 30% of such payment
(176) Mohan Ltd. purchased goods on credit from Sohan Ltd. on 6 th May, 2017 for ` 86,000 which is paid as ` 15,000 in cash on 11th May,
2017; ` 30,000 by a bearer cheque on 3rd May, 2017; and ` 41,000 by an account payee cheque on 16th May, 2017. The amount of
disallowance under section 40A(3) is -------- (June, 2011)
(a) ` 15,000 (b) `30,000 (d)
(c) ` 41,000 ` 86,000

(177) Where an assessee doing a business incurs any expenditure in respect of which payments made to a person in a day exceeds ` 20,000
should be paid through account payee cheque or demand draft to claim deduction for such expenditure. This restriction does not apply
to -------(June 2016)
Payments made to RBI (b)

(a) Payments made to cultivators
Payment of terminal benefits to employees not (d) All of the above
(c)
exceeding ` 50,000
(178) Abhishek made two separate payments for plying, hiring or leasing goods amounting to ` 32,000 and ` 39,000. Discuss about the
allowability of the two payments made.
(a) Both the payments will be allowed. (b) Payment amounting to ` 32,000 will be allowed
and the other one will be disallowed.
(c) Payment amounting to ` 39,000 will be allowed (d) Both the payments will be disallowed.
the other one will be disallowed.
(179) Payment of ` 50,000 by using credit card for fire insurance. The amount of disallowance under section 40A(3) is -
(b) ` 30,000
(a) ` 50,000
(d) ` 20,000
(c) Nil
(180) Payment of ` 50,000 made in cash towards purchases of medicines. The amount of disallowance under section 40A(3) is -
(b) `30,000
(a) ` 50,000
(d) `20,000
(c) Nil
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(181) An assessee made a provision of ` 5,00,000 for the payment of gratuity to his employees on their retirement. The gratuity fund
was unapproved. Calculate amount of deduction allowable to assessee in respect of this provision.
(a) ` 5,00,000 (b) ` 10,00,000

(c) ` 1,00,000 (d) NIL
(182) Deemed profits chargeable to tax under section 41 includes:
(a) Taxability of Balancing Charge in case of Power (b) Sale of an asset used for scientific research
Generating Undertakings. without having been used for the purposes of
business or profession.
(c) Recovery of bad debts. (d) All of the above.
(183) Biren discontinued wholesale trade in medicines from 1 st July, 2014. He recovered ` 1,50,000 in October, 2017 being a bad debt
which was written-off and allowed in assessment year 2013-14. He has eligible brought forward business loss of wholesale trade
in medicines of ` 1,70,000. The consequence of bad debt recovery is that - (June 2016)
(a) It is chargeable to tax (b) It is eligible for set-off against brought forward
business loss
(c) The brought forward business loss is taxable (d) 50% of the amount recovered now is taxable
now
(184) Sameer sold goods worth ` 50,000 at credit on 1 st April, 2014. However, he has written off ` 10,000 of it as bad debts and claimed
deduction for the same during the year 2016-17. On 4th April, 2017, the defaulting debtor made payment of ` 45,000. The taxable
amount of bad debts recovered for the year 2017-18 would be - (June, 2015)
(a) ` 5,000
(b) ` 50,000
(c) ` 45,000
(d) `10,000
(185) An assessee discontinued his textile business during the previous year 2016-17 and incurred a loss of ` 1,50,000. During the
previous year 2017-18 assessee earned deemed profits in the discontinued business of ` 1,75,000. Calculate the amount taxable as
business income.
(a) ` 1,75,000 (c)
(b) ` 1,50,000
` 25,000
(d) NIL
(186) Saraswath Ltd. made provision of ` 121akh for bonus payable for the year ended 31" March, 2018. It paid ` 71akh on 31" July,
2018; ` 3 lakh on 30th September, 2018; and ` 2 lakh on 15th December, 2018. The amount eligible for deduction under section
43B would be - (Dec. 2015)
(a) ` 10 lakh (b) ` 121akh

(c) ` 71akh (d) ` 31akh
(187) As per section 43B, certain payments are to be allowed as deduction only on actual payment. Such sums include:
(a) Any sum payable by the assessee to the Indian (b) Employer's contribution to provident fund or
Railways for the use of railway assets. superannuation fund or gratuity fund or any other
fund for the welfare of employees.
(c) Bonus or commission to employees for services (d) All of the above.
rendered as referred uls 36(1)(ii).
(188) As per section 43B, certain payments are to be allowed as deduction only on actual payment. Such sums include:
(a) Sum payable by assessee by way of tax, duty, (b) Employer's contribution to provident fund or
cess or fee, by whatever name called, under any superannuation fund or gratuity fund or any other
law for the time being in force. fund for the welfare of employees.
(c)
Bonus or commission to employees for services (d) All of the above.
rendered as referred u/s 36(1)(ii).
(189) Assessee incurred an expenditure of municipal tax of ` 51,000 relating to office building for the Previous Year 2017-18 but did
not pay the same till 30-09-2018. Such sum was paid on 15th March, 2019. In which assessment year deduction shall be allowed
to assessee?
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(a) AY.2017-18 (b) AY.2018-19
(c) A.Y.2019-20 (d) Nil

(190) XYZ Ltd. took a loan of ` 3,50,000 from a Public Financial Institution. It incurred an interest expense of ` 35,000 against this loan
in the Previous Year 2017-18 but did not pay the interest amount to bank. The assessee paid this amount on 15 th March 2019. In
which assessment year deduction shall be allowed to assessee?
(a) AY.2017-18 (b) AY.2018-19
(c) AY.2019-20 (d) Nil

(191) If in the above question, assessee makes the payment of interest amount to bank on 15 th September, 2018 then in which
assessment year deduction shall be allowed to assessee?
(a) AY.2017-18 (b) AY. 2018-19
(c) AY. 2019-20 (d) Nil

(192) Appu Ltd. contributed ` 8,70,000 towards provident fund account of its employees. It actually remitted ` 5,00,000 upto 3 rd March
and ` 2,50,000 upto the due date for filing the return specified in section 139(1). The amount liable to tax in its assessment would
be -------(June 2016)
(a) ` 3,70,000 (b) `1,20,000

(d) ` 8,70,000
(c) Nil
(193) XYZ Ltd. took a loan of ` 10,00,000 from a Public Financial Institution. It incurred an interest expense of ` 70,000 against this
loan in the Previous Year 2017-18 but did not pay the interest amount to bank. It requested the bank to convert the amount of
interest into loan on 15th September, 20187. Such converted loan is actually paid on 15 th December, 2019. In which assessment
year deduction shall be allowed to assessee?
(a) AY. 2017-18 (b) AY.2018-19
(c) AY .2019-20 (d) AY.2020-21

(194) An assessee transferred his land (stock in trade) on 15 May 2017 for ` 75,00,000. However, the value adopted by State
th
Government authority for the purpose of payment of stamp duty in respect of such transfer was ` 90,00,000. What shall be the
full value of the consideration received or accruing as a result of such transfer for the purposes of computing
profits and gains from transfer of such asset.
(a) `75,00,000 (b) ` 90,00,000
(c) ` 15,00,000 (d) ` 1,65,00,000

(195) Mahesh transferred his land (stock in trade) on June 2017 for ` 80,00,000. However, the value adopted by State Government
21st
authority for the purpose of payment of stamp duty in respect of such transfer was ` 72,00,000. What shall be the full value of the
consideration received or accruing as a result of such transfer for the purposes of computing
profits and gains from transfer of such asset.
(a) ` 72,00,000 (b) ` 80,00,000
(c) ` 8,00,000 (d) ` 1,52,00,000

(196) Mukesh transferred his land (stock in trade) on 1 June 2017 for ` 80,00,000. However, the value adopted by State Government
st
authority for the purpose of payment of stamp duty in respect of such transfer on the date of agreement fixing the value of
consideration for transfer of the asset was ` 85,00,000 and on the date of registration of such transfer of asset was ` 83,00,000. He
received consideration of ` 25,00,000 by cheque before the date of agreement. What shall be the full value of the consideration for
the purposes of computing profits and gains from transfer of such asset.
(a) `80,00,000 (b) ` 85,00,000
(c) `83,00,000 (d) ` 25,00,000

(197) Hari transferred his land on 1st September 2017 for ` 80,00,000. However, the value adopted by State Government authority for the
purpose of payment of stamp duty in respect of such transfer on the date of agreement fix ing the value of consideration for
transfer of the asset was ` 75,00,000 and on the date of registration of such transfer of asset was ` 73,00,000. He received
consideration of ` 25,00,000 by cheque before the date of agreement. What shall be the full value of the consideration for the
purposes of computing profits and gains from transfer of such asset.
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MCQ PGBP
(a) ` 80,00,000
(b) ` 75,00,000
(c) ` 73,00,000
(d) ` 25,00,000
(198) ABC Ltd. credited the interest on bad and doubtful debts of ` 35,000 on 18th March, 2018. However, the interest amount was
received on 11th April, 2018. As per section 43D when such interest shall be chargeable to tax?
(a) P.Y. 2017-18 (b) P.Y. 2018-19

(c) P.Y. 2019-20 (d) Not taxable
(199) ABC Ltd. credited the interest on bad and doubtful debts of ` 75,000 on 18th July, 2018. However, the interest amount was received
on 30th March, 2018. As per section 43D when such interest shall be chargeable to tax ?
(a) P.Y. 2017-18 (b) P.Y.2018-19

(c) P.Y. 2019-20 (d) Not taxable
(200) The profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or b y
co-operative society, shall be computed in accordance with rules contained in First Schedule to the Act. The profits and gains
derived from life insurance business is taxable at what rate?
(a) 11.5%
(b) 12.5%
(c) 10% (d) Nil
(201) XYZ & Association (trade association) furnishes profits of business before allowing deficiency was of ` 80,000. The deficiency
amount was of ` 75,000 and the total income of assessee before allowing deficiency was of ` 1,40,000. What shall be the amount of
deduction available to assessee for the deficiency?
You with the following information-
(a) ` 75,000 (b) ` 70,000 (d)
(c) ` 80,000 Nil
amount was of ` 75,000 and the total income of assessee before allowing deficiency was of ` 2,00,000. What shall be the amount of
deduction available to assessee for the deficiency?
You with the following information-
(a) ` 75,000
(b) ` 1,00,000 (d)
(c) ` 90,000
Nil
amount was of ` 75,000 and the total income of assessee before allowing deficiency was of ` 1,40,000. The amount of deduction
available to assessee for the deficiency is of ` 70,000. For how many years the remaining balance of deficiency amounting to `
5,000 shall be allowed to be carried forward?
You with the following information _
(a) 5 years (b) 1 year
(c) Infinite years (d) Not allowed to be carried forward
ACCOUNTS AND AUDIT - SECTION 44AA & 44AB
(204) Which amongst the following are specified books of account?

(a) Cash Book (b) Carbon copies or counterfoils of bills
(c) Original bills issued (d) All of the above
(205) The books of accounts are to be kept and maintained for a period of how many years from the end of the relevant assessment ye ar.

(c) 8 years (d) Unlimited period
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(206) A person carrying specified profession will have to maintain books of account prescribed by Rule 6F of the Income-tax
Rule, 1962, if gross receipts are more than ` 1,50,000 for - (June, 2015)
(a) All preceding 5 years (b) Any of the preceding 5 years
(c) All preceding 3 years (d) Any of the preceding 3 years.

(207) In case of specified professions, what is the minimum amount the Gross receipts should exceed in all of the three immediately
preceding previous years or, where the business is newly setup, the amount that gross receipts are likely to
exceed during current previous year, so as to maintain the books of accounts.
(b) ` 1,20,000
(a) ` 1,00,000 (c)
(d) ` 10,00,000
` 1,50,000
(208) In which case newly set up business or profession other than specified profession is required to maintain accounts?
(a) If total sales turnover is likely to exceed (b) If turnover likely to exceed ` 1,12,000 during such
` 25,00,000 during such previous year. previous year.
(c) If turnover is likely to exceed ` 1,00,000 during (d) If turnover is likely to exceed ` 1,00,000 during such
such previous year. assessment year.
(209) Accounts of a person carrying on business are required to be audited for previous year in which total sales, turnover or
gross receipts exceeds ____________ _
(a) ` 60,00,000 (c) (b) ` 1,00,00,000

(d) ` 50,00,000
` 15,00,000
(210) A person carrying on profession is required to get his accounts compulsorily audited by a Chartered Accountant if his
gross receipts from profession for the previous year exceed - (Dec. 2012)
(a) ` 10,00,000 (b) ` 25,00,000

(d) ` 1,00,00,000
(c) ` 50,00,000
(211) A person carrying on profession will also have to get his accounts audited before the specified date, if gross receipts from
the profession for a previous year or years relevant to assessment year exceed - (Dec. 2014)
(a) ` 25lakh (b) ` 10 lakh
(c) `1 crore (d) ` 50 lakh.
(212) The penalty for failure to maintain accounts under section 44AA is -
(a) `10,000 (c) (b) `20,000
` 50,000 (d) ` 25,000.

(213) The maximum penalty for failure to get accounts audited under section 44AB or furnish audit report along with return of
income is _ (June, 2009)
(b) ` 20,000
(a) `10,000 (c)
(d) ` 1,50,000.
` 50,000
(214) The maximum penalty leviable for failure to get accounts audited or to furnish report under section 44AB is - (Dec. 2015)
(a) ` 75,000 (b) ` 1,00,000

(c) ` 1,50,000 (d) `3,00,000
DEEMED PROFITS IN CASE OF CERTAIN BUSINESSES - SECTION 44AD & 44AE
(215) Accounts of a person carrying on business referred to u/ s 44AD are required to be audited for previous year if -
(a) The assessee has claimed profits. (b) Profits from such business to be lower than the profits
and gains deemed u/ s 44AD.
(c) The "total income" exceeds maximum amount, (d) All of the above.
which is not chargeable to tax in any PY.
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(216) For computation of profits of business on presumptive basis under section 44AD, the deemed profits shall be calculated
at the rate of of the total turnover or gross receipts of such business:
(a) 8% or 6% (b) 10%

(c) 20% (d) 5%
(217) The total turnover of the business of assessee was of ` 30,00,000. The assessee declared a profit of ` 2,80,000. What shall be the deemed
profits of assessee under section 44AD?
(a) ` 2,80,000 (b) ` 2,40,000

(c) ` 40,000 (d) ` 2,60,000
(218) The provisions of section 44AD shall not apply to :
(a) Person carrying on specified profession as (b) A person earning income in the nature of
referred to Section 44AA. commission or brokerage.
(c) Person carrying on any agency business. (d) All of the above.
(219) Provisions of section 44AD for computation of presumptive income are not applicable to ------------
(June, 2015)
(a) Limited liability partnership (b) Partnership firm
(c) Resident Hindu Undivided Family (d) Resident individual.
(220) When a partnership firm has total sales of ` 90 Iakh, the maximum amount deductible as salary of working partners on
the basis of presumptive income determined under section 44AD is - (Dec. 2015)
(a) ` 4,92,000 (b) ` 3,60,000

(c) ` 3,30,000 (d) NIL
(221) For computation of profits of profession on presumptive basis under section 44ADA, the deemed profits shall be
calculated at the rate of of the gross receipts of such profession:
(a) 8 (b) 50
(c) 20 (d) 5
(222) The provisions of Section 44ADA are applicable if gross receipts from profession does not exceed------------- `
(a) ` 50,00,000 (b) ` 2,00,00,000

(c) ` 1,00,00,000 (d) 15000000
(223) When a person carries on the business of carrying goods for hire for the whole year with 5 self-owned and 3 leasehold
heavy goods vehicles, the presumptive income chargeable to tax under section 44AE would be - (Dec. 2015)
(a) `4,80,000 (c) (b) `7,20,000 (d)

` 3,96,000 ` 3,36,000
(224) Mr. X is carrying of profession of company secretary. His gross receipts from profession is ` 45,00,000 in Previous year 2017-18. His
deemed profits as per provisions of Section 44ADA are:
(a) `3,60,000 (c) (b) ` 22,50,000

` 4,50,000
(d) ` 9,00,000
(225) Anuj owns 6 goods carriage vehicles. Out of these 2 are heavy goods vehicle acquired by him on 15 th January, 2018. His
taxable income under section 44AE will be - (Dec. 2014)
(a) ` 4,05,000 (c) (b) ` 3,24,000

` 84,000 (d) ` 3,60,000.
(226) Assessee who owns not more than -------- goods carriages at any time during the previous year and engaged in the business of plying,
hiring or leasing such goods carriages shall be eligible to compute profits under Section 44AE:
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(a) 10 (b) 8
(c)' 6 (d) 15
(227) For computing deemed profits under section 44AE in case of goods carriage being a goods vehicle the amount with which per vehicle
per month has to be multiplied is:
(a) ` 10,000 (b) ` 7,500
(c) ` 50,000 (d) ` 1,50,000
(228) For computing deemed profits under section 44AE in case of goods carriage other than a heavy goods vehicle the amount with which
per vehicle per month has to be multiplied is:
(a) `10,000 (c) (b) `5,000
` 50,000 (d) `7,500

(229) An assessee was engaged in the business of plying, hiring or leasing of goods carriages. He held 4 heavy goods vehicle for the entire
year and three goods carriage other than heavy goods vehicle which were acquired on 15 th July 2017.
Compute the deemed profits u/ s 44AE.
(a) `5,62,500 (b) ` 5,00,000
(c) `4,20,000 (d) ` 3,78,000

(230) An assessee was engaged in the business of plying, hiring or leasing of goods carriages. He owned 6 heavy goods vehicle for the entire
year. He claimed amount to have been actually earned from such vehicle(s) ` 3,80,000. Compute the
deemed profits u/ s 44AE.
(a) ` 5,40,000 (c) (b) ` 3,80,000
` 20,000 (d) ` 3,70,000
AGRICULTURAL INCOME
(231) Agricultural income means -

(a) Rent or Revenue derived from land situated in (b) Income from farm building used for
India and used for agricultural purposes. agricultural purpose.
(c) Income from saplings or seedlings grown in a (d) All of the above.
nursery.
(June, 2010)
(232) Which of the following income is agricultural income -
(b) Income from dairy farm
(a) Rent received from agricultural land
(d) Dividend from a company engaged in agriculture.
(c) Income from poultry farm
(June, 2011)
(233) Which of the following income is an agricultural income -
(a) Income from brick making (b) Income from agriculture land situated in Pakistan
Compensation received from insurance

(c) Prize from government on account of higher (d)
company on account of loss of crop.
crop yield
(234) Agriculture income includes which of the following income -
(a) Rent derived from land. (b) Income derived from agricultural land by agricultural
operations.
(c) Income from farm building. (d) All of the above.
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(235) Which of the following is the condition for applicability of partial integration of agricultural income?
(a) T,he taxpayer is a firm. (b) Agricultural income exceeds ` 10,000.
(c) The non-agricultural income exceeds the (d) All of the above.
maximum amount not chargeable to tax.
(236) As per Rule 7 A income derived from the sale of Latex/ Cenex/ Block rubbers manufactured or processed from rubber plant s
grown by seller in India will be disintegrated between business and agricultural income in the ratio of:
(a) 35: 65 (b) 30: 60
(c) 0: 100 (d) 25: 75
(237) As per Rule 7B income derived from the sale of coffee grown & cured by seller in India will be disintegrated between business
and agricultural income in the ratio of:
(a) 35: 65 (b) 30:60
(c) 0: 100 (d) 25: 75
(238) As per Rule 7B income derived from the sale of Coffee grown, cured, roasted and grounded by seller in India will be
disintegrated between business and agricultural income in the ratio of :
(a) 35: 65 (b) 30: 60

(c) 40: 60 (d) 25: 75
(239) As per Rule 8 income derived from the sale of Tea grown & manufactured by seller in India will be disintegrated betwen
business and agricultural income in the ratio of :
(a) 35: 65 (b) 30:60

(c) 40: 60 (d) 25: 75
(240) Balu paid ` 1,00,000 to Raj for purchase of standing crop (paddy). He harvested the produce, i.e., by incurring expenditure of `
25,000. He sold the said paddy for ` 1,80,000 to a trader. His other income for the year ended 31 5t March, 2017 was ` 4,60,000.
The total income of Balu is - (June 2016)
(a) ` 6,40,000 (b) ` 5,15,000

(c) ` 4,85,000 (d) ` 5,60,000
(241) Partial integration is applicable when the taxpayer is :
(a) HUF (b) An Individual

(c) BOl/AOP/Artificial juridical person (d) Any of the above
(242) Mr. Suresh has non-agricultural income of ` 6,50,000. Agricultural income earned of ` 50,000. Compute the income tax payable
by him.
(a) ` 66,950
(b) ` 61,800
(c) ` 5,150
(d) ` 72,100
(243) Mr. Sumesh has earned agricultural income of ` 4,500. Compute the income tax payable by him.
(a) ` 450 (b) Nil

(c) ` 4,500 (d) ` 300
Page 205
MCQ PGBP
ANSWER KEY
1.C 2.D 3.B 4.D 5.D 6.C 7.C 8.D 9.B 10.D
11.C 12.B 13.D 14.D 15.B 16.D 17.A 18.A 19.A 20.B
21.B 22.C 23.C 24.C 25.C 26.A 27.B 28.A 29.C 30.B
31.D 32.D 33.A 34.B 35.B 36.D 37.D 38.D 39.A 40.B
41.B 42.B 43.A 44.B 45.A 46.D 47.D 48.A 49.C 50.B
51.A 52.C 53.C 54.C 55.D 56.B 57.A 58.B 59.B 60.D
61.D 62.A 63.B 64.B 65.B 66.A 67.A 68.C 69.C 70.C
71.B 72.B 73.C 74.C 75.D 76.A 77.A 78.A 79.C 80.B
81.A 82.C 83.D 84.A 85.D 86.B 87.C 88.C 89.C 90.B
91.B 92.B 93.A 94.D 95.C 96.A 97.D 98.D 99.A 100.D
101.C 102.A 103.C 104.C 105.D 106.B 107.A 108.C 109.A 110.D
111.A 112.A 113.B 114.A 115.D 116.C 117.D 118.A 119.D 120.B
121.D 122.A 123.A 124.C 125.A 126.C 127.A 128.A 129.B 130.D
131.D 132.C 133.D 134.D 135.A 136.B 137.B 138.A 139.B 140.D
141.B 142.C 143.A 144.A 145.A 146.B 147.D 148.D 149.D 150.B
151.A 152.C 153.C 154.A 155.D 156.B 157.A 158.A 159.A 160.D
161.C 162.B 163.B 164.B 165.D 166.D 167.D 168.C 169.D 170.C
171.C 172.B 173.C 174.B 175.B 176.B 177.D 178.B 179.C 180.A
181.D 182.D 183.B 184.A 185.C 186.A 187.D 188.D 189.C 190.C
191.B 192.C 193.D 194.B 195.B 196.B 197.A 198.A 199.A 200.B
201.B 202.A 203.D 204.D 205.A 206.C 207.C 208.A 209.B 210.C
211.D 212.D 213.D 214.C 215.D 216.A 217.A 218.D 219.A 220.D
221.B 222.A 223.B 224.B 225.A 226.A 227.B 228.D 229.A 230.A
231.D 232.A 233.D 234.D 235.C 236.A 237.D 238.C 239.C 240.B
241.D 242.B 243.B
Page 206
INCOME UNDER THE HEAD CAPITAL GAINS
CHAPTER – 6
INCOME UNDER THE
HEAD CAPITAL GAINS
Sec 45(1) Basis of charge

Sec 45(IA) Destruction of Capital Asset
Sec 45(2) Conversion of Capital Asset into SIT
Sec 45(2A) Transfer of Demat Securities
Sec 45(3) Transfer of capital asset by Partner to Firm
Sec 45(4) Transfer of capital asset by Firm to Partner
Sec 45(5) Compulsory acquisition of Capital Asset
Sec 46(1)(2) Liquidation of Company
Sec 46A Buy back of own shares
Sec 47 Transfers not regarded as transfers
Sec 50B Slump sale
Sec 50C Real estate transaction
Sec 54 Exemptions from capital gains
Sec 55 Cost of acquisition and cost of improvement
Sec 55A Reference to valuation officer
Other sections
Sec 2(14) Capital asset
Sec 2(47) Transfer
Sec 10(37) Capital gain exempt on Compulsory acq. of Urban agrl.
Land
Sec 10(38) LTCG exempt on transfer of shares,units
Sec 111A STCG @ 15% on shares,units
Sec. 45(1): Charging Section
 Any Profit or Gains arising from

 TRANSFER
 Of a CAPITAL ASSET
 Effected in a Previous year
 Shall be chargeable to Income Tax
 Under the Head Capital Gains
 In the Previous Year in which transfer took place
Page 207
Sec. 2(14) : Capital Asset
Capital asset means––

(a) Property of any kind held by assessee, whether or not connected with his business or profession
(b) Any securities held by Foreign Institutional Investor(FII) which has invested as per SEBI
regulations
but does not include––
1. Any stock-in-trade [other than securities referred to in sub-clause (b)
2. Personal Effects
 Movable property (including wearing apparel & furniture)
 for personal use of
 assessee or for dependent family member.
Personal effects excludes the following

a. Jewellery
b. Archaeological collections
c. Drawings
d. Paintings
e. Sculptures
f. Any work of art
Special Point
Jewellery Includes
Ornaments of Gold, Silver, Platinum or Precious or Semi-precious stones
Other precious Metal
With or without precious/semi-precious stones Whether or not set in furniture, utensil or other article
& whether or not worked into wearing apparel and whether or not worked into weaning apparel
3. Agricultural Land in India situated in RURAL AREA

Following types of Agricultural Lands are Capital Assets
a) Agricultural Land situated in Urban area of India
b) Agricultural land situated outside India
Sec 2(1A) : URBAN AREA
(a) Any area within the Jurisdiction of a municipality /Municipal corporation/cantonment board and
which has a population of atleast 10,000 OR
(b) Any area within the distance, measured aerially,
Page 208
(I) Upto 2 kms from local limits of above jurisdiction having population > 10,000 but upto 1,00,000 or
(II) Upto 6 kms from local limits of above jurisdiction having population > 1,00,000 but upto 10,00,000 or
(III) Upto 8 kms, from the local limits of above jurisdiction having population of > 10,00,000.
Special point : "Population" means the population according to the last preceding census
4. Gold Deposit Bonds/Certificates issued under Gold deposit scheme,1999 or Gold Monetisation
scheme,2015
Section 2(47): Transfer Includes
(a) Sale, Exchange or Relinquishment of Capital Asset
(b) Extinguishment of any right in a Capital Asset
(c) Compulsory Acquisition of Capital Asset under Any law
(d) Conversion of Capital Asset into Stock in trade of Business
(e) Any transaction in which possession of Immovable Property is givern u/s.53A of Transfer of Property Act
(f) Any transaction (whether by way of tranferring membership/shares in a Coop. Society, Company ),
which has effect of transferring of Immovable Property
(g) Maturity or Redemption of a zero coupon bond
Types of Capital Gains

There are 2 types of Capital Gains
1. Short Term Capital Gain (STCG): It arises on transfer of Short Term Capital Assets. Sec 2(42A).
2. Long Term Capital Gain (LTCG) : It arises on transfer of Long Term Capital Assets. Sec 2(29A).
CAPITAL ASSETS
-Listed Security (other than unit of MF) Unlisted shares
on recognized stock exchange in India or Other Capital Asset
An immovable property,
- Unit of UTI or Equity oriented fund being land or building or both
- Zero Coupon Bonds
Page 209
Held for a period Held for period Held for a Held for a Held for a Held for a
Upto 12 months more than 12 period Upto 24 period more period Upto period
preceding months preceding months than 24 36 months more than
date of transfer date of transfer preceding months preceding 36 months
date of transfer preceding date of preceding
date of transfer date of
transfer transfer
Short Term Capital Long term Capital Short Term Long term Short Term Short Term
Asset Asset Capital Asset Capital Capital Capital
Asset Asset Asset
Section 48 : Computation of Capital Gains
Short Term Capital Gain Long Term Capital Gain

FULL VALUE OF CONSIDERATION FULL VALUE OF CONSIDERATION
(Received or accruing on transfer of STCA) (Received or accruing on transfer of LTCA)
Less : Expenditure Incurred Less : Expenditure Incurred

(Wholly & exclusively for transfer) (Wholly & exclusively for transfer)
: Cost of Acquisition of STCA : Indexed Cost of Acquisition of LTCA
: Cost of improvement of STCA : Indexed Cost of Improvement of LTCA
Special Points : No deduction of Security transaction tax whether paid on purchase or sale
Indexed Cost of Acquisition

Cost inflation index
(of financial year in which asset transferred)
Cost of Acquisition of X -------------------------------------------------------------------
Capital Asset Cost inflation index
(of the 1st financial year in which asset held by Assessee) or
(of financial year 2001-2002),whichever is later
Indexed Cost of Improvement

Cost inflation index (of financial year in which asset
Cost of Improvement transferred)
X -----------------------------------------------------------------
Cost inflation index (of financial years in which improvement
has taken place by Assessee or/and Previous Owner
Page 210
Cost Inflation Index
Financial Year Cost Inflation Index Financial Year Cost Inflation Index
2001-02 100 2010-11 167
2002-03 105 2011-12 184
2003-04 109 2012-13 200
2004-05 113 2013-14 220
2005-06 117 2014-15 240
2006-07 122 2015-16 254
2007-08 129 2016-17 264
2008-09 137 2017-18 272
2009-10 148
Special Points:
 In case of LTCA, we take Indexed cost of Acquisition and Indexed cost of Improvement.
 However, where LTCA consists of Debentures & Bonds (other than capital indexed bonds of
Government & sovereign gold bonds issued by RBI) , No indexation is to be done
Section 55(2): COST OF ACQUISITION
Types of Capital Asset Cost of Acquisition 2(42A) : Period of holding

A 1) Goodwill of business
2) Trademark, Brand name of NIL Date of Purchase/Self
business [If Self generated] development
3) Tenancy Rights Or To
4) Stage Carriage permits Purchase price Date of Transfer
(route permit) [If acquired by purchase]
5) Loom Hours
6) Right to manufacture any FMV on 1.4.2001 is not
article available when such assets
7) Right to carry any Business are purchased upto
or profession 31.3.2001
B Shares purchased from company Amount actually paid to Date of Allotment by Company To
company Date of Transfer
Shares purchased from Amount actually paid to Date of broker note To Date of
Broker/Market broker including brokerage Transfer
Shares purchased from other Amount actually paid Date of Contract of purchase To
person Date of Transfer
Right Shares subscribed by Amount Actually paid to Date of Allotment by Company To
original shareholder company Date of Transfer
Offer of right shares not Nil Date of offer To Date of
subscribed but renounced Renouncement
Person purchasing renounced Amount paid to Seller of Date of allotment of right shares
offer right and Company To Date of Transfer
Page 211
Bonus Shares/Other Asset Nil

allotted free of cost FMV on 1.4.2001 Date of allotment of bonus shares
available if such assets To Date of transfer
are acquired upto
31.3.2001
C Other Capital Assets Cost of Acquisition Date of Acquisition
FMV on 1.4.2001 To
available if such assets
purchased upto 31.3.2001 Date of Transfer
Section 55(1) : Cost of Improvement
A Capital Assets Cost of improvement
- Goodwill of Business NIL

- Right to manufacture, produce or (Whether capital asset is Self generated or
process any article or thing purchased)
- Right to carry on any business
 All Capital Expenditure incurred by
B Other Capital Assets  on improvement of Capital Asset
 On or after 1.4.2001
COMPUTATION OF CAPITAL GAINS IN CERTAIN CASES
Section 45(1A): Insurance Compensation on Damage/Destruction of Capital Asset
 Overriding Sec. 45(1)
 Where any person receives at any time during previous year
 Any money or other asset
 Under insurance from an Insurer
 On account of Damage or destruction of Capital Asset due to,

 Flood, Typhoon, Cyclone, Earthquake or other Natural Disaster,
 Riot or Civil Disturbance or
 Accidental Fire or Explosion or
 Enemy action or action taken from combating enemy (whether or no war declared)
Then Capital Gains shall be chargeable in hands of such person in Previous year in which money
or other asset is Received from Insurer.
Page 212
Special Points
1. Period of Holding : Date of Acquisition to Date of Destruction
2. Full value of Consideration : Value of Money + FMV of asset on date of receipt
3. Indexation : P/Y of Holding to P/Y of Destruction
Section 45(2): Conversion of Capital Asset into Stock in Trade
 Overriding Sec. 45 (1)

 Where assessee Converts a Capital Asset into Stock in Trade
 Capital Gain arising on above transfer
 shall be chargeable in hands of Assessee
 In P/Y in which such SIT is Sold or otherwise transferred
Special Points:
1. Period of Holding : Date of Acquisition to Date of conversion of asset to SIT
2. Full value of Consideration : FMV of such Capital Asset on Date of conversion
3. Indexation : P/Y of Holding to P/Y of conversion
4. Where Sale price is greater than FMV on date of conversion then (Sale Price – FMV) is
taxable under head P/G/B/P
Section 45(2A): Capital Gain on Transfer of Securities
 Where any person had at anytime during previous year

 Any beneficial interest in any securities
 Then profit or gains arising from Transfer made by depository, of such beneficial interest
 Shall be chargeable under Capital Gains in previous year of transfer
Special Points:
1. Capital Gain shall be taxable in hands of person having beneficial interest and not in the hands
of Depository who is the registered Shareholder.
2. Period of Holding & Cost of acquisition : Calculated on FIFO basis
Page 213
Section 45(3) : Capital Gain on transfer of Capital Asset to Firm etc.
 Where a person transfers a Capital Asset

 To a firm, AOP or BOI
 In which he is/or becomes partner or member
 By way of Capital Contribution or Otherwise
 Shall be chargeable to Capital Gain in hands of such person in the previous year of transfer.
Special Points:
1. Period of Holding : Date of acquisition by partner/member to Date of transfer to
firm/AOP/BOI
2. Full value of consideration : Amount recorded in books of account of Firm/AOP/BOI
3. Indexation : P/Y of Holding to P/Y of Transfer
Section 45(4): Capital Gains on transfer of Cap Asset on dissolution of Firm etc
 Where a Firm, AOP or BOI transfers a Capital Asset by way of distribution

 To its Partner or Members
 On its dissolution or otherwise
 Shall be chargeable to Capital Gains to such Firm, AOP or BOI, in the previous year of transfer.
Special Points:
1. Period of Holding : Date of acquisition of asset to date of transfer by Firm/AOP/BOI
2. Full value of Consideration : FMV on date of such transfer
3. Indexation : P/Y of Holding to P/Y of Transfer
4. “Dissolution or Otherwise” : Otherwise means something like dissolution
Section 45(5): Compulsory Acquisition of an Asset
 Overriding Sec. 45 (1)

 Where a Capital Asset is Compulsorily acquired under ANY law or
 Where consideration for transfer is to be determined or approved by Central Government
or RBI.
 It shall be chargeable to Capital Gain in the Previous year in which the compensation or
part thereof is FIRST received by the assessee.
Page 214
Special Points:
1. Period of Holding : Date of acquisition to Date of compulsory acquisition
2. Full value of Consideration : Full amount of compensation/consideration
3. Indexation : P/Y of Holding to P/Y of Compulsory Acquistion
4. Enhanced Compensation :
a) Where the amount of compensation is increased by any
- Court or tribunal
- Such increased amount shall be deemed as Capital Gain,
- Of the P/Y in which such amount is Received by the Assessee.
b) The nature of capital gain of Enhanced compensation is SAME as for original
compensation.
c) Cost of acquisition. & Cost of improvement of enhanced compensation will be NIL.
d) Expenses incurred for enhanced compensation can be deducted as transfer expenses
4. Reduced Compensation
- If Subsequently compensation is reduced by court than
- Cap Gain of original compendation recomputed by taking the reduced compensation.
5. Enhanced compensation received by other person

- Where due to death of person who made transfer or for other reason,
- Enhanced compensation is received by other person,
- Deemed to be Capital Gain of the person receiving the same. (ST or LT depending upon original)
SEC 50B : Slump Sale
In case of slump sale, profits on such sale shall be chargeable under capital Gains in the P/Y in which slump
sale is effected.
Sec 2(42C) : Slump Sale means

 Transfer of one or more Undertaking
 As a result of sale for lumpsum consideration
 Without values being assigned to individual assets and liabilities
Special Points:
1) Full value of consideration : Sale price of the undertaking
2) Period of holding : Date of ownership of the undertaking to Date of slump sale

However if Undertaking is LTCA , no indexation will be done.
3) Cost of Acquisition : Net Worth i.e

Value of assets of undertaking
Less : Value of liability of Undertaking
Page 215
Type of Assets Value to be Taken
Non depreciable Asset Book Value
Depreciable asset Actual Cost of assets forming part of the undertaking (A)
(A)- (B) Less : Depr allowed on that assets assuming that assets were
only assets in the block (B)
Special Point :
1. WDV OF BLOCK shall be reduced by the following amount (A) – (B)
2. Revaluation of assets shall not be taken into account for valuation of assets
Section 51: Forfeiture of Advance Money
 Where any Capital Asset

 Was on any previous occasion subject matter of negotiation for the transfer
 Any advance or other money received by Assessee
 Is forfeited by him
 Then such amount shall be deducted from Cost/WDV/FMV of such Capital Asset
Proviso to Sec 51 : wef 1/4/2014

If Advance or other money forfeited under negotiations for transfer, is included in Total Income of for
any previous year u/s 56(2), then, such sum shall not be deducted from cost / WDV / FMV
Section 46(1): Distribution of assets by Company to its shareholders in liquidation
 Overriding Sec. 45
 Where any asset of a Company
 Is distributed to its shareholders
 On its liquidation
 Such distribution will NOT be regarded as a Transfer
 In the hands of the company
Page 216
Section 46(2)
 Where a shareholder on liquidation of a company

 Receives any money or other assets from a company
 He shall be chargeable under Capital Gain in the Previous year in which above is Received
Special Points:
1) Period of Holding : Date of acquisition of shares to Date of liquidation
2) Full value of Consideration : Money received

Add : MV of assets received as on date of distribution
Less : Deemed dividend u/s. 2(22)(c)
3) Indexation : P/Y of Holding to P/Y of Liquidation
4) Sale of Assets received on liquidation : Cost of acquisition shall be FMV on date of distribution
of such asset
Section 46A : Capital Gain on purchase by Company of its own Share/Specified securities (Buy Back)
 Where a shareholder or holder of specified securities,

 Received any consideration from company for purchase of its own shares or specified securities,
 Shall be chargeable to Capital Gain in year in which shares /securities are purchased by company.
Special Points:
1) Period of Holding : Date of acquisition of Shares/Securities to

Date of buy back by company
2) Full value of Consideration : Amount Received from the company
3) Indexation : P/Y of Holding to P/Y of Buy Back
4) Buy Back exempt in hands of shareholder u/s 10(34A) if TAX paid by Domestic company on buy
back of unlisted shares u/s 115QA
Page 217
Section 47 : Transactions not regarded as Transfer
 Overriding Sec. 45
 Transactions referred to in Sec. 47, will not be regarded as transfer
 And therefore No Capital Gain will arise in hands of transferor.
1. Distribution of Any Capital Asset on Total or Partial partition of H.U.F.
2. Transfer of Any Capital Asset under Gift or Will (Does not include transfer under a gift of shares,
debentures allotted by company to its employees under E.S.O.P)
In the above cases , there will be no transfer and no Capital Gain will arise in hands of transferor.
However, when transferee transfers the above Capital Assets, he will be chargeable to Capital Gains.
Computation of capital gains in hands of transferee,
1. Cost of Acquisition to transferee in Cost to previous owner who had actually purchased the
above cases. (Sec 49(1)) Capital Asset
2. Period of Holding. (Sec 2(42A)) Period of holding will include period of holding of previous
owner
3. Indexation P/Y of Holding to P/Y of transfer
3.Transfer of Any Capital Asset by amalgamating company to amalgamated Indian company in a scheme of
amalgamation.
4. Transfer of Shares of Amalgamating Company by shareholder of such Company to Amalgamated

Indian Company in a scheme of Amalgamation provided transfer is made in consideration of allotment to him
of shares in Amalgamated Company except where shareholder itself is the amalgamated company
For the purpose of computing capital gains on transfer of shares of Amalgamated company
1 Cost of acquisition of shares in Cost of acquisition of shares in Amalgamating
Amalgamated Company Company
Period of holding of shares in Amalgamated
2. Period of Holding Company will include period of holding shares
in Amalgamating Company
3. Indexation P/Y of Holding shares in Amalgamated
Company to P/Y of transfer
5. Transfer of Capital Asset by Demerged company to Resulting Indian company in a scheme of Demerger.
6. Transfer/ issue of Share by resulting company to shareholders of the de merged company if the
transfer/ issue is made in consideration of Demerger of the undertaking.
Page 218
Special Points : For computing capital gain on transfer of shares in resulting company
1. Cost of Acquisition of shares in The same as it was in the hands of demerged foreign
Resulting Indian company. company
2. Cost of Acquisition of shares of Reduce Original cost by above

Demerged company.
3. Period of Holding of shares in Period of holding of shares in Resulting Co. will
Resulting company include holding period of shares in Demerged
company
4. Indexation P/Y of Holding shares in Resulting Company to P/Y of
transfer
.
7. Any transfer by way of conversion of Debentures of a company into Shares of that company.
Special Points: If converted shares are transferred:

1. Cost of Acquisition of shares Cost of that part of Debenture, which is so
converted
2. Period of Holding of Shares Period of holding will include period of holding of
Debentures
3. Indexation P/Y of allotment of shares to P/Y of transfer
8. Any transfer by any person to Government, University, National Museum, National Art Gallery or to other
notified museum or institution of Capital Asset being work of art, archaeological, scientific or art
collection, books, manuscript, drawing, painting, photograph or print.
9. Transfer of Any Capital Asset on conversion of a firm to a company , Provided

 All the assets and liabilities of the firm become the assets & liability of company
 All partners becomes shareholder of company in the same proportion of their Capital Account.
 The partners should receive only shares allotted by company as consideration for transfer.
 Aggregate shareholding of partners in the company should be atleast 50% of total voting power
and should be maintained for 5 yrs from date of conversion.
10. Transfer of Any capital asset by a private company or unlisted public company to limited liability partnership
or
Any transfer of a shares held in the company by a shareholder
as a result of conversion of company into a LLP Provided

 All assets &liabilities of company become assets & liabilities of LLP
 All shareholders of the company become the partners of LLP
 The shareholders of company receive consideration in form of share in profit and capital
contribution in LLP.
 Capital contribution & profit sharing ratio in LLP are in same proportion of shareholding in
company on date of conversion.
Page 219
 Aggregate of profit sharing ratio of shareholders in LLP shall be atleast 50% and should be
maintained for 5 years from date of conversion
 Turnover of company in any of 3 P/Y preceding p/y of conversion upto 60,00,000.
11. Transfer of Any Capital Asset on conversion of Sole proprietary concern to a company , Provided
 All assets & liabilities of sole proprietary concern become the asset and liabilities of company.
 Shareholding of sole proprietor in company should be at least 50% of total voting power and
should be maintained for 5 years from date of succession.
 The sole proprietary should receive only shares allotted by company as consideration for transfer.
12. Transfer of a capital asset in a transaction of Reverse Mortgage under a scheme made and notified by
the Central Government.
13. Transfer of sovereign gold bonds issue by RBI by way of redemption by Individual Assessee.
14. Conversion of preference share of a company into its equity share.
15. Any transfer of capital asset, being rupee denominated bond of Indian company issued outside India, by a
non- resident to another non- resident shall not be regarded as transfer.
Miscellaneous Provisions of Capital Gains
Section 55A : Reference to Valuation Officer.
 For ascertaining FMV of Capital Asset

 U/S 45(1A), 45 (2), 45 (4), 46 (2), Exchange of asset u/s 2(47) & 50C
 The Assessing Officer may
 Refer the valuation of Capital Asset to valuation officer in following cases
Case 1 Case 2
Where value claimed by Where value claimed by assessee is not according to estimate
assessee is according to by a registered valuer
estimate by a registered valuer
If AO is of opinion that
If AO is a opinion that  Fair Market Value exceeds
Value claimed by assessee  value claimed by assessee
is at variance with its Fair  by more than 15% or by `25,000,
Market Value whichever is less
Page 220
Section 50C: FVC for Real Estate Transactions
 Sale consideration on transfer of Land or Building or both

 Is Less than
 Value determined by Stamp valuation authority for payment of stamp duty
 then value so assessed or assessable shall be
 Deemed to be FVC
 Assessee claims
 that Stamp Valuation
 exceeds FMV of property on date of transfer and
 It has not been disputed in any appeal or by any court
 AO may refer the valuation of above capital asset
 to valuation officer u/s 55A
Then,
 Valuation determined by valuation officer u/s. 50C
 Is less than
 Stamp valuation
 then value u/s 50C shall be Deemed to be FVC
Sec 50CA : Fair market value deemed to be full value of consideration in cases of shares
Where consideration for transfer of share of a company (other than quoted share) is less than the Fair
Market Value (FMV) of such share determined in accordance with the prescribed manner, the FMV shall
be deemed to be the full value of consideration for the purposes of computing income under the head
"Capital gains.
Sec 50D : Fair market value deemed to be full value of consideration in certain cases
Where the consideration as a result of transfer of a capital asset by assessee is not ascertainable , FMV of
asset on the date of transfer shall be deemed as full value of consideration
Section 10(37) : Income exempt from compulsory acquisition of land
 Individual or HUF
 Compulsory acquisition of urban agricultural land (LTCA or STCA)
 Used for 2 yrs before date of transfer for agricultural by individual or his parents or HUF
 Compensation received shall be exempt
 from capital gains
Page 221
Section 10(38) : Income exempt from transfer of certain Capital Assets
 Transfer of equity shares in a company or units of equity oriented fund (LTCA)

 Transaction subjected to security transaction tax on acquisition and transfer.
 Such Capital Gains shall be exempt
Notes: Except transfers notify by government for which the condition of chargeability to Securities
Transactions Tax on acquisition shall not be applicable.
Section 111A : STCG on listed equity shares/Listed units of EOMF
 Any assessee transfers Short Term Capital Asset

 being Equity shares or Units in Equity oriented Mutual Fund
 and such transaction is chargeable to security transaction Tax,
 then such STCG shall be chargeable @15%
Tax Rates on Capital Gains for A/Y 2018 – 2019
Short Term Capital Gain (STCG)

10(37) 111A other STCG
Exempt 15% Taxable at slab rate
Long Term Capital Gain (LTCG)

10(37), 10(38) Listed securities other than Other LTCG
Units of MF OR
Zero Coupon Bonds
20% (with Indexation)

Exempt OR 20%
10% (without indexation)
whichever is lower
Special Points:
1. Benefits of Slab: Following are some benefits

 Individual or HUF (Resident )
 [Total Income] - [Taxable LTCG] - [STCG Taxable @ 15%]
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 Is less than Exemption Limit
 Such shortfall shall be reduced
 From Taxable LTCG or
 STCG taxable @ 15% and
 Tax shall be payable on balance
2. Restriction of Other Benefits: -

 Deduction from Sec. 80C to 80U
 Shall not be allowed
 [From taxable LTCG], or [STCG taxable @ 15%] or [Casual Incomes]
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INCOME UNDER HEAD CAPITAL GAINS
EXEMPTIONS FROM CAPITAL GAINS (SEC 54 to 54H)
Section 54 : Transfer of Residential 54B : Transfer of Agricultural 54EC : Transfer of LTCA 54EE : Investment in units of
Property Property specified fund.
1 Assessee Individual or HUF Individual or HUF Any Assessee Any Assessee
2 Capital Asset Residential House Urban Agricultural Land used by Any Capital Asset Any Capital Asset
Transferred assessee / parent for agricultural
purpose for min 2 years prior to
date of transfer.
3 Nature of CA LTCA STCA or LTCA LTCA LTCA
4 New Asset One Residential house in India Agricultural Land (any area) Bonds of NHAI or RECL or Units issued before1/4/19 of
any other bond notified by such fund as notified by
C.G. Central Government
(Redeemable after 3 years)
Max Investment in F/Y of

Transfer & Subsequent F/Y
is 50 lakhs
5 Time period of Within 1 year before or Within 2 yrs after transfer Within 6 months of transfer Within 6 months of transfer
New Assset within 2 years after transfer or
construct within 3 yrs after transfer
6 Capital Gain Deposit in CGAS on or before Du
Account Date of -Do- NA NA
Scheme Return (DDR) u/s. 139(1)
7 Exemption LTCG invested in New asset + LTCG invested in Specified LTCG invested in Specified
Deposited in CGAS upto DDR -Do- Bonds upto 6 months of Units upto 6 months of
transfer transfer
8 Transfer of If New Asset transferred within 3 If New Asset is t/f or If New Asset is t/f or
New Asset years from date of purchase/ -Do- converted into money within converted into money within
construction, then 3 years from date of 3 years from date of
Cost of acquisition of new asset acquisition., then exempt acquisition., then exempt
Reduced by Capital Gain exempted LTCG taxable in p/y of LTCG taxable in p/y of
earlier transfer/ conversion of new transfer/ conversion of new
asset asset
 Loan taken on security of Loan taken on security of
new asset amounts to new asset amounts to
conversion into money conversion into money
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Section 54F : Transfer of LTCA 54GB: Capital gain on transfer of Residential property [upto A/Y 17/18 ]
[For Eligible start up upto 31/3/19]
1 Assessee Individual or HUF Individual or HUF
2 Capital Asset Any Capital Asset

Transferred (Other than Residential Residential property (a house or a plot of land)
house)
3 Nature of CA LTCA LTCA
4 New Asset One Residential house in Subscription in Equity shares of Eligible company & company has utilised this amount for purchase of new
India asset i.e New Plant & Machinery
Exceptions (i) P&M which, before its installation used by other person (ii) P&M installed in office premises or
residential accommodation, including guest-house (iii) any office appliances including computers (iv) any
vehicle or (v)P&M the whole of the actual cost of which is allowed as 100% deduction under PGBP
Eligible Company means

(i) Indian Company incorporated between 1st April of P/Y of capital gain upto due date of return u/s 139(1) (ii)
Engaged in business of manufacture or eligible business (iii) company in which assessee has more than 50%
share capital (iv) company qualifies to be small /medium enterprise or is an eligible start-up
5 Time period Within 1 year before or Company has within 1 year from date of subscription in Equity shares by assessee purchased new asset
of New Asset within 2 yrs after transfer or
constructed within 3 yrs after
transfer
6 CGAS deposit Available Available
upto DDR
7 LTCG X
Exemption (Cost of new asset + LTCG X (Cost of new asset + Amount deposit in CGAS)
Amount deposit in CGAS) ---------------------------------------------------------------------------
----------------------------- Net Consideration
Net Consideration
8 Transfer of If New Asset t/f within 3 yrs If Equity shares or New Asset t/f within 5 yrs from date of purchase/ construction, then Exempt Capital Gains
New Asset from date of purchase/ taxable in P/Y of transfer of Equity shares/New asset
construction, then
Exempt Capital Gains
taxable in P/Y of transfer of
new asset.
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Section 54D : Compulsory Acquisition of 54G : Transfer under shifting of 54GA: Transfer of industrial
Land & Building Industrial Undertaking undertaking to SEZ
1 Assessee Any Assessee Any Assessee Any Assessee
2 Capital Asset Compulsory acquisition of Land & Plant & Machinery / Land & Plant & Machinery / Land &Building
Transferred Building used for Industrial Building used for Industrial used for Industrial undertaking in
undertaking in Any Area & Used by undertaking in Urban Area Urban Area
Assessee for Business for 2 years
immediately prior to date of acquisition
3 Nature of CA STCA or LTCA STCA or LTCA STCA or LTCA
5 New Asset Land/Building for shifting of Plant/Machinery & Plant/Machinery & Land/Building
undertaking in any area Land/Building Including expenses Including expenses on t/f
on t/f for shifting of undertaking in For shifting of undertaking to SEZ in
Rural Area any area
6 Time period of New Within 3 years after transfer Within 1 year before or within 3 Within 1 year before or within 3 yrs of
Asset yrs of transfer transfer
7 Exemption Same as Sec. 54. Same as Sec. 54. Same as Sec. 54.
8 Transfer of New Same as Sec. 54. Same as Sec. 54. Same as Sec. 54.
Asset
COMMON POINT FOR ALL EXEMPTIONS

Non utilization of balance in Capital Gain A/c. Scheme:
a. Amount deposited is not utilized wholly or partly for specified purpose by specified time.
b. Exemption claimed on unutilized amount is taxable as Capital Gain of P/Y in which specified time expires.
Section 54H : Extension of time for acquiring new asset

 Where transfer of capital asset is by compulsory acquisition under any law.
 Time limits for acquiring new asset & for depositing in CGAS shall be
 Computed from date of receipt of compensation and not from the date of compulsory acquisition
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Sec 54GB :
Eligible business means a business which involves innovation, development, deployment, or commercialisation of new products, processes or service driven
by technology or intellectual property.
Eligible start-up means a company engaged in eligible business an satisfies the following conditions:
1. It is incorporated during April 1, 2016 and March 31, 2019
2. The total Turnover of its business does not exceed Rs 25 crore in any of the previous years during April 1, 2016 and March 31, 2021.
3. It holds the certificate of eligible business from the Inter-Ministerial Board of Certification as notified by the Central Gov
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MCQ CAPITAL GAINS
(1) The charging section of the income under the head capital gains is :

(2) What are the conditions to be fulfilled for charging of income under the head capital gains:
(a) There must be a capital asset. (b) There must be a transfer of such capital asset.
(c) The transfer of such capital asset has been (d) All of the above.
affected during the previous year.
(3) Which of the following is not a requisite for charging income-tax on capital gains - (June, 2015)
(a) The transfer must have been effected in the (b) There must be a gain arising on transfer of capital
relevant assessment year asset
(c) Capital gains should not be exempt uls 54 (d) Capital gains should not be exempt u/s 54EC.
(4) The following shall not be regarded as capital asset: (b) Securities held by a Foreign Institutional Investor as per
(a) Urban Land SEBI Act, 1992
(c) Archaeological Collections (d) Motor Car
The following shall be regarded as capital asset:

(5)
(a) Gold Jewellery held by jeweller as SIT (b) Securities held by FII as per SEBI Act, 1992, held as
trade. stock in trade.
(c) Motor car held by motor car manufacturer as SIT (d) None of above
(6) The following shall not be regarded as capital asset:
(a) Jewellery
(b) Rural Agricultural land
(c) Archaeological Collections
(d) Personal residential house
(7) The following shall be regarded as capital asset:
(a) Jewellery (b) Sculptures
(c) Archaeological Collections (d) All of the above
(8) Rural area means any area which is outside-------------Kilometers from the local limits of the jurisdiction of a
municipality or a cantonment board, if the population of municipality or cantonment board is more than 10,00,000.
(a) 2 (b) 4
(c) 6 (d) 8
(9) Rural area means any area which is outside--------------------Kilometers from the local limits of the jurisdiction of a
municipality or a cantonment board, if the population of municipality or cantonment board is more than 1,00,000 but not exceeding
10,00,000.
(a) 2 (b) 4
(c) 6 (d) 8
(10) Rural area means any area which is outside----------------------Kilometers from the local limits of the jurisdiction of a
municipality or a cantonment board, if the population of municipality or cantonment board is more than 10,000 but not exceeding
1,00,000. (Dec. 2014)
(a) 2 (b) 4
(c) 6 (d) 8
(11) Capital asset excludes all except

(b) Personal effects
(a) Stock-in-trade
(d) Agricultural land in India.
(c) Jewellery
(12) Transfer of which of the following assets will not be considered as capital gain -
(a) Jewellery (b) Gold deposit bonds
(c) Paintings (d) Sculpture
(13) Which of the following are included in the jewellery -
(a) Ornaments made of gold, silver and platinum. (b) Precious metals whether or not worked or sewn
into any wearing apparel.
(c) Semi-precious stones. (d) All of the above.
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MCQ CAPITAL GAINS
(14) Income from transfer of self-generated goodwill of a profession:

(a) is not chargeable to tax under the head 'capital (b) is chargeable to tax under the head 'capital
gains' gains' as short term capital gains
(c) is chargeable to tax under the head 'capital (d) Both (b) and (c)
gains' as long term capital gains
(15) A short term capital asset means a capital asset held by the assessee for not more than:
(a) 12 months immediately preceding the month of (b) 24 months immediately preceding the date of
its transfer. its transfer.
(c) 36 months immediately preceding the date of (d) None of the above.
its transfer.
(16) In terms of section 2(42A), unlisted securities are treated as long-term capital asset, if they are held for a period of more than-
(a) 12 Months (b) 36 Months

(c) 24 Months (d) 48 Months
(17) In terms of section 2(42A), listed securities are treated as long-term capital asset, if they are held for a period of more
than - (June, 2015)

(18) A Long term capital asset means a capital asset held by the assessee for more than:
(a) 12 months immediately preceding the month of (b) 24 months immediately preceding the date of
its transfer. its transfer.
(c) 36 months immediately preceding the date of (d) None of the above.
its transfer.
(19) In case of transfer of unlisted equity shares the asset will be treated as short-term capital asset if they are held for not
more than immediately preceding the date of transfer.
(a) 12 months (b) 24 months
(e) 36 months (d) None of the above.
(20) Which of the following asset is a Short-term capital asset, if it is held for more than 12 months?
(a) Securities (other than unit) listed in recognized (b) Units of mutual fund other than equity oriented
stock exchange in India. fund
(c) Zero coupon Bonds (d) None of these
(21) Which of the following is a long term capital asset if held for more than 12 months but less than 36 months?
(a) A unit of a Mutual Fund other than equity (b) Shares of a listed company
oriented fund specified under section 10(23D).
(e) Shares of an unlisted company. (d) Gold Jewellery
(22) Cost of acquisition of a capital asset, being a unit of a business trust, allotted pursuant to transfer of share or shares as referred
to in section 47(xvii) shall be?
(a) Nil (b) Cost of acquisition to him of the share
(e) Cost to previous owner. (d) None of the above.
(23) Which of the following is included in the definition of transfer u/s 2(47)?
(a) Sale, exchange or relinquishment of the asset. (b) Extinguishment of any rights therein.
(e) Compulsory acquisition thereof under any law. (d) All of the above.
(24) In the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other
person, -
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MCQ CAPITAL GAINS
(a) The period shall be reckoned from the date of (b) The period shall be reckoned from the date of the
the offer of such right by the company or institution, allotment of such right by the company or
as the case may be, making such offer. institution, as the case may be, making such offer.
(c) The period shall be reckoned from the date of (d) None of these.
the extinguishment of such right by the
company or institution, as the case may be,
making such offer.
(25) Which of the following transactions shall not be regarded as transfer as per the provisions of section 47:
(a) Transfer of a capital asset, being a Government (b) Compulsory acquisition thereof under any law.
Security carrying a periodic payment of interest,
made outside India through an intermediary dealing
in settlement of securities, by a non-resident to
another non-resident shall not be regarded as transfer
as per IT Act.
(c) Extinguishment of rights in respect of capital (d) Conversion of capital asset into stock in trade. asset.
(a) Any transfer of a capital asset, being share of a (b) Compulsory acquisition thereof under any law.
special purpose vehicle to a business trust in
exchange of units allotted by that trust to the
transferor.
(c) Extinguishment of rights in respect of capital (d) Conversion of capital asset into stock in trade asset.
(a) Any distribution of capital assets on the total or (b) Any transfer of a capital asset by a company to its
partial partition of a Hindu Undivided Family. subsidiary company, if the parent company or its
nominees hold the whole of the share capital of
the subsidiary company, and the subsidiary
company is an Indian company.
(c) Any transfer, in a scheme of amalgamation, of a (d) All of the above.
capital asset by the amalgamating company to
the amalgamated company if the amalgamated
company is an Indian company.
(a) Any transfer of Sovereign Gold Bond issued by (b) Any transfer of a capital asset by a company to
the Reserve Bank of India under the Sovereign its subsidiary company, if the parent company
Gold Bond Scheme, 2015, by way of or its nominees hold the whole of the share
redemption, by an assessee being an individual. capital of the subsidiary company, and the
subsidiary company is an Indian company.
(c) Any transfer by a unit holder of a capital asset, (d) All of the above.
being a unit or units, held by him in the
consolidating plan of a mutual fund scheme,
made in consideration of the allotment to him
of a capital asset, being a unit or units, in the
consolidated plan of that scheme of the mutual
fund.
(29) Any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in the Explanation
5 to Section 9(1)(i), which derives, directly or indirectly, its value substantially from the share or shares of an Indian company,
held by the amalgamating foreign company to the amalgamated foreign company, shall not be regarded as transfer as per the
provisions of section 47 if:
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MCQ CAPITAL GAINS
(a) at least 25 of the shareholders of the (b) at least 75 of the shareholders of the
amalgamating foreign company continue to remain amalgamating foreign company continue to
shareholders of the amalgamated foreign company remain shareholders of the amalgamated foreign
and such transfer does not attract tax on capital gains company and such transfer does not attract tax on
in the country in which the amalgamating company is capital gains in the country in which the
incorporated amalgamating company is incorporated
at least 75 of the shareholders of the (d) at least 25 of the shareholders of the
(c) amalgamating foreign company continue to remain amalgamating foreign company continue to
shareholders of the amalgamated foreign company remain shareholders of the amalgamated foreign
and such transfer attract tax company and such transfer attract tax on capital
on capital gains in the country in which the gains in the country in which the amalgamating
amalgamating company is incorporated company is incorporated
(30) Any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to Section
9(1)(i), which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held b y
the demerged foreign company to the resulting foreign company, shall not be regarded as transfer as per the provisions of
section 47 if:
(a) the shareholders, holding not less than 75 in (b) the shareholders, holding not less than 25 in
value of the shares of the demerged foreign value of the shares of the demerged foreign
company, continue to remain shareholders of company, continue to remain shareholders of
the resulting foreign company and such the resulting foreign company and such
transfer does not attract tax on capital gains in transfer does not attract tax on capital gains in
the country in which the demerged foreign the country in which the demerged foreign
company is incorporated company is incorporated
(c) the shareholders, holding not less than 25 in (d) the shareholders, holding not less than 75 in
value of the shares of the demerged foreign value of the shares of the demerged foreign
company, continue to remain shareholders of company, continue to remain shareholders of
the resulting foreign company and such the resulting foreign company and such
transfer attract tax on capital gains in the transfer attract tax on capital gains in the
country in which the demerged foreign country in which the demerged foreign
company is incorporated company is incorporated.
(31) Any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the
amalgamating foreign company to the amalgamated foreign company, if at least of the shareholders of the amalgamating
foreign company continue to remain shareholders of the amalgamated foreign company, and such transfer does not attract
tax on capital gains in the country, in which the amalgamating company is incorporated, shall not be regarded as transfer:
(a) 25% (b) 50%
(c) 75% (d) 100%
(32) Compensation received by interim order shall be deemed to be income chargeable under the head "Capital gains" of the
previous year in which ________ '
(a) The final order of such court, Tribunal or other (b) the compensation accrued
authority is made.
(c) The appeal was first filed in such court, (d) The interim order is passed.
Tribunal or other authority.
(33) Any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged forei gn
company to the resulting foreign company, if the shareholders holding not less than of the demerged foreign company
continue to remain shareholders of the resulting foreign company; and such transfer does not attract tax on capital gains in
the country, in which the demerged foreign company is incorporated, shall not be regarded as transfer:
(a) 75% in value of the shares (b) 75% of the number of shareholders
(c) 25% in value of the shares (d) 25% of the number of shareholders
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MCQ CAPITAL GAINS
(34) Which of the following conditions are to be fulfilled for the transaction not to be regarded as transfer,where a sole pr oprietary
concern is succeeded by a company in the business carried on by it as a result of which, the sole proprietary concern sel ls or
otherwise transfers any capital asset or intangible asset to the company.
(a) All the assets and liabilities of the sole (b) The shareholding of the sole proprietor in the
proprietary concern relating to the business company is not less than 50 of the total voting
immediately before the succession become the power in the company and his shareholding
assets and liabilities of the company; continues to remain as such for a period of 5 years
from the date of the succession;
(c) The sole proprietor does not receive any (d) All of these.
consideration or benefit, directly or indirectly,
in any form or manner, other than by way of
allotment of shares in the company.
(35) A transfer in demerger of a capital asset by the ___________ co-operative bank to the ________ co-operative bank will not
be regarded as transfer -
(a) Demerged, Resulting
(b) Successor, Predecessor
(c) Holding, Subsidiary
(d) Subsidiary, holding
(36) Ramesh sold his painting to National Museum for ` 20,000 on 1-6-2017. What will be the amount of capital gain on this
transaction?
(b) ` 10,000
(a) ` 20,000
(d) None of these
(c) Nil
COMPUTATION OF CAPITAL GAINS
(37) In which of the following transfer the benefit of indexation is available in case of long term capital asset:
(a) Transfer of securities by foreign institutional (b) Transfer of undertaking or division in a slump sale
investors ul s 115AD. ul s 50B.
(c) Transfer of a foreign exchange asset by a non- (d) Transfer of equity or preference shares in a
resident Indian uls 115D. company.
(38) Ms. Smita inherited a vacant site land consequent to the demise of her father on 10 th June, 2010. The land was acquired by her
father on 10th April, 1990 for ` 40,000. The fair market value of the land on I" April, 2001 was ` 60,000 and on the date of
inheritance, i.e., 10th June, 2010 was ` 2,00,000. The cost of acquisition for Ms. Smita is - (June 2016)
(b) Nil
(a) ` 10,000
(d) ` 2,00,000
(c) ` 60,000
(39) Neeraj owns a house of ` 20,00,000, which he transfers for ` 22,00,000 to Kamal on 5-4-2016. What will be the full value of
consideration?
(a) ` 22,00,000 (b) ` 20,00,000

(c) ` 2,00,000 (d) Nil
(40) Cost of Acquisition in case of bonus shares allotted before 1-4-2001 will be:
(a) Nil (b) FMV as on 1-4-2001
(c) ` 10,000 (d) Cost of Original shares on the basis of which
bonus shares are allotted.
(41) Cost of acquisition in case of bonus shares allotted before 1-4-2001 will be- (Dec. 2014)
(a) Face value on the date of allotment (b) Nil
(c) Market value as on 1-4-2001 (d) Current market value.
(42) Compute the capital gains for AY 2018-19 if Mr. Ramesh, a property dealer, sells a commercial plot of land on 1-3-2018 for `
50,00,000 lakhs which was acquired by him on 1-8-2015 for ` 25,00,000 for selling of offices constructed therein. He had
incurred land development charges of ` 10,00,000 on 1-10-2015. He incurred ` 1,00,000 for selling the plot of land.
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MCQ CAPITAL GAINS
(a) Nil
(b) 15,00,000
(c) 14,00,000
(d) 25,00,000
(43) Compute the capital gains for assessment year 2018-19 if Mr. Roy sells his personal motorcar on 11-4-2016 for ` 2,55,000, which was
acquired on 31-1-2015 for ` 6,50,000. The expenses on transfer are 2 of selling price.
(a) Nil (b) 3,95,000
(c) ` 3,82,000 (d) -4,00,100
(44) Compute the capital gains for assessment year 2018-19 if Mr. Kallu sells his personal Jewellery on 11-4-2017 for ` 12,50,000, which was
acquired on 31-1-2016 for ` 6,50,000. The expenses on transfer are 2% of selling price. The capital gains chargeable to tax for
Assessment Year 2018-19.
(a) Nil (b) 5,75,000
(c) ` 6,00,000 (d) 6,25,000
(45) Compute the capital gains for assessment year 2018-19 if Mr. Gillu sells shares of unlisted company on 11-3-2018 for ` 12,50,000, which
was acquired on 31-1-2017 for ` 6,50,000. The expenses on transfer are 2 % of selling price. The capital gains chargeable to tax for
(a) Nil (b) 5,75,000
(c) ` 6,00,000 (d) 6,25,000
(46) A owns a capital asset which was purchased by him on 1-5-1999 for ` 3,00,000.The market value of the said asset as on 1-4-2001 was `
4,00,000. The said asset was sold for ` 48,00,000 during the year. Compute the capital gain for the assessment year 2018-19. (Cost
inflation index for F.Y. 2001-02= 100, and 2017-18 = 272)
(a) ` 37,12,000 (b) ` 44,00,000
(c) ` 45,00,000 (d) ` 15,57,000
(47) On 15th November, 2017, Mohan sold 1 kg. of gold, the sale consideration of which was ` 2,00,000. He had acquired the gold on 11th
December, 1998 for ` 64,000. Fair market value of 1 kg. Gold on I" April, 2001 was ` 62,000. The amount of capital gains chargeable to
tax for the assessment year 2018-19 shall be - (Dec. 2014)
(a) ` 17,820 (b) ` 6,00,000
(c) ` 25,920 (d) ` (17,820) loss.
(48) A owns a capital asset which was purchased by him on 1-5-1999 for ` 4,00,000. The market value of the said asset as on 1-4-2001 was `
3,00,000. The said asset was sold for ` 8,00,000 during the year. Compute the capital gain for the assessment year 2018-19. (Cost
inflation index for F.Y. 2001-02= 100 and 2017-18 = 272)
(a) ` 2,88,000 loss (b) ` 44,00,000
(c) ` 45,00,000 (d) ` 17,28,000
(49) A owns a capital asset which was purchased by him on 15-04-2011 for ` 4,00,000. The market value of the said asset as on 1-4-2001 was
` 3,00,000. The said asset was sold for ` 8,00,000 during the year. Compute the capital gain for the assessment year 2018-19. (Cost
inflation index for F.Y. 2001-02 = 100, 2011-12 =184 and 2017-18 = 272)
(a) ` 2,08,696 (b) ` 44,00,000
(c) ` 45,00,000 (d) ` 15,57,000
(50) Mrs. R sells a plot of land on 21-11-2017 for ` 50,00,000. She inherited the plot from her grandfather on 01-04-2010. Her grandfather had
acquired the plot on 01-03-2001 for ` 50,000. The FMV of the plot as on 01-04-2001 was ` 35,000. Compute the capital gains. (Cost
inflation index for F.Y. 2001-02= 100, 2010-11 =167 and 2017-18 = 272)
(a) ` 49,18,563 (b) ` 49,50,000

(c) ` 49,65,000 (d) ` 48,66,872
(51) Mrs. Rashrni sells a capital asset on 21-11-2017 for ` 50,00,000. She inherited the capital asset from her father on 01-04-2014. Her father
had acquired the plot on 10-04-2010 for ` 5,00,000. Rashmi has incurred ` 1,00,000 on improvement of such asset on 15-05-2014.
Compute the capital gains. (Cost inflation index for F.Y. 2001-02= 100, 2014-15 =240, 2010-11 = 167 and 2017-18 = 272)
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MCQ CAPITAL GAINS
(a) `43,20,000 (b) `44,00,000

(c) ` 45,00,000 (d) `49,00,000
(52) Indexation benefit on Cost of acquisition is available on the long term capital asset. However, in certain cases, indexation benefit is
not available. In which of the following cases, indexation benefit is allowed?
(a) Debentures issued by a company (b) Self generated goodwill of a business
(c) Bonus shares allotted on 1-4-2000 (d) Jewellery
(53) Mr. Sunil sells the goodwill on 20-01-2018 for `38,00,000. It was self-generated by him and he incurred cost of improvement thereof
for `5,55,000 on 1-4-2015. Compute his taxable gains. (Cost inflation index for F.Y. 2014-15 = 240 and 2017-18 =272)
(a) `38,00,000 (b) `32,45,000
(c) Nil (d) `32,14,106
(54) XYZ Ltd. allotted sweat equity shares to his employee A at a concessional rate on 31-5-2017. A transfers these shares on 31-3-2018.
Which type of gains is it?
(a) Long term capital gain (b) Short term capital gain
(c) Middle term capital gain (d) None of these
CAPITAL GAINS IN SPECIAL CASES
(55) Aarnav converts his plot of land purchased in July, 2012 for `8,00,000 into stock-in-trade on 3rd March, 2015. The fair market value
as on 3rd March, 2015 was `11,90,000. The stock-in-trade was sold `12,25,000 in the month of January 2018. Find out the taxable
Capital gains (Cost inflation index for F.Y. 2012-13 = 200, 2013-14 =220, 2014-15 = 240 and 2017-18 = 272)
(a) `2,30,000 (b) `4,25,000
(c) `1,81,433 (d) `35,000
(56) Aarnav converts his plot of land purchased in July, 2001 for `80,000 into stock-in-trade on 3rd March, 2015. The fair market value as
on 3rd March, 2015 was `2,00,000. The stock-in-trade was sold `2,25,000 in the month of January 2018. Find out the taxable Capital
gains (Cost inflation index for F.Y. 2001-02 =100, 2014-15 = 240 and 2017-18 = 272)
(a) `8,000 (b) `1,45,000
(c) `(2,301) Loss (d) `25,000
(57) X and Y formed a partnership firm. Just after formation of the partnership, X brought the following assets into the firm on 13th
October 2017 as his capital contribution (amount in `) -
Particulars Gold
Market value of the property on the date of transfer 5,00,000
Amount recorded in the books of firm 6,20,000
Actual cost
3,36,000
Date of acquisition
15-10-2013
Find out the taxable Capital gains (Cost inflation index for F.Y. 2013-14 =220 and 2017-18 = 272)
(a) `1,64,000 (b) `2,04,582
(c) `96,169 (d) `2,16,169
(58) XYZ a partnership firm was dissolved on 1-5-2017. A machine acquired on 1-5-2009 for `2,00,000 was distributed amongst the
partners for `1,00,000. The Fair Market Value of this machine on that date was `2,50,000. What will the full value of consideration
of this machine?
(a) `2,00,000 (b) `1,00,000

(c) `2,50,000 (d) Nil
(59) Mr. R and Mr. S are members of 'RS Associates', an AOP. RS & Associates was dissolved on 14th February, 2018 and the
following assets were distributed to the members (amounts in `) -
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MCQ CAPITAL GAINS
Particulars Gold (given to Mr. R)

FMV as on 14th February, 2018 25,00,000
Amount recorded in agreement of sale 24,50,000
Cost of acquisition 1,45,000
Date of acquisition 01-04-1965
FMV of the asset as on 1-4-2001 1,50,000
Find out the taxable Capital gains (Cost inflation index for F.Y.2001-02= 100 and 2017-18 = 272)
(a) ` 9,32,550 (b) ` 8,12,500
(c) ` 8,82,550 (d) ` 20,92,000
(60) The Government compulsorily acquired the land of Mr. X. The Government fixed his consideration at ` 5,00,000 half of which was
received by X on 23-6-2017 and rest of the amount was paid to X in the year 2018-19. What will be the assessment year of chargeability
of the capital gain to X?
(a) 2015-16 (b) 2016-17
(c) 2018-19 (d) 2017-18

(61) If in the above case government enhanced the compensation by ` 2,00,000 in the year 2018-19 what will be the previous year of
chargeability of enhanced compensation?
(a) 2015-16 (b) 2016-17
(c) 2018-19 (d) 2017-18

(62) The house property of Ramesh is compulsorily acquired by the Government for ` 40,00,000 vide Notification issued on 12th March 2017.
Ramesh has purchased the house in 2001-02 for ` 2,00,000. The compensation is received on 15th April 2017. Find out the taxable
Capital gains (Cost inflation index for F.Y. 2001-02= 100, 2016-17 = 264 and 2017-18 = 272)
(a) ` 17,50,000 (b) ` 34,72,000
(c) Nil (d) ` 38,00,000
(63) Ms. Vasumathi purchased 10,000 equity shares of Rajesh Co. Pvt. Ltd. on 1-4-2001 for ` 50,000. The company was wound up on
31-07-2017. She received assets market value ` 15,00,000 on liquidation. Her share in accumulated profits was ` 2,00,000. The taxable
capital gains in hands of Vasumathi will be (Cost inflation index for F.Y.2001-02 = 100 and 2017-18
= 272)-
(a) ` 11,64,000 (b) ` 9,59,500
(c) Nil (d) ` 13,59,500
(64) XYZ Ltd. an unlisted company bought back 10,000 shares (face value ` 10 per share, issued on 1-4-2016) from its shareholders on
15-03-2018 for ` 60 per share. Find out the taxable Capital gains (Cost inflation index for F.Y. 2015-16 = 254 and 2017-18 = 272)
(a) ` 5,00,000 (b) ` 6,00,000
(c) Nil (d) ` 4,94,434
(65) A owns a house property which was purchased by him on 1-5-1999 for ` 3,00,000.
The said property was destroyed by fire on 3-4-2017 and A received a sum of ` 50,00,000 from the insurance company during the year.
The market value of the above property as on 1-4-2001 was ` 4,00,000.
Compute the capital gain for the assessment year 2018-19. (Cost inflation index for F.Y. 2001-02= 100, and 2017-18 = 272)
(a) ` 39,12,000 (b) ` 46,00,000
(c) ` 47,00,000 (d) ` 12,57,000
(66) M owns two machineries eligible for depreciation at the rate of 15. The WDV of these machines as on 1-4-2017 was ` 25,000 and ` 40,000
respectively. No other asset was acquired in this block during the year. One of these machines were sold during the previous year for `
75,000. Compute the capital gain.
(a) Short term capital gain of ` 10,000 (b) Short term capital loss of ` 10,000
(c) Long term capital gain of ` 10,000 (d) No capital gain as depreciation would be
allowed on one of the machines left with M.
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MCQ CAPITAL GAINS
(67) In case of distribution of capital asset on liquidation of the company, the capital gains is chargeable to tax:
(a) In hands of shareholders (b) In hands of the company
(c) 'In hands of shareholders as well as company (d) Either in hands of shareholder or in hands of
company
(68) M owns two machineries eligible for depreciation at the rate of 15. The WDV of block of asset on 1-4-2017 was `75,000.
No other asset was acquired in this block during the year. Such machines were sold during the previous year for `65,000.
Compute the capital gain.
(a) Short term capital gain of ` 10,000 (b) Short term capital loss of `10,000
(c) Long term capital gain of' `10,000 (d) No capital gain as depreciation would be
allowed on one of the machines left with M.
(69) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as:
(a) Short term capital gain only (b) Short term capital gains or Long term capital
gains depending upon the period of holding of the undertaking.
(c) Long term capital gain only (d) No capital gain but the same will be taxable as
business profits.
(70) Slump sale is a result of which of the following type of consideration?
(a) Lump sum Payment (b) Adhoc Payment

(c) Accurate Payment (d) Actual Payment
(71) In computing capital gains in case of slump sale ---------will be taken as cost of acquisition of the undertaking so transferred.
(a) Book value (b) Net worth
(c) WDV (d) FMV as on 01-04-2001
(72) Mr. X has sold his land for a consideration of`25,00,000 to Mr. Y. Mr. Y has paid stamp duty of`3,00,000 @ 10 of stamp value. The
full value of consideration for computing capital gains in hands of Mr. X in accordance with the provisions of Section 50C will be
-
(a) `25lakhs (b ) `30lakhs

(c) `281akhs (d) `33 lakhs
(73) Section 50C makes special provision for determining the full value of consideration in case of transfer of _
(a) Plant an machinery (b) Land or building (June, 2015)
(c) All movable property other than plant & (d) Computers.
machinery and computers
(74) Mr. X has sold his land for a consideration of `25,00,000 to Mr. Y. on 15-04-2017. Mr. Y has paid stamp duty of`3,00,000 @ 10 of
stamp value. The said land was acquired by Mr. X on 15-07-2014 for ` 12 lakhs. The taxable capital gains in hands of Mr. X will
be ..
(a) `13lakhs (b) ` 18 1akhs

(c) `16 lakhs (d) ` 10 lakhs
(75) Mr. X has sold his land for a consideration of`25,00,000 to Mr. Y. on 15-04-2017. Mr. Y has paid stamp duty of `3,00,000 @ 10%
of stamp value. The said land was acquired by Mr. X on 15-07-2014 for `12lakhs. M. X was not satisfied with the stamp value
and his case was referred to Valuation officer. The valuation officer determined the value `26 lakhs. The taxable capital gains in
hands of Mr. X will be -
(a) `13lakhs (b) `14 1akhs
(c) `1lakhs (d) ` 18 1akhs
(76) Mr. X has sold his land for a consideration of `25,00,000 to Mr. Y. on 15-04-2017. Mr. Y has paid stamp duty of ` 3,00,000 @ 10%
of stamp value. The said land was acquired by Mr. X on 15-07-2015 for `121akhs. Mr. X was not satisfied with the stamp value
and his case was referred to Valuation officer. The valuation officer determined the value `35 lakhs. The taxable capital gains in
hands of Mr. X will be -
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MCQ CAPITAL GAINS
(a) `23 lakhs (b) ` 14lakhs

(c) ` 10 lakhs (d) 1 8lakhs
(77) Bala sold his vacant site on 30-09-2017 for ` 7,00,000. It was acquired by him on 01-10-2007 for ` 1,50,000. The State stamp valuation
authority fixed the value of the site at the time of transfer at ` 13,00,000.Compute capital gains in the hands of Bala. (Cost inflation
index for F.Y. 2007-08 = 129 and 2017-18 = 272)
(a) ` 9,83,721 (b) ` 5,50,000
(c) ` 12,50,000 (d) ` 2,10,121
(7S) Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received
and retained by the assessee in respect of such negotiation shall be:
(a) Deducted from cost of acquisition (b) Treated as income from other sources
(c) Deducted from full value of consideration (d) Treated as Business Income
(79) X Limited has transferred its Unit N to Y Limited by way of slump sale on November 30, 2017 for lump sum consideration of ` 400
lakhs. The undertaking was acquired on 1-4-2010 for ` 120 lakhs. The net worth of the undertaking on the date of transfer is ` 200 lakhs.
Find out the taxable Capital gains (Cost inflation index for F.Y. 2001-02= 100 and 2017-18 = 272)
(a) ` 200 lakhs (b) ` 180 lakhs
(c) ` 80.49 lakhs (d) ` -132.5llakhs
(80) Mr. X received an advance of ` 51,000 occasion of agreement of sale of a capital asset on 15-07-2017. The same was
forfeited by him. The said advance money will be and shall __________________
(a) Taxable as Income from other sources, be (b) Taxable as Income from other sources, not be
reduced from cost of acquisition of the asset. reduced from cost of acquisition of the asset.
(c) Taxable as Capital Gains, be reduced from cost (d) Taxable as Capital Gains, be reduced from cost of
of acquisition of the asset. acquisition of the asset.
(81) Bonus shares were allotted to Mr. K for ` 2,00,000 on 1st April 2000. The Fair market value of the shares on 2001 was ` 2,25,000. What
will be the cost of acquisition?
(a) ` 2,00,000 (b) ` 2,25,000
(c) Nil (d) None of these
(82) Compute the net taxable capital gains of on the basis of the following information:
A house was purchased on 01-05-2007 for ` 4,50,000 and was used as a residence by the owner. The owner had contracted to sell this
property in June, 2016 for ` 10,00,000 and had received an advance of ` 70,000 towards sale. The intending purchaser did not proceed
with the transaction and the advance was forfeited by the owner. The sum so forfeited has been included in the total income of the
assessee as per the provisions of Section 56(2)(ix). The property was sold in December, 2017 for ` 20,00,000. (Cost inflation index for
F.Y. 2007-08 = 129 and 2017-18 =272)
(a) ` 10,51,163 (b) ` 30,363
(c) ` 1,77,855 (d) ` 37,855
(83) Compute the net taxable capital gains of Smt. Megha on the basis of the following information:
A house was purchased on 01-05-2007 for ` 4,50,000 and was used as a residence by the owner. The owner had contracted to sell this
property in June, 2008 for ` 10,00,000 and had received an advance of ` 70,000 towards sale. The intending purchaser did not proceed
with the transaction and the advance was forfeited by the owner. The property was sold in April, 2017 for ` 15,00,000. (Cost inflation
index for F.Y. 2007-08 = 129, 2008-09 =137 and 2017-18 = 272)
(a) ` 5,51,163 (b) ` 30,363
(c) ` 1,77,855 (d) ` 37,855
(S4) Manoj acquired 1,000 equity shares ` 10 each in a listed company for ` 35,000 on 1" July, 2009. The company issued 1,000 rights shares
in April, 2011 at ` 15 per share. The company issued 2,000 bonus shares in June, 2016. The market price was ` 50 per share before bonus
issue and ` 25 after such issue. The cost of acquisition of bonus shares would be - (June 2016)
(a) Nil (b) ` 20,000
(c) ` 50,000 (d) ` 1,00,000
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MCQ CAPITAL GAINS
EXEMPTIONS FROM CAPITAL GAINS
(85) Capital gain on sale of residential house property is exempted u/ s 54 if it is :
(c) Any of the above two (d) None of these
(86) The benefit of exemption under Section 54 is available to :
(a) Individual (b) HUF

(c) Both Individual and HUF (d) Any person
(87) The benefit of exemption under Section 54 is available when following capital asset is transferred
(a) Long term residential house property (b) Short term residential house property
(c) Long term residential plot of land (d) Short term residential plot of land
(88) For claiming the benefit of exemption under Section 54 __ new residential house property must be purchased within 2 years of
transfer of capital asset:
(a) 1 (b) 2
(c) 3 (d) Any number of
(89) For claiming the benefit of exemption under Section 54 one new residential house property must be purchased within ___ of
transfer of capital asset:
(a) 1 year
(b) 2 years
(c) 3 years
(d) 4 years
(90) For claiming the benefit of exemption under Section 54 one new residential house property must be constructed within
---------------of transfer of capital asset:
(a) 1 year (b) 2 years
(91) Under section 54, in case if the new asset is transferred within of its purchase or construction, then its cost of
acquisition shall be reduced by the amount of the capital gains exempted earlier for the purpose of computing capital gains o n
transfer of such new asset.
(a) 1 year
(b) 2 years
(c) 3 years
(d) 4 years Ans.(c)
(92) For availing exemption under section 54, which amount is eligible for availing exemption?
(a) Purchase/Construction of one residential house (b) Deposit in capital gain account scheme upto due
property upto due date of return of income only. date of return of income only.
Purchase/Construction of one residential house (d) Purchase / construction after three years from the
(c) property upto due date of return of income and deposit transfer date.
in capital gain account scheme upto
due date of return of income.
(93) Under which section, the assessee has to reinvest the entire net consideration to claim full exemption for the long -term
capital gains earned during a previous year - (June 2016)
(a) Section 54EC (b) Section 54F
(c) Section 54GA (d) Section 54D
(94) Ms. Vimla sold a residential building in Jodhpur for `15,00,000 on 1-7-2017. The building was acquired for ` 1,50,000 on
1-6-2007. She paid brokerage @ 2% at the time of sale of the building. She invested ` 7lakhs in purchase of a residential building
in December, 2016. Compute her taxable capital gains for the A.Y. 2018-19. Cost inflation index: 2007-08 : 129 ; 2017-18 :272.
(a) ` 9,60,181 (b) ` 4,53,721

(c) ` 3,10,121 (d) ` 9,80,121
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MCQ CAPITAL GAINS
(95) For claiming exemption under Section 54B, Short term or long term capital asset being land which, in the immediately -----------
preceding the date on which the transfer took place, was being used by the HUF or individual or his parents
for agricultural purposes.
(96) The benefit of exemption under Section 54D in respect of Capital gain on compulsory acquisition of land and buildings in cert ain
cases is admissible to -
(b) HUF
(a) Individual
(d) Any person
(c) AOP
(97) The exemption available on investment in certain bonds u/s 54EC is available to :
(c) AOP (d) Any person
(98) In order to enjoy exemption under section 54EC, the resultant long-term capital gains should be invested in specified
bonds within a period of ______ from the date of transfer. (June, 2015)
(99) For claiming exemption under section 54EC the investment in bonds must be made within _____________ of transfer of long
term capital asset and the amount of investment
6 months, can be made in the financial year in
(a) 6 months, can be made in the financial year in (b)
which the asset is transferred and in the next
which the asset is transferred and in the next
financial year and the same cannot exceed `100
financial year and the same cannot exceed `50 lakhs.
Iakhs,
One year, can be made in the financial year in (d)
One year, can be made in the financial year in
(c) which the asset is transferred and in the next which the asset is transferred and in the next
financial year and the same cannot exceed `50 lakhs. financial year and the same cannot exceed `100
lakhs.
(100) The maximum amount of investment in bonds during any of the financial year for claiming exemption u/s 54EC is -
(a) `10 lakhs (b) No limit
(c) `25lakhs (d) ` 50 lakhs

(101) For claiming exemption under section 54EC the investment in bonds must be made within ____________ of transfer of long
term capital asset.
(a) 6 month (b)1 year
(102) A residential house is sold for ` 90 lakh and the long-term capital gains computed are ` 50 lakh. The assessee bought two
residential house for ` 30 lakh and ` 20 lakh respectively. The amount eligible for exemption u/ s 54 would be- (Dec.20I5)
(a) `50 lakh (c) `20 lakh
(c) ` 30 lakh (d) Nil.
(103) For claiming exemption under section 54EC the investment must be made in bonds of -
(a) NHAI or NABARD (b) REC or NABARD

(c) NABARD or PFC (d) NHAI or REC
(104) The benefit of exemption under Section 54F is available when following capital asset is transferred
(a) Long term residential house property (b) Any long term capital asset other than
residential house property
(c) Short term residential house property (d) Short term capital asset other than residential
house property
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MCQ CAPITAL GAINS
(105) For claiming exemption under section 54F, the assessee must not own _____ on the date of transfer of the original asset:
(a) more than 1 residential house, other than the (b) more than 2 residential house, other than the
new horse new house
(c) more than 3 residential house, other than the (d) more than 4 residential house, other than the
new house new house
(106) For claiming exemption under section 54F, the assessee has to invest _______________ for purchase or construction of
residential house property :
(a) Full value of consideration (b) Net Consideration
(c) The amount of capital gains (d) Cost of asset transferred
(107) Under Section 54F, Where the assessee purchases within a period of 2 years, or constructs within a period of 3 years, after the
date of the transfer of the original asset, any residential house, other than the new asset, _
(a) then the capital gain exempted earlier shall be (b) then the capital gain exempted earlier shall be
deemed to be income chargeable under the head deemed to be income chargeable under the head
"Capital gains" of the previous year in which such "Capital gains" of the previous year in which
residential house is purchased or constructed. original capital asset is sold or transferred.
then the assessee will be further entitled (d) Then the capital gains which was earlier exempt
(c)
exemption equal to the cost of new asset acquired or from tax shall be deemed to be short term capital
constructed. gains in the year in which original asset is
transferred.
(108) The exemption under section 54EC is withdrawn if the transfer of new asset, conversion thereof in money or taking loan
or advance on its security within _____ years from the date of its acquisition.
(a) 1 (b) 2
(c) 3 (d) 4
(109) Anurag sells a plot of land on 8thJuly, 2017 for ` 40 lakh and paid brokerage on its sale @ 1 . He purchased this plot on 19th
December, 2006 for ` 4,20,000. On L" February, 2018, he purchased a residential house for ` 15 lakh. He owns one residential
house on 8th July, 2017. The cost inflation index for 2006-07 was 122 and for 2017-18 is 272. Find out the amount of capital
gains chargeable to tax for the assessment year 2018-19 :
(a) 15,23,607
(b) ` 4,45,409
(c) ` 20,23,936
(d) ` 5,91,636
(110) The exemption under Section 54G of Capital gain on shifting of undertaking from urban area to any area other than urban
area is available to :
(c) Any person (d) None of the above.
(111) For claiming exemption under section 54G, an assessee has to invest the resultant capital gains within a specified peri od.
Which of the following is not eligible for such investment - (June, 2015)
(a) Furniture (b) Land

(d) Plant or machinery.
(c) Building
(112) Capital gain on shifting of undertaking from urban area to any area other than urban area under section 54G is exempted if it
is a :
(c) No exemption available (d) Both (a) & (b)
(113) The exemption under Section 54GB of capital gains arising from transfer of residential property is available to :
(c) Any person (d) Both (a) & (b)
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MCQ CAPITAL GAINS
(114) Capital gain on transfer of residential property under section 54GB is exempted if it is a :
(a) 'Long term capital gain (b) Short term capital gain

(115) Capital gain on shifting of undertaking to SEZ under section 54GA is exempted if it is a :
(116) Who is eligible for exemption in the above case?

(c) Any person (d) None of the above.
(117) The amount of exemption under section 54GA is:

(a) Lower of capital gain or investment in new (b) Lower of capital gains or cost incurred.
asset.
(c) As determined by assessing officer (d) None of the above.
(118) "New asset" for the purpose of section 54GB does not include:
(a) any machinery or plant which, before its (b) any machinery or plant installed in any office
installation by the assessee, was used either premises or any residential accommodation,
within or outside India by any other person; including accommodation in the nature of a
guest-house;
(c) any office appliances including computers or (d) All of these.
computer software;
(119) For the purpose of section 54GB, "Eligible company" must be engaged in :
(a) Production or manufacture of article or thing (b) Processing of any article or thing
(c) Trading of article or thing; (d) Provision of services
(120) For the purpose of section 54GB, the eligible assessee must own more than ___________ of the share capital or more than
____ of the voting rights in the eligible company:
(a) 50; 75 (b) 50; 75
(c) 50; 50 (d) 75; 75

(121) With a view to ascertaining the fair market value of a capital asset, the Assessing Officer may refer the valuation of a capital asset
to a Valuation Officer in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by
a registered if the Assessing Officer is of opinion that-
(a) That the fair market value of the asset exceeds (b) That the fair market value of the asset exceeds
the value of the asset as claimed by the assessee the value of the asset as claimed by the assessee
by ` 25,000 by 15 of the value claimed by the assessee;
(c) (a) or (b) (d) None of these
(122) Compute the tax liability for assessment year 2018-19 of resident individual who is having long term capital gains of ` 5,00,000
and has no other income -
(a) ` 1,03,000 (b) ` 46,350
(c) ` 49,440 (d) ` 23,690

(123) Compute the tax liability for assessment year 2018-19 of non-resident individual who is having long term capital gains of
` 5,00,000 and has no other income -
(a) ` 1,03,000 (b) ` 49,440
(c) ` 51,500 (d) ` 23,690
Page 241
MCQ CAPITAL GAINS
124) Compute the tax liability for assessment year 2018-19 of resident individual who is having income from short term capital gains of
` 5,00,000 arising on transfer of equity shares listed in recognized stock exchange on which securities transaction is paid and has
no other income;
(a) `33,480 (b) `36,570

(c) `38,630 (d) `75,190
(125) Compute the tax liability for assessment year 2018-19 of resident individual who is having income from short term capital gains
of `2,00,000 arising on transfer of equity shares listed in recognized stock exchange on which securities transaction is paid and
long term capital gains of `3,00,000 on transfer of land and has has no other income _
(a) `39,140 (b) `36,050
(c) `49,440 (d) `51,500
(126) Where an urban agricultural land owned by an individual, continuously used by him for agricultural purposes for a
period of prior to the date of transfer, is compulsorily acquired under law and the compensation is
determined by the Central Government, resultant capital gain is exempt.
(a) On eyear (b) Two years

(c) Three years (d) 6 months
(127) Mr. X acquired 1000 shares of XYZ ltd. listed in recognised stock exchange on 12th July 2015 for `1,20,000. He sold the shares
for `2,85,000 on 10th September 2017. The transaction was carried out through recognised stock exchange and securities
transaction tax was paid. The cost inflation index for 2015-16 was 254 and for 2017-18 is 272. His taxable capital gains will be-
(a) NIL
(b) `1,65,000
(c) `1,58,320
(d)
(128) Long-term capital gains on zero coupon bonds are chargeable to tax _
(June, 2015)
(a) @ 20% computed after indexation of such bonds (b) @ 10% computed without indexation of such bonds
(c) Higher of (A) or (B) (d) Lower of (A) or (B).
(129) When shares of a listed company held for more then 36 months are transferred privately for ` 8 lakh, with original cost of
acquisition of `1lakh whose indexed cost of acquisition is `2lakh, the income-tax payable would be - (Dec. 2015)
(a) `1,44,200 (b) `72,100

(c) `1,23,600 (d) `61,800
(130) Short-term capital gains arising from the transfer of equity shares in a company or units of an equity oriented fund or
units of a business trust charged with security transaction tax are subject to income-tax at the rate of - (June 2016)
(a) 10% (b) 15%

(c) 20% (d) Normal rate
Page 242
MCQ CAPITAL GAINS
1.D 2.D 3.A 4.D 5.B 6.B 7.D 8.D 9.C 10.A
11.C 12.B 13.D 14.A 15.C 16.C 17.A 18.C 19.B 20.B
21.B 22.B 23.D 24.A 25.A 26.A 27.D 28.D 29.A 30.A
31.A 32.A 33.A 34.D 35.A 36.C 37.D 38.C 39.A 40.B
41.C 42.A 43.A 44.B 45.B 46.A 47.C 48.A 49.A 50.A
51.A 52.D 53.A 54.B 55.A 56.A 57.B 58.C 59.D 60.C
61.C 62.B 63.A 64.C 65.A 66.A 67.A 68.B 69.B 70.A
71.B 72.B 73.B 74.B 75.B 76.D 77.A 78.B 79.A 80.B
81.B 82.A 83.A 84.A 85.A 86.C 87.A 88.A 89.B 90.C
91.C 92.C 93.B 94.B 95.B 96.D 97.D 98.C 99.A 100.D
101.A 102.C 103.D 104.B 105.A 106.B 107.A 108.C 109.A 110.C
111.A 112.D 113.D 114.A 115.D 116.C 117.B 118.D 119.A 120.C
121.C 122.B 123.A 124.A 125.B 126.B 127.A 128.D 129.B 130.B
Page 243
INCOME UNDER HEAD OTHER SOURCES
CHAPTER -7
Sec. 56(1) : CHARGING SECTION
 Income of every kind
 Not Excluded from Total Income
 Not chargeable to tax under other 4 heads
 Shall be chargeable to Income Tax under Income from Other Sources.
Examples :
1. Rental Income from vacant land
2. Income from sub-letting of house property
3. Interest on loan/deposits.
4. Agricultural Income outside India
5. Family pension.
6. Insurance Commission
7. Income from Undisclosed sources
8. Royalty(If not covered under P/G/B/P)
9. Receipt of LIC money( If not exempt u/s 10(10D)
10. Director fees/Commission
11. Director salary if not chargeable under salary
12. Salary to MP/MLA etc
Special point : Exemption u/s 10(17) :
The following allowances to MP/MLA are exempt from tax
1. Member of Parliament : Daily Allowances or Other Allowances
2. Member of Legislative Assembly : Daily Allowance and Constituency Allowance
Sec 115BBF : Tax on income from patent
(1) Where the total income of Eligible Assessee includes royalty income in respect of a patent
developed & registered in India, income-tax payable on such income shall be @ 10%.
(2) No deduction of any expenditure or allowance shall be allowed to eligible assessee under
any provision of this Act in computing above income.
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(3) The eligible assessee may exercise option for taxation of income by way of royalty under
this section on or before the due date u/s 139(1) for furnishing the return of income for the
relevant P/Y.
(4) Where an eligible assessee opts for this section for any p/y in accordance with provisions of
this section & offers income for taxation for any of 5 subsequent p/y succeeding the p/y not in
accordance with above provisions, then, assessee shall not be eligible to claim the benefit of
provisions of this section for 5 p/y subsequent to p/y which such income has not been offered
to tax in accordance with above provisions
Special point :
(1) "Developed" means at minimum 75% of expenditure incurred in India by eligible assessee
for any invention in respect of which patent is granted under Patents Act, 1970
(2) "Eligible assessee" means a person resident in India & who is a patentee;
(3) "lump sum" includes an advance payment on account of such royalties which is not
returnable;
(4) "patentee" means the person, being the true & first inventor of invention, whose name is
entered on patent register as the patentee, in accordance with Patents Act,
(5) "Royalty", in respect of patent, means consideration (including any lump sum
consideration but excluding any consideration which would be chargeable under "Capital
gains"
Sec. 56(2): Following Incomes SHALL BE chargeable under head Other Sources
1. Dividend Income
2. Winnings from Lotteries, cross word puzzles , card games etc.
3. Interest on Securities ,if not chargeable under P/G/B/P
4. Income from letting of Plant, Machinery or Furniture, if income not chargeable under P/G/B/P
5. Income from composite letting of BUILDING together with Plant, Machinery or Furniture, which is
inseparable from letting of such building, if such income not chargeable under P/G/B/P
6. Sum received under Keyman Insurance Policy, if not chargeable under salary or P/G/B/P
7. Sum of money/Property received as Gifts by any person.

8. Specified shares received by Firms/Closely Held Company.
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9. Share premium in excess of fair market value received by Closely Held Company.
10. Interest received on compensation or on enhanced compensation
11. Advance or other money received in course of negotiations for transfer of a capital asset, if
such sum is forfeited & negotiations do not result in transfer of such capital asset.
Method of Accounting (Sec. 145)
Income under head Other Sources is to be calculated on basis of Cash or Mercantile basis of accounting
regularly employed by the assessee
1. Taxation of Dividend Received From Companies
Sec. 115O: Tax On Dividend
 Every Domestic Company

 shall pay Corporate Dividend tax (CDT)
 @ 15% + 10 % surcharge + 3% cess
 On divided declared or paid
Sec. 10(34) : Dividend referred to in Sec. 115O shall be exempt
Sec 115BBDA : Taxability of Dividend
 In case of Resident Individual/Resident HUF/Resident Firm
 Dividend exempt u/s 10(34)
 Exceeds 10 lakhs
 Such excess is taxable at 10%
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Working note :
1.
Company
Indian Company Other Company
Arrangement for distribution No Arrangement

of dividend in India
Domestic Company 2(22A) Foreign Company 2(23A)
Liable to CDT Not Liable to CDT
2. Dividend in Sec.115O includes Deemed dividend u/s. 2(22) (a), (b), (c), (d) & NOT 2(22)(e).
3. Dividend includes both Interim & final dividend.
4. Such CDT is payable even if Income Tax is not payable by the company
5. CDT shall not be chargeable for dividends declared, distributed or paid by enterprise engaged in developing
or developing and operating or developing, operating and maintaining a Special Economic Zone.
6.CDT not payable on Buy Back of shares by company (Exception : Sec 115QA )
Sec. 2(22): Dividend Includes :
Distribution by a Company to
Sec. 2(22)(a) Sec. 2(22)(b) Sec.2(22)(c) Sec. 2(22)(d)
ANY ANY Shareholder Preference Equity Equity Shareholder
Shareholder Share Shareholder
Holders
All or part of Debentures, debenture- Bonus Any money or Any money or asset
its Assets stock, deposit certificate shares asset on its on Reduction of its
with or without interest. liquidation capital
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Sec. 2(22)(e)
 Closely held Company
 Gives loan or Advance
 To Specified Shareholder (case 1) or
 To CONCERN in which specified shareholder is a partner/member & has substantial interest

(case II) or
 To Any person on behalf or benefit of specified shareholder (case III)
Special Points:
1. Specified Shareholder Means beneficial owner holding atleast 10% voting in the company
2. Substantial Interest means: If at any time person entitled to atleast 20% income of that concern
(20% voting power, in case of company).
3. In Case I, Deemed dividend in hands of Specified shareholder.

In Case II, Deemed dividend in hands of Concern.
In Case III, Deemed dividend in hands of Specified shareholder.
4. Sec 2(18) : Company in which the public are substantially interested ( Widely held company)
A company is said to be a company in which the public are substantially interested if

a. It is owned by Government or Reserve Bank of India or
b. Its atleast 40% shares are held by the Government or the RBI or
c. Non profit company or
d. company whose principal business is to accept deposits from its members or
e. Public company & its equity shares were listed on last day of P/Y on recognised stock exchange
A company not covered under above categories is a closely held company
Sec 115QA : Tax on Distributed Income to Shareholders.
Domestic company shall pay tax on distributed income on buy-back of unlisted shares from shareholder
Special point :
(i) Distributed income" means consideration paid by company on buy-back of shares as reduced by
amount which was received by the company for issue of such shares.
(ii) Sec 10(34A) : Any income arising to shareholder, on account of buy back of unlisted shares by the
company u/s 115QA is exempt.
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Taxation of Income Received from Mutual funds & UTI
Sec. 115R : Mutual Funds shall pay TAX on Income distributed by them.
Sec. 10(35) : Income referred in Sec 115R shall not be included in Total Income of recipient
2. Winnings from Lotteries, Crossword Puzzle, Races including horse races, Card games & other
games of any sort or from gambling or betting of any form
Sec. 194B : T.D.S on lottery , Crossword Puzzles, Card Game or Other game
1. Rate of TDS 30%

2. Exemption Limit Aggregate upto `10,000 in a P/Y
Sec. 194BB: T.D.S on Horse Races
1. Rate of TDS 30%

2. Exemption Limit Aggregate upto `5,000 in a P/Y
` 10,000 w.e.f 1/6/2016
Special Points :
(a) Deduction u/s Sec 80 C to Sec 80 U will not be available from such Incomes.
(b) Sec. 58: No Deduction shall be allowed from such incomes
(c) Amount to be included in Total Income is Gross amount of Winning & not Net amount received after
TDS
Gross Amount to be = Net Amount Received after TDS X 100

included in Total Income 100 - TDS rate
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3. Interest
Income from Interest on Securities is chargeable under head other sources.(If not chargeable under P/G/B/P)
Sec. 10(15) : Interest Exempt from Tax
1. Interest on Notified bonds/certificates

 Post office Saving Bank account upto `3,500 / `7,000 in joint account in P/Y
 Post office Time deposit
 Special Bearer Bonds
2. - Notified Capital Investment Bond

- Notified Relief Bonds of RBI
3. Notified Bond/Debenture of Public Sector Companies. Eg Rural Electrification Corporation Limited ,

Indian Railway Finance Corporation Limited
4. Bonds of Local Authority, i.e. Municipal Bonds.
5. Interest on Gold Deposit Bonds/certificated issued under Gold Deposit scheme 1999/Gold
monetization scheme,2015
Section 14A : Expenditure of any exempt income is not allowed as a deduction from taxable income
Sec. 193: TDS on Interest on Securities
1. Rate of TDS 10%

2. Exception 1. Interest on securities of Central or State Government
No TDS in 2. Interest on Listed securities which are in Demat form

following cases
3. Interest to Resident Individual or Resident HUF on
debenture of company in which public are
substantially interested, if
(a) Total interest during p/y is upto5,000 &
(b) Interest is paid by account payee cheque
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Sec. 194A: TDS on Interest other than “Interest on Securities
1. Type of Payment Interest other than “Interest on Securities

2. Payer Any person (Individual/HUF subjected to tax audit for prior P/Y
or Other Payer)
3. Payee Resident
4. Rate of TDS 10%
5. Exception 1. Interest by firm to a partner
2. Interest by coop. society(other than coop bank) to member
No TDS in 3. Interest by bank on saving account/recurring account
following cases 4. Interest paid to banks/financial corporations
5. Interest paid on compensation awarded by motor accidents
claims tribunal upto 50,000
6. Exemption Limit Payer Bank Branch
(Adapted core banking solution) : Interest on Fixed deposit
upto `10,000 in P/Y
Payer Post office : Deposit under senior citizen saving scheme
Other Payer : Aggregate upto ` 5,000 in P/Y
Amount to be included in Total Income is Gross amount & not Net amount received after TDS
Gross Amount to be = Net Amount Received after TDS X 100

Computation of Taxable Interest to be included in IOS
Step 1 :Determine whether Assessee owns security on Due date of interest because Interest on security is
receivable by person who owns the security on Due date.
Step 2 : Determine whether security are purchased from Company or Market/broker

If security are purchased from Company :
Interest receivable for period = Date of purchase to Due date
If security are purchased from Market/broker :

Interest receivable for period = Interest declared on due date
Step 3 : Then apply the Method of accounting (Cash or Mercantile)
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Sec 94(1) : Bond Washing Transactions
 If owner of security(Transferor)
 Sells security before record date &
 Acquires the same after record date
 Interest received by transferee
 Deemed as Income of transferor
However Deeming provisions of sec 94(1) is not applicable if

1. If there is no avoidance of Income tax or
2. Avoidance of Income tax was exceptional & not systematic & there was not any avoidance during last
three preceding P/Y
4. Income from letting of Machinery, Plant or Furniture belonging to assessee
If P&M etc. is NOT let out as part of assessee’s business activity than income arising from such
hire will be taxable under other Sources
If letting is as part of his business activity than under P/G/B/P
Rent
Business Not Business
House Property P/G/B/P Other sources

(Business/Non Business) u/s 56(2)
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5. Income from composite letting of machinery, plant furniture and buildings
If letting of building is inseparable from letting of P&M etc. and such letting is NOT as part of his
business activity, than income arising from such letting will be taxable under other sources.
If letting is as part of his business activity than under P/G/B/P
Rent
Can be separated Cannot be separated
House Property Building Facility
House Property Other Sources *

* Provided not covered under Business
6. Sum received under Keyman insurance policy including Bonus
Any sum received under above policy including bonus is taxable under other sources provided not
chargeable under head salary or P/G/B/P
Received by person taking policy Not received by person taking policy
Received by Employee Received by other person
Business income u/s 28
Salary income u/s 17(3) Other sources u/s 56(2)
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7. Sum/Property received by Individual or HUF as Gifts
A. Taxation of Cash Gifts
 Sum of money received by Individual or HUF

 Without consideration
 In excess of ` 50,000/-
 in a previous year
 the whole of such sum
 Shall be included in income of receiver under head I/O/S
B. Taxation of Property as Gift/Inadequate consideration
Property means 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;
(v) Drawings;
(vi) Paintings;
(vii) Sculptures;
(viii) Bullion;
(ix) Any work of art
Taxation of Immovable property
Without Consideration Inadequate Consideration
Stamp Duty SDV > `50,000 SP upto (SDV - `50,000) SP < (SDV - `50,000)
Value (SDV) upto
`50,000
SDV Exempt SDV - SP
Exempt ( I/O/S of receiver) ( I/O/S of receiver)
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Taxation of Movable property
Without Consideration Inadequate Consideration
FMV upto `50,000 SP upto (FMV - 50,000) SP < (FMV - 50,000)

FMV > `50,000
Exempt
Exempt FMV FMV - SP
( I/O/S of receiver) ( I/O/S of receiver)
Special Point :
1. Sec 49(4) : If Property is taxable in hands of recipient under I/O/S then its Stamp value / FMV
will be taken as its Cost of Acquisition
2. Sum of Money/Property received from following will not be included in Income
a. From RELATIVE
b. On Marriage of Individual.
c. Under will or inheritance.
d. Received in contemplation of death of payer/donor
e. From Trust registered u/s 12AA
f. From Local authority u/s 10(20)
g. From any university /educational institution/hospital/trust/institution u/s 10(23C)
3 . RELATIVE : For above purpose “Relative “ means
In case of individual :
(a) Spouse of the individual
(b) Brother or sister of the individual
(c) Brother or sister of 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
(f) Any lineal ascendant or descendant of the spouse of the individual
(g) Spouse of the persons referred to in clause (ii) to (vi)
In case of HUF : Any member thereof
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(8) : Interest received on Compensation for Compulsory acquisition of capital Asset
 Interest received by an assessee on Compensation or on Enhanced Compensation shall be deemed to

be the income of the previous year in which it is received.
 Sec 57 : A deduction of 50% of such income shall be allowed & no deduction shall be allowed under
any other clause of this section
(9) : Specified shares received by Firms/specified companies
 Where a Firm or a Closely held company
 receives from Any Person
 shares of closely held company
- Without Consideration, the aggregate FMV > 50,000, than the whole of aggregate FMV of such
property shall be deemed as income under IOS
- For Consideration < (aggregate FMV – 50,000), then aggregate (FMV – Consideration) shall be
deemed as income under IOS
(10) : Share premium in excess of fair market value to be treated as income of Closely Held Company
 Where a company, not being a company in which the public are substantially interested,
 Receives, From a resident
 Any consideration for issue of shares that exceeds
 Face value of such shares
 Excess of aggregate consideration received for such shares over FMV of shares
 Shall be treated as income
(11) : Advance Money forfeited on Capital Asset on or after 1/4/2014
If Advance or other money is forfeited under negotiations for transfer of capital asset, it is included in
Income of receiver under Other sources.
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Sec 57 : Deductions available from Income under Other Sources
1: Collection Charges against taxable Dividend/Interest
Any reasonable sum paid by way of commission or remuneration for realising such dividend/interest
2. Deduction against Income from letting of Plant,machinery etc
Revenue Repair ,Insurance , Depreciation of Building ,Machinery, Plant or Furniture
3. Deduction against family pension

1/3rd of Pension OR `15,000/- , whichever is less
4. Any other Expenditure

Any other expenditure (not being a capital expenditure) expended wholly and exclusively for the
purpose of earning such income.
5. A deduction of 50% shall be allowed from interest received on compensation for compulsory acquisition
of capital asset. No other deduction shall be allowed from such income
Special Points :
1. FAMILY PENSION
 Regular Amount payable by Employer,
 To Legal Heir of Deceased Employee
 Is Taxable under other sources
 Deduction u/s 57 is available against such pension
However following pension are exempt from tax
10(18) Pension received by Individual or Family Pension by family member if Individual
has been in service of C/S Govt. & awarded Vir Chakra or Mahavir Chakra or
Param Vir Chakra or other notified gallantry awards.
10(19) Family pension received by widow or children or heir on death of member of
armed forces during duty
2. Interest on money borrowed to earn income taxable under other sources, is allowed as a deduction u/s 57.
Sec 58 : No deduction of following expenses from Income from Other Sources
 Personal Expenses of Assessee.

 Interest paid outside India on which Tax not paid or deducted at source
 Income Tax / Wealth Tax.
 Expenditure referred to in Sec. 40A(2),40A(3)
 Expenditure or allowance for earning income from Lottery, Crossword Puzzles etc., (except
Income from owning & maintaining race horses)
Sec 59 : If an expense is allowed as deduction from I/O/S in any P/Y, recovery of any amount out of that
expense shall be taxable as I/O/S in p/y of receipt
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MCQ OTHER SOURCES
(1) Income of every kind, which is not to be excluded from the total income under this Act and not charged to income -tax
under any of the other four heads, shall be chargeable to income-tax under the head ________ _
(a) Income from salaries (b) Income from House Property
(c) Profits and gains from business and profession (d) Income from Other Sources
(2) Which is the charging section for income chargeable under the head Income from other sources?

(3) John, engaged in fertiliser trade received rent by sub-letting a building. This will be taxable under the head - (June, 2015)
(a) Income from house property (b) Income from capital gains
(c) Income from profits & gains of business & profession (d) Income from other sources.
(4) Under the Income-tax Act, 1961, dividend derived from the shares held as stock-in-trade are taxable under head - (June, 2015)
(a) Income from other sources (b) Income from profits and gins of business or profession
(d) Either capital gains or income from profits and

(c) Capital gains
gains of business or profession.
(5) Which of the following incomes are chargeable under the head 'Income from other sources'?
(a) Dividends (b) Winnings from lotteries
(c) Betting (d) All of these
(6) Agriculture income received from outside India will be -

(a) Taxable under the head Profit and Gains of (b) Taxable under the head Income from othersources
Business or Profession
(d) None of these
(c) Exempt from tax
(7) Ramesh was dealing in the business of lotteries. He himself won a lottery. Income earned from such lottery will be
(a) Taxable under the head Profit and Gains of (b) Taxable under the head Income from othersources
(c) Exempt
(d) None of these
(8) Salary paid to a member of parliament will be –
(a) Taxable under the head Profit and Gains of (b) Taxable under the head Income from other sources
(c) Exempt
(d) None of these
(9) Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset is forfeited
and the negotiations do not result in transfer of such capital asset will be taxable under the head -
(a) Profit and Gains of Business or Profession (b) Income from other sources
(c) Capital gains (d) Income from house property
(10) Aman entered into an agreement with Brij for sale of a building for ` 20 lakh in June; 2017. Aman received advance of ` 2 lakh.
Subsequently, the agreement was cancelled and Aman forfeited the advance money. The advance money is - (Dec. 2015)
(a) To be reduced from the cost of acquisition (b) To be reduced from indexed cost of acquisition
(d) Taxable as income under the head 'income from

(c) Taxable as capital gains
other sources I
(11) Ramesh received ` 7lakh by way of enhanced compensation in March, 2018. A further sum of ` 2lakh decreed by the court is due
but not received till 3rt March, 2018. The amount of income chargeable to tax for A/Y 2018-19 would be --------(Dec. 2015)
(a) ` 3,50,000 (b) ` 7,00,000

(c) ` 9,00,000 (d) ` 4,50,000
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MCQ OTHER SOURCES
(12) Shashank received `10,000 as directors fee from a company. This amount will be taxable under the head _
(a) , Profit and Gains of Business or Profession (b) Income from other sources
(c) Exempt (d) None of these
(13) An assessee earned interest on post office savings bank account: `6,000. Such sum shall be taxable under the head:
(a) Salaries
(b) Profit & Gains of Business & Profession
(c) Capital Gains
(d) Income from Other Sources
(14) Rakesh owned a machinery. He let it on hire to Raghu for `2,40,000 p.a. Such amount shall be taxable under head:
(a) Income from other sources
(b) Income from house property
(c) Income from Business and profession
(d) Any of the above
(15) Income from letting on hire of plant, machinery or furniture is chargeable under the head -
(a) Income from other sources. (b) Profits and gains of Business or Profession.
(c) Capital Gains. (d) Either (a) or (b)
(16) Under which head income from letting on hire of machinery etc. will be taxed if the same is not chargeable under the hea d
'Profits and gains of Business and Profession' ?
(a) Income from Other Sources. (b) Salaries

(c) Capital Gains (d) Income from House Property
(17) Income earned by an assessee from letting on hire machinery, plant or furniture belonging to him and also buildings, and where
letting of buildings is inseparable from the letting of the said machinery, plant or furniture shall be ta xable under the head:
(a) Income from other sources

(b) Income from house property
(c) Income from Business and profession
(18) Any sum received by employer from employees as contribution to certain funds is taxable under the head:
(a) Salaries
(b) Profit & Gains of Business & Profession
(c) Capital Gains
(d) Income from Other Sources
DIVIDEND, DEEMED DIVIDEND AND ITS TAXABILITY
(19) Amount paid to or received by a shareholder in proportion to its shareholding in a company out of the total sum so distributed is
known as:
(a) Share (b) Dividend

(c) Bonus (d) Profit
(20) The date fixed by a company for entitlement of dividend or by a mutual fundi administration/ specified company for entitlement
of dividend or bonus units is known as :
(a) Due date (b) Record date

(c) Expiry date (d) None of these
(21) Radha held 1,000, 12 Preference shares of `100 each in Rosa Ltd. Dividend was received by her on 25 th March, 2018.
Calculate the amount chargeable to tax.
(a) Exempt (b) `12,000
(c) `120 (d) None of the above
(22) Deemed dividends as given in Section 2(22), which provides" dividend" includes _
(a) Distribution of accumulated profits, entailing (b) Distribution of debentures/ deposit-certificates to
release of assets by the company to its shareholders. shareholders or bonus shares to preference
shareholders to an extent to which the company
possesses accumulated profits.
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MCQ OTHER SOURCES
(c) Distribution to shareholders on liquidation to (d) All of the above.

the ,extent to which the distribution is
attributable to the accumulated profits of the
company immediately before its liquidation.
(23) Which of the following distributions by a company to its shareholders are not considered as deemed dividends?
(a) Debentures
(b) Debenture Stock
(c) Shares issued for full cash consideration
(d) Bonus shares
(24) A private limited company engaged in manufacturing activity had general reserve of ` 20 lakh. It granted a loan of ` 5 lakh to a
director who held 13 shareholding cum voting rights in the company. The said loan was re-paid by him before the end of the year.
The amount of deemed dividend arising out of the above transaction is - (Dec. 2015)
(a) ` 2,60,000 (b) ` 2,40,000
(c) ` 5,00,000 (d) Nil.
(25) Mr. X resident individual 45 years of age gives the following information pertaining to the assessment year 201 8-19 :
Particulars `
Dividend from shares of Indian company on which the company has paid dividend 12,50,000
distribution tax u/s 115-0
Expenses incurred on collecting such dividends 12,500
Determine the amount of Total Income and tax liability for the assessment year 2018-19.
(a) ` 1,28,750 (b) ` 1,27,460

(c) ` 25,750 (d) ` Nil
(26) X Ltd. reduced its share capital and for that distributed to its shareholders an amount of ` 55,00,000. The company possessed
accumulated profits of ` 35,00.000 as on the date of distribution. What shall be the amount to be assesseed as deemed dividend?
(a) ` 55,00,000 (b) ` 35,00,000

(c) ` 20,00,000 (d) No deemed dividend
(27) XYZ Pvt. Ltd. gave a loan of ` 5,00,000 to its shareholder. The shareholder was the beneficial owner of equity shares of the
company as he held 12 of the voting power of the Company. The company possessed accumulated profits of ` 3,00,000 as on the
date of advancement of loan. What shall be the amount to be assesseed as deemed dividend in the hands of shareholder?
(a) ` 5,00,000 (b) ` 3,00,000

(28) XYZ Ltd. gave a loan of ` 9,00,000 to its shareholder. The shareholder was the beneficial owner of equity shares of the company as
he held 14 of the voting power of the Company. The company possessed accumulated profits of ` 1,00,000 as on the date of
advancement of loan. What shall be the amount to be assesseed as deemed dividend in the hands of shareholder?
(a) ` 9,00,000 (b) ` 1,00,000

(29) As per section 2(22)(e), loan/ advances given by a private company to a concern in which its shareholder has substantial interest,
then to the extent of accumulated profits held by the private company (capitalised accumulated profits not included), it shal l be
considered as deemed dividend taxable in the hands of shareholder. A person is deemed to have a substantial interest:
(a) If he holds 20 of the voting power (equity shares) in the (b) If he is beneficially entitled to 20 or more of the
company; income of such concern.
(c) Either (a) or (b) (d) None of these.
(30) ABC Pvt. Ltd. gave a loan of ` 9,00,000 to PQR & Co .. 'C', a shareholder of ABC Pvt. Ltd. was holding 20 of the voting power
(equity shares) in the concern PQR & Co. The company possessed accumulated profits of ` 5,20,000 as on the date of
advancement of loan to the PQR & Co. What shall be the amount to be assesseed as deemed dividend in the hands of shareholder?
Page 260
MCQ OTHER SOURCES
(a) ` 3,80,000 (c) (b) ` 9,00,000
` 5,20,000 (d) No deemed dividend
(31) ABC Pvt. Ltd. gave a loan of ` 9,00,000 to PQR & Co. The company possess nil accumulated profits as on the date of advancement of loan
to PQR & Co., then what shall be the amount to be assesseed as deemed dividend in the hands of shareholder?
(a) ` 3,80,000 (c) (b) ` 9,00,000
` 5,20,000 (d) No deemed dividend
(32) ABC Pvt. Ltd. gave a loan of ` 9,00,000 to PQR & Co. The company possess accumulated profits of ` 11,00,000 as on the date of
advancement of loan to PQR & Co., then what shall be the amount to be assesseed as deemed dividend in the hands of shareholder?
(a) ` 3,80,000 (b) ` 9,00,000
(33) Dividend received from a foreign company (net) ` 8,000. Nothing has been paid to the Government of India out of tax deducted at source.
Calculate the amount to be included while computing income under the head 'Income from Other Sources'.
(a) NIL
(b) ` 8,000
(c) ` 11,428
(d) ` 2,400
(34) The maximum limit of exemption is case of lotteries or crossword puzzles or card game is :
(a) ` 2,500 (b) ` 50,000

(c) ` 10,000 (d) ` 5,000
(35) The maximum limit of exemption in case of horse races is:
(a) ` 2,500 (b) `10,000
(c) ` 5,000 (d) ` 1,000
(36) 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, taxable under the head 'Income from other sources' after grossing up is taxed without allowing basic
exemption limit at flat rate of :
(a) 30% (b) 20%

(c) 10% (d) 15%
(37) Winnings from lotteries (gross) ` 90,000. Calculate the amount to be included while computing income under the head 'Income from
Other Sources'.
(a) ` 90,000 (b) ` 1,28,571

(c) ` 27,000 (d) ` 1,17,000
(38) Winnings from horse race (net) ` 35,000. Calculate the amount to be included while computing income under the head 'Income from
Other Sources'.
(a) ` 35,000 (b) ` 50,000

(c) ` 10,500 (d) ` 60,500
(39) Miss. Z received an amount of ` 27,760 on 1-12-2017 in connection with winning from camel races. Cost of race tickets purchased was
` 2,000. Calculate amount to be included under the head 'Income from Other Sources':
(a) ` 27,760 (c) (b) ` 25,760

Nil (d) ` 2,000
(40) ` 30,000, 11 securities (unlisted) of a textile company. What shall be the amount of interest income earned from securities to be taxable
under the head of Income from Other Sources?
(a) `30,000 (b) ` 3,300
(c) `26,700 (d) Not taxable
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MCQ OTHER SOURCES
(41) An assessee received an income of ` 9,000 as interest on securities of a listed paper manufacturing company. What shall be the
amount of interest income earned from securities to be taxable under head Income from Other Sources?
(b) ` 10,000
(a) ` 9,000
(d) Not taxable
(c) ` 8,100
(42) Reema received rent of ` 60,000 from letting a residential building (in Mumbai) along with plant and machinery (letting out
building is inseparable from letting of plant and machinery). She expended ` 6,000 for repairs and insurance of the buildings and
plant and machinery. The WDV of building was ` 2,00,000 as on 1-4-2017 and the plant and machinery was purchased on 9 th
May 2017 for ` 20,000. Amount taxable is :
(a) ` 54,000 (b) ` 41,000
(c) ` 60,000 (d) ` 44,000
(43) If interest on securities is received after deduction of tax at source then the amount to be included in the total incom e is:
(a) Gross interest (b) Net interest
(c) No amount to be included (d) None of these
(44) Sum received under a Keyman insurance policy including bonus shall be taxable under the head:
(a) Income from other sources (b) Income from house property
(c) Income from Business and profession (d) Any of the above
TAXABILITY OF GIFTS
(45) Akshay received a gift of ` 35,000 each on 22th May, 2017 from his three friends. The amount chargeable to tax in this case
would be _ (Dec. 2014)
(a) ` 50,000 (b) `1,05,000

(c) Nil (d) ` 55,000
(46) Cash gifts exceeding ___ shall be chargeable under the head income from other sources:
(a) ` 5,000 (b) ` 20,000
(c) ` 50,000 (d) ` 25,000
(47) The taxability of gift shall not apply if this gift is received from:
(a) Relative (b) Local authority

(c) By way of inheritance (d) All of these
(48) Mrs. X received the following gifts during the year. Which gifts shall be included in computing the income from othe sources?
(a) Gift of ` 26,000 from her employer. (b) Gift of ` 21,000 on is= December from her
mother's friend.
(c) Gift of ` 1,21,000 from her husband's brother. (d) Gift of ` 60,000 on 25th November from her father's
brother.
(49) Mrs. X received the following gifts during the year. Which gifts shall not be included in computing the i ncome from other
sources?
(a) Scholarship of ` 1,20,000 from a charitable (b) Gifts of ` 51,000 each received from her four
institution registered under section 12AA. friends on the occasion of her marriage on 21 st
October.
(c) Gift of ` 1,41,000 from her husband's brother. (d) All of the above.
(50) Which of the following income will be taxable as income from other sources - (1 Marks, June, 2015)
(a) Purchase of house from husband for (b) Purchase of painting from registered dealer
inadequate consideration at invoice value less than fair market value
(c) Cash gift from a non-resident friend on (d) All of the above.
marriage anniversary
Page 262
MCQ OTHER SOURCES
(51) Richa received gift of jewellery, fair market value of which is ` 3,00,000 on 17th October from her fiancee. What will be the taxable
amount?
(a) Nil
(b) ` 3,00,000
(c) ` 2,50,000
(d) ` 50,000
(52) Mohan received a watch worth ` 60,000 from his cousin grandfather (brother of his grandfather). What will be the taxable amount?
(a) Nil
(b) ` 60,000
(c) ` 10,000
(d) ` 50,000
(53) If A receives ` 31,000 from B and ` 20,000 from C, then, what will be the taxable amount·?
(a) Nil (b) ` 1,000
(c) ` 51,000
(d) ` 50,000
(54) Sohan received a share of ` 60,000 from his cousin grandfather (brother of his grandfather). What will be the taxable amount?
(a) Nil
(b) ` 60,000
(c) ` 10,000
(d) ` 50,000
(55) Nisha received a gift from his sister in Netherlands of ` 2,50,000. What will be the taxable amount?
(a) Exempt (b) ` 2,50,000

(c) ` 2,00,000 (d) ` 50,000
(56) Rakesh received ` 70,000 from his friend on the occasion of his birthday.
(a) The entire amount of ` 70,000 is taxable (b) ` 20,000 is taxable
(c) The entire amount is exempt (d) None of the above.
(57) Hemali received a cash gift of ` 80,000 from her friend on her 25th wedding anniversary. Amount taxable is :
(a) Exempt (b) ` 80,000

(c) ` 30,000 (d) ` 50,000
(58) Gift of ` 5,00,000 received on 10th July, 2016 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.
(59) Mr. A received cash gift worth ` 55,000 from his grandfather's brother Mahesh, on the occasion of the marriage of his son. What will be
the taxable amount -
(b) Nil
(a) ` 55,000 (c)
(d) ` 5,000
` 50,000
(60) Mr. J received a Watch worth ` 55,000 from his employer on the occasion of his birthday. What will be the tax consequences?
(a) ` 55,000 taxable in the hand of J, as income from (b) ` 55,000 taxable in the hands of j, as Fringe benefit.
salaries
(c) ` 55,000 taxable, as income from other sources (d) None of these
(61) On 5th February, 2018 Rajat gets a gift of motor car from a relative Madan. Fair market value of the car is ` 3,60,000. The
amount taxable in the hands of Rajat under section 56(2)(vii) is - (Dec. 2012)
(a) ` 3,60,000 (b) ` 3,10,000
(c) Nil (d) ` 50,000
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MCQ OTHER SOURCES
(73) X & Co. received a gift of 900 shares of RST Pvt. Ltd. at a consideration of ` 1,60,000. The aggregate fair market value of shares is
` 2,30,000. What will be the taxable amount under the head Income from Other Sources?
(a) Nil
(b) ` 50,000
(c) ` 70,000
(d) ` 1,60,000
(74) VSC Pvt. Ltd. issued 1,00,000 shares. The face value of shares is ` 200, Fair Market value ` 190 and issue price ` 210.
Calculate the amount to be considered as income in hands of VSC Pvt. Ltd. as per section 56(2)(viib).
(a) Nil (b) ` 20,00,000
(c) ` 10,00,000 (d) ` 5,00,000
(75) If in the above case, face value of shares is ` 200, Fair Market value ` 190 and issue price ` 198. Calculate the amount to be considered as
income in hands of VSC Pvt. Ltd. as per section 56(2)(viib).
(a) Nil (b) ` 20,00,000
(c) ` 10,00,000 (d) ` 5,00,000
(76) USC Pvt. Ltd. issued 1,00,000 shares. The face value of shares is ` 200, Fair Market value ` 220 and issue price ` 230.
Calculate the amount to be considered as income in hands of USC Pvt. Ltd. as per section 56(2)(viib).
(a) Nil (b) ` 20,00,000
(c) ` 10,00,000 (d) ` 5,00,000
(77) XYZ Pvt. Ltd. issued shares. Mr. K, resident of India, purchased the shares at a consideration of ` 5,00,000. The fair market value of such
shares was of ` 4,50,000. What will be the taxable amount under the head Income from Other Sources?
(a) Nil
(b) ` 50,000
(c) ` 4,50,000
(d) ` 5,00,000
(7S) Sameer received the following income during financial year 2017-18 : Director's fees ` 5,000, income from agricultural land in Pakistan
` 15,000, rent from let-out of land in [aipur ` 20,000, interest on deposit with HDFC Bank ` 1,000 and dividend from Indian company `
5,000. His income from other sources is - (Dec. 2014)
(a) ` 41,000 (b) ` 46,000

(c) ` 31,000 (d) ` 26,000
(79) Rishab received the following gifts during the previous year:
(i) ` 50,000 from his employer
(ii) ` 1,00,000 from mother's sister
(iii) ` 10,000 from his friend on the occasion of his marriage
(iv) ` 60,000 in the form of scholarship from a registered charitable trust. The
amount of taxable gift under the head 'income from other sources' is _ (June 2016)
(a) Nil
(b) ` 50,000
(c) ` 1,50,000
(d) ` 2,10,000
(SO) Comfort (Pvt.) Ltd. issued 10,000 equity shares to Pawan at ` 18 per share when the fair market value of each share was
determined at ` 11 per share. The tax implication of the transaction is - (June 2016)
(a) ` 70,000 taxable as income for Comfort (Pvt.) (b) ` 20,000 taxable as income for Pawan Ltd.
(c) ` 10,000 taxable as income for Pawan (d) Nil
DEDUCTIONS IN COMPUTING INCOME FROM OTHER SOURCES
(SI) Interest on compensation/ enhanced compensation shall _

(a) be taxable in the year of receipt. (b) be taxable in the year of accrual.
(c) be taxable receipt/ accrual, whichever is earlier. (d) not be taxable.
Page 264
MCQ OTHER SOURCES
(82) Sarath has received a sum of ` 3,40,000 as interest on enhanced compensation for compulsory acquisition of land by State
Government in May, 2017, of this, only ` 12,000 pertains to the current year and the rest pertains to earlier years. The amount
chargeable to tax for the assessment year 2018-19 would be - (June, 2015)
(a) ` 12,000 (b) ` 6,000

(c) ` 3,40,000 (d) ` 1,70,000
(83) Ad hoc deduction available in respect of income of interest on compensation/ enhanced compensation shall be:
(a) 50 (b) 30
(c) Nil (d) 100

(84) Assessee received interest on enhanced compensation of ` 50,000 as per court decree inDecember 2017 by Mr. Yogesh.
Out of the said amount a sum of ` 35,000 relates to preceding financial years. The taxable income is:
(a) ` 25,000 (b) `15,000
(c) ` 17,500 (d) ` 35,000
(85) Incomes taxable under the head of Income from Other Sources are:
(a) Interest on bank deposits and loans. (b) Interest on foreign Government securities.
(c) Agricultural income received from outside India (d) All of the above.
(86) Which of the following income is not taxable under the head income from other sources?
(b) Income from sub letting.
(a) Income from letting.
(d) Commission received by the director on giving
(c) Director's fees. bank guarantee for the company.
(87) Royalty received from a publisher by Nina was of ` 42,700. She spent ` 2,700 on books, stationery, typing, etc. Calculate the amount
of income chargeable to tax under head Income from other sources?
(a) Exempt (c) (b) ` 42,700 (d)
` 40,000 ` 2,700
(88) Mr. Ram was earning income from sub-letting of motor car to his friend. Such income shall be taxable under which head of
income?
(a) Income from other sources (b) Income from house property
(c) Income from Business and profession (d) Any of the above
(Dec. 2014)
(89) The amount deductible from family pension is upto -
(a) ` 15,000 or 1/3rd of family pension whichever is less (b) ` 15,000 or 1/2 of family pension whichever
is less
(c) ` 10,000 or 1/3rd of family pension whichever is (d) No deduction.
less A
(90) Ms. Sitara is in receipt for family pension of ` 15,000 p.m. during 2017-18. Income chargeable to tax for assessment year
2017-18 of Ms. Sitara is----------------------- (Dec. 2015)
(a) ` 1,80,000 (b) ` 1,20,000 (d)
(c) ` 1,65,000 Nil.
(91) J took a house on lease for 10 years and let it further to a tenant for his residence at a monthly rent of ` 2,400. He incurred following
expenses during year: Lease rent: ` 1000 p.m., Salary of Durban : ` 200 p.m. and Interest on loan taken to pay for acquisition of
lease : ` 200 p.m. Compute income chargeable under head Income from other sources?
(a) ` 12,000 (b) ` 28,800 (d)
(c) ` 16,800 Nil
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MCQ OTHER SOURCES
(92) What is the taxability of dividend income under section 2(22)(a) to 2(22)(d) in hands of shareholders?
(a) Dividend tax @ 12.5 (b) Exempt u/s 10(34) upto ` 10,00,000.
(c) Dividend tax @ 12.5 + Surcharge + Education Cess (d) None of these
(93) What is the taxability of dividend income under section 2(22)(a) to 2(22)(d) in hands of company?
(a) Dividend distribution tax @ 15 (b) Exempt
(c) Dividend distribution tax @ 15 on the gross (d) None of these
amount of dividends + 12% Surcharge + 3% EC
i.e. 20.35764 of the net amount of dividends
(94) Company is liable to pay dividend distribution tax under section 115-0 @ 15% on the gross amount of dividends + 12% Surcharge
+ 3% EC i.e. 20.35764. on the …………….amount of dividends.
(a) Gross
(b) Either A or B depending on situation
(c) Net
(d) Expected
(95) What is the taxability of dividend income under section 2(22)(e) in the hands of company?
(a) Dividend tax @ 15% (b) Taxable
(c) Dividend tax @ 12.5% + Surcharge + EC (d) Not Taxable
(96) What is the taxability of dividend income under section 2(22)(e) in the hands of shareholder?
(a) Exempt u/ s 10(34) (b) Taxable
(c) Not Taxable (d) None of these
(97) Interim Dividend declared by a company is accrued in which of the following year?
(a) Previous year in which it is declared.
(b) Previous year in which it is given.
(c) Financial year in which it is actually given.
(d) None of these.
(98) In which year dividend declared by a company or distributed or paid by it u/ s 2(22) is deemed to be the income?
(a) Previous year in which it is discussed. (b) Previous year in which it is given.
(c) Previous year, in which it is so declared, (d) None of these.
distributed or paid, as the case may be.
(99) "Specified foreign company" means:
(a) Foreign company in which Indian company
holds 26% or more in nominal value of the equity share (b) Foreign company in which Indian company
capital of the company. holds 51 or more in nominal value of the equity
share capital of the company.
(c) Company which is registered in India.
(d) None of these.
(100) Dividend received by an Indian company from specified foreign companies shall be taxable at :
(a) 15% [Surcharge 12% + EC @ 2% + SHEC @ 1% ].
(b) 15% [Surcharge 12% + EC @ 2% + SHEC @ 1% ].
No deduction allowed in respect of any expenditure or
allowance under any provision. Deduction allowed in respect of any expenditure or
allowance under any provision.
(c) 10% [Surcharge 12% + EC @ 2% + SHEC @ 1% ]. No
deduction allowed in respect of any expenditure or (d) 10% [Surcharge 12% + EC @ 2% + SHEC @ 1% ].
allowance under any provision. Deduction allowed in respect of any expenditure or
allowance under any provision.
(101) In order to be entitled to concessional rate of tax for dividend received from a foreign company, the Indian company
should have the following minimum shareholding in such foreign company - (June, 2015)
(a) 10% (b) 25%

(c) 26% (d) 51 %
(102) An assessee earned income of interest on securities amounting to ` 65,000. He paid a reasonable sum of ` 32,000 as commission
to a banker for realising such interest on behalf of the assessee. Such amount of expenditure shall be:
Page 266
MCQ OTHER SOURCES
(b) Disallowed
(a) Allowed
(c) Partly allowed and partly disallowed
(103) The deduction for family pension under section 57 can be determined as :
(a) One third of the family pension (b) ` 15,000
(c) Lower of (a) or (b) (d) Higher of (a) or (b)
(104) Family pension received by a widow of a member of the armed forces where the death of the member has occurred in the course
of the operational duties in the circumstances and subject of prescribed conditions,is -
(a) Exempt upto `. 3,00,000 (b) Exempt upto ` 3,50,000
(c) Totally exempt under section 10(19) (d) Totally chargeable to tax
(105) Family pension received by Mr. Ram from the Government of Madhya Pradesh was of ` 15,000. Calculate the amount of income
chargeable to tax under the head of income from other sources?
(a) ` 15,000 (b) ` 10,000
(c) ` 5,000 (d) Nil
(106) Bahadur, a defence personnel, died in a war. His wife received the family pension of ` 7,500 per month during the year 2017-18.
Calculate the amount of income chargeable to tax under the head of income from other sources?
(b) ` 75,000
(a) ` 90,000
(d) Nil
(c) ` 15,000
(107) If in the above case bahadur did not die in a war then calculate the amount of income chargeable to tax?
(b) ` 75,000
(a) ` 90,000
(d) Nil
(c) ` 15,000
(108) Sunder died on 23rd July, 2015 while being in Central Government service. In terms of rules governing his service, his widow
Mrs. Sunder is paid a family pension of ` 10,000 per month and dearness allowance of 40 thereof. Compute
taxable income for the assessment year 2018-19.
(b) ` 1,20,000
(a) ` 1,68,000
(d) ` 1,05,000
(c) ` 1,53,000
(109) Amounts that are not deductible while computing Income from Other Sources:
(a) Personal expenses of the assessee; Wealth tax (b) All disallowances under section 40A. paid by
assessee.
(c) Interest/ Salaries payable outside India on (d) All of the above.
which tax has not been paid or deducted.
(110) Which of the following amount is not deductible while computing income from other sources?
(a) Any sum paid on account of income tax. (b) Any personal expenses of the assessee.
(c) Any sum paid on account of wealth tax. (d) (b) & (c) but not (a)
(111) An assessee earned an income of ` 65,000 from lottery. Expenditure incurred by him in regard to earn this income was of `
18,000. Deduction of such amount of expenditure shall be:
(a) Allowed (b) Disallowed
(c) Partly allowed and partly disallowed (d) Any of the above
(112) The transaction whereby owner of securities transfers his securities to another person and such that the income of such security
becomes due to such other person and the owner avoids tax thereon is known as :
(a) Bond Washing (b) Bonus stripping
(c) Dividend stripping (d) All of these
Page 267
MCQ OTHER SOURCES
(113) Where any person buys/acquires any securities or unit within 3 months prior to record date, and sells/transfers the same within 3 months
(9 months in case of unit) after record date and the dividend income thereon is exempt, then, while computing his income chargeable to
tax, the loss, if any, arising to him on account of such purchase and sale shall be ignored to the extent of dividend or income from
securities/unit. Such transaction made to avoid tax is known as:
(a) Bond Washing
(b) Bonus stripping
(c) Dividend stripping
(d) All of these
(114) Chandu purchased units of UTI worth ` 15,46,000 on 1-5-2017. He received dividend of ` 2,00,000 on such units on 1-6-2017 (Record
date: 31-5-2017). He sold the units on 31-11-2017 for ` 12,00,000. His other income under the head 'Capital Gains' is ` 10,00,000. Compute
his total income for the assessment year 2018-19.
(a) ` 8,54,000
(b) ` 10,00,000
(c) ` 13,46,000
(d) Nil
(115) Where any person buys/ acquires any units within 3 months prior to record date; he is allotted bonus units thereon and he sells any of the
original units within a period of 9 months after record date, while continuing to hold any of the bonus units, then, the loss, if any, arising
to him on account of purchase and sale of original units shall be ignored in computing his total income and the loss so ignored shall be
deemed to be the cost of purchase or acquisition of such bonus units as are held by him on the date of such sale. Such transaction made
to avoid tax is known as :
(a) Bond Washing
(b) Bonus stripping
(c) Dividend stripping
(d) Allof these
(116) He received a royalty of ` 1,00,000 from a book of stories written by him. He claimed ` 12,000 as expenditure on stationery and typing.
He let-out of his buildings along with plant, machinery and furniture for ` 50,000 per month. He claimed the following expenses as
deduction for this building - Insurance : ` 10,000; repairs : ` 15,000; depreciation: ` 40,000. Interest credited to his recurring deposit
account and cumulative time deposit account in post office were ` 32,000 and ` 48,000 respectively. Compute the income taxable.
(a) ` 6,55,000 (b) ` 7,03,000

(c) ` 7,80,000 (d) Nil
(117) Compute income taxable under head income from other sources:
Interest on bank deposits ` 3,000
Winnings from lotteries (net) ` 33,936
Interest on Post office savings bank account ` 500
(a) ` 51,480
(b) ` 51,980
(c) ` 36,936
(d) ` 37,436
(118) Compute income taxable under head income from other sources:
Dividend from shares of Indian company ` 3,000

Winnings from lotteries (net) `70,000
Rental Income of Plant and machinery `51,000
(a) `1,51,000 (b) `1,21,000

(c) `1,54,000 (d) `l,24,OOO
(119) Compute income taxable under head income from other sources received by Mr. X :
Cash gift received from his brother on occasion of his marriage anniversary
`75,000
Winnings from lotteries (net)
`70,000
Forfeited advance money received on occasion of transfer of capital asset
`51,000
(a) `1,96,000 (b) `1,51,000

(c) `1,75,000 (d) ` 1,00,000
Page 268
MCQ OTHER SOURCES
(120) Mrs. Laxmi, 70 years old, received ` 30,000 every month from SBI under reverse mortgage scheme by mortgaging her residential house
property. She also received monthly family pension of ` 15,000. Her total income for the assessment
year 2017-18 is ------ (June 2016)
(a) ` 5,40,000 (b) ` 1,80,000
(c) ` 1,65,000 (d) ` 3,60,000
(121) The dividend received by an individual from an company in excess of `………….is chargeable to tax @.......................
(a) ` 10,00,000, 10% (b) ` 5,00,000, 20%
(c) ` 1,00,000, 10% (d) None of the above
(122) Mr. Ram received cash gift of Rs. 51,000 from his friends on the occasion of his 50th birthday. None of the friends are relative.The
amount liable to tax in the hands of Mr.Ram would be :
(A) Nil
(B) Rs. 1,000
(C) Rs. 51,000
(D) Rs. 46,000 after deducting causal income of Rs. 5,000 (June 2017)
(123) Agni (P) Ltd issued equity shares of Rs. 10 each at Rs. 40 per share. The fair market value of the share on the date of issue was ascertained
as Rs. 25 per share. The company issued 1,00,000 equity shares. The amount liable to tax in the hands of the company would be :
(A) Rs. 15,00,000

(B) Rs. 30,00,000
(C) Nil
(D) Rs. 40,00,000 (June 2017)
(124) Mr. Sankar received Rs. 50,000 as educational scholarship from Nehru Memorial Trust (a charitable trust). The scholarship is
to assist Mr. Sankar for pursuing M.A. (History) at Jawaharlal Nehru University, New Delhi. The amount of scholarship liable to tax is :
(June 2017)
(A) Rs. 50,000
(B) Rs. 10,000
(C) Rs. 25,000
(D) Nil Ans. D
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MCQ OTHER SOURCES
1.d 2.d 3.d 4.a 5.d 6.b 7.b 8.b 9.b 10.d
11.a 12.b 13.d 14.a 15.d 16.a 17.a 18.d 19.b 20.b
21.a 22.d 23.c 24.c 25.c 26.b 27.b 28.d 29.c 30.c
31.d 32.b 33.b 34.c 35.b 36.a 37.a 38.b 39.a 40.b
41.b 42.b 43.a 44.a 45.b 46.c 47.d 48.b 49.d 50.b&c
51.b 52.a 53.c 54.b 55.a 56.a 57.b 58.b 59.a 60.a
61.c 62. 63. 64. 65. 66. 67. 68. 69. 70.
71. 72. 73.c 74.b 75.a 76.c 77.b 78.a 79.a 80.a
81.a 82.d 83.a 84.a 85.d 86.a 87.c 88.a 89.a 90.c
91.a 92.b 93.c 94.c 95.d 96.b 97.a 98.c 99.a 100.a
101.c 102.a 103.c 104.c 105.b 106.d 107.b 108.c 109.d 110.d
111.b 112.a 113.c 114.a 115.b 116.a 117.a 118.a 119.b 120.c
121.a 122.c 123. a
Page 270
CLUBBING OF INCOME
CHAPTER - 8
CLUBBING OF INCOME
GENERAL CLUBING PROVISIONS
Any person (i.e. Transferor)

Transfers to
Any person (i.e. Transferee)
INCOME of an asset The ASSET

(under revocable or irrevocable
transfer) [Sec. 60]
All income arising to Under Revocable Transfer Under Irrevocable

transferee (Sec. 61) transfer (Sec. 62)
All income arising from such All income arising from
asset to transferee such asset to transferee
shall be included in
Income of Transferee
(However, when power to Revoke the
Shall be clubbed with transfer arises e.g. on death of transferee
income of the Transferor such income shall be included in income of
the transferor)
Page 271
CLUBBING OF INCOME
Sec. 62: Irrevocable transfer
 Transfer which is not revocable

 During lifetime of Transferee &
 Transferor derives no benefit from such income
Sec. 63: Revocable Transfer
 A transfer which
 Contains any provision for transfer of whole/part of the Income or Asset to transferor during life
time of transferee or
 In any way, gives transferor the right to re-assume power over whole/part of Income or Asset
during life time of transferee
SPECIFIC CLUBING PROVISIONS
Sec. 64(1)(ii): Clubbing of Spouse Remuneration
 If an individual has
 Substantial interest in a Concern,
 then Salary, Fees, Commission, or other remuneration
 In cash or Kind
 drawn by Spouse of such individual
 from that concern
 shall be Clubbed
 With Income of the Individual
Special Points :
1. Substantial Interest :
a) Company :If individual himself or with relative hold atleast 20% of equity shares
beneficially at any time during p/y
b) Other Concern :If individual himself or with relative entitled to atleast 20% profits at
any time during p/y
Sec 2(41): Relative in relation to an individual, means Husband, Wife, Brother or Sister or any
Lineal ascendant or Descendant of that individual
2. If spouse has Technical or Professional qualifications or experience & getting the

remuneration solely on application of such technical or professional knowledge, No clubbing
shall be done
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CLUBBING OF INCOME
3. Husband & Wife both have Substantial interest in concern and both getting remuneration from
concern, then remuneration of both shall be clubbed with that Spouse, whose Total income is
greater, before clubbing that income.
(Once income is clubbed with either spouse, Next year income shall be clubbed with that spouse
only unless AO satisfied, it is not necessary to do so)
4. Income to be clubbed = Income taxable under head Salary
64(1)(iv): Income from Asset transferred to Spouse
 If an individual transfers
 Any asset (other than house property)
 directly/indirectly to Spouse
 For Inadequate consideration
 then income from such asset arising to spouse
 shall be clubbed
 With Individuals income
Clubbing will not be done in the following cases
1. Transfer of Asset is under any agreement to live apart or
2. Husband & wife relationship does not exist either at the time of transfer of asset or at time of
accrual of Income.
Sec. 64(1)(vi) : Income from Asset transferred to Son’s wife
 If an individual transfers
 Any asset
 directly/indirectly to son’s wife
 for Inadequate consideration
 then income arising out of such asset arising to Sons wife
 shall be clubbed
 With Individual’s income
Clubbing will not be done if
The relationship father/mother in law and daughter in law does not exist either at the time of transfer of asset
or at time of accrual of income
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CLUBBING OF INCOME
Amount to be clubbed with individual income where spouse/ son’s wife invests transferred asset in
Business
Investment out of T/f asset in business

as on 1st day of P/Y
Income from Business X ---------------------------------------------
Total investment by transferee
Amount to be clubbed with individual income where spouse/ son’s wife invests transferred asset in
Partnership Firm
Investment out of T/f asset in partnership
firm as on 1st day of P/Y
Interest from partnership firm
X ---------------------------------------------
Total investment by transferee
Sec. 64(1)(vii): Indirect Benefit to spouse
 If an Individual transfers
 Any asset to any Person/AOP
 For inadequate consideration
 for the benefit of his spouse
 then any income arising out of transferred asset
 Shall be Clubbed with Individual’s income.
Sec. 64(1)(viii) : Indirect Benefit to sons wife
 If an individual transfers
 Any asset to any Person/AOP
 For inadequate consideration
 for the benefit of his sons wife
 then any income arising out of transferred asset
 shall be Clubbed with Individual’s income.
Sec. 64(1A): Clubbing of Minor’s Income
 All incomes
 arising to the Minor child
 shall be clubbed
 with income of that Parent
 whose Total Income (excluding minor income) is Greater
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CLUBBING OF INCOME
Special Point:
1. If marriage of parents does not exist, minor income will be clubbed with that parent who maintains the
minor in the previous year
2. Once income is clubbed with either parent, Income of next previous year will also be clubbed with that
parent only, unless AO is satisfied it is not necessary to do so because child is maintained by the other
parent
3. Minor income will be taxable in the hands of minor only
i. Minor suffering from disability specified in Sec.80U.
ii. Income of minor arising due to Manual work done by him.
iii. Income of minor arising due to application of his skills, talent or specialized knowledge and
experience.
Special Points:
 Where minor’s income is clubbed, that parent can claim exemption u/s. 10(32) subject to Max. ` 1500/-
per minor child
 If Minor attains majority during P/Y, income till date of majority to be clubbed.
 Minor child includes step and adopted child.
 Where minor income taxable in his hands, Income on such income shall be clubbed with parent.
Sec. 64(2) : Income from Self-Acquired property converted to Joint family Property
 Where Self-acquired property of the individual

 is Converted into Joint Family Property
 For Inadequate Consideration
 the income so derived by the Joint Family from such property
 Shall be clubbed with that individual’s income
 Where such converted property is subsequently partitioned, then income derived by spouse from
portion received by her, will also be clubbed with individual’s income
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CLUBBING OF INCOME
Miscellaneous Provisions of clubbing
1. Clubbing of Income includes Clubbing of Loss also.
2. If transferee Sells the asset, then capital gain so arising shall also be clubbed.
3. If form of transferred asset is Changed by transferee, then income from such changed asset shall be
clubbed.
4. Income on Clubbed income will not be clubbed.
5. Clubbing provisions are mandatory, even if it results in benefit to the individual or loss to the revenue.
6. Sec. 65 : AO can serve notice of demand of tax on clubbed income to the transferee Then the transferee
shall be liable to pay tax on portion of clubbed income.
(This provision is also applicable in case of deemed owner u/s. 27)
Procedure of Clubbing
Step 1 : First compute the Income of the recipient under that head to which the income belongs (after
allowing deductions/allowances under that head)
.
Step 2 : Amount under Step 1, is the income to be clubbed in hands of individual under the same head of
income
Step 3 : Deductions under Chapter VI-A (Sec 80C to Sec 80U) of recipient of income shall not be allowed
to individual with whom income is clubbed
.
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MCQ CLUBBING
CLUBBING IN CASE OF TRANSFER OF INCOMF/

TRANSFER OF ASSETS - SECTION 60 TO 63
(1) Transfer of income without transfer of asset would be taxable in the hands of:
(a) Transferor only (b) Transferee only

(c) Either transferor or transferee (d) Both transferor and transferee
(2) A transfer which contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the income or asset
to the transferor, regarded as:
(a) Transfer of income without transfer of asset (b) Indirect transfer

(c) Revocable transfer (d) Irrevocable transfer
(3) X transfers his house property to a trust for benefit of Y till his death. In this case, till death of Y, the income from house
property shall be taxable in the hands of and afterwards in the hands of ----
(a) X, Y (b) X, legal heirs of Y
(c) Y, legal heirs of Y (d) Y, X
(4) Mr. 'X' transfers his house property to Mr. Y with a condition that 25 of the income therefrom should be handed over to him M r.
Y earns `1,00,000 from such house property. In this case-
(a) Total amount `1,00,000 shall be assessed in the (b) Only `25,000 will be assessed in the hands of X.
hands of X.
` 25,000 will be assessed in the hands of X and `75,000 (d) Total amount `1,00,000 shall be assessed in the
(c) hands of Y.
will be assessed in the hands of Y.
CLUBBING IN RESPECT OF INCOME OF SPOUSE,

SONS WIFE, MINOR CHILD - SECTION 64
(5) Mr. A, a fashion designer having lucrative business, pays salary to his wife, who is a model. Remuneration received by Mrs. A
shall be included in the total income of :
(a) Mrs. A (b) Mr. A
(c) Mrs. A or Mr. A (whose total income is higher (d) Mr. A and Mrs. A proportionately.
before this clubbing)
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MCQ CLUBBING
(6) The shares of Jetha Ltd. are held by, Mr. Jetha 8, Mrs.Jetha 10 and Mrs. Jetha's Father-in-law 6. Who amongst the following
have substantial interest in Jetha Ltd.?
(a) Mr. Jetha (b) Mrs. Jetha
(c) Mr. [etha and Mrs. Jetha, both (d) Neither Mr. [etha, nor Mrs. Jetha
(7) If Mr. A and Mrs. A both have substantial interest in a concern and both are in receipt of remuneration from that concern, then
what will be the tax consequences?
(a) Remuneration shall be clubbed in the total (b) Remuneration shall be clubbed in the total
income of Mr. A. income of Mrs. A.
(c) Remuneration shall be clubbed in the total (d) Clubbing shall not apply.
income of that individual whose total income
(before this clubbing) is higher.
(8) Mr. A a transferred a capital asset to Mrs. A in natural love and affection. She transferred the capital asset to her friend and she
earned a capital gains of `2,50,000. The capital gains income shall be regarded:
(c) Mrs. A or Mr. A (whose total income is higher (d) Mr. A and Mrs. A proportionately.
before this clubbing)
(9) Shyam transferred 2,000 shares of X Ltd. to Ms. Babita without any consideration. Later, Shyam and Ms. Babita got
married to each other. The dividend income from the shares transferred would be - (June, 2015)
(a) Taxable in the hands of Shyam both before and (b) Taxable in the hands of Shyam before marriage
after marriage but not after marriage
(c) Taxable in the hands of Shyam after marriage (d) Never taxable in the hands of Shyam.
but not before marriage
(10) Rohit ( a Chartered Accountant) is working as Accounts Officer in Raj (P) Ltd. on a salary of`20,000 p.m. He got married to
Ms. Pooja who holds 25 % shares of this company. What will be the impact of salary paid to Rohit by the company in the
hands of Ms. Pooja - (Dec. 2015)
(a) 100% salary to be clubbed (b) 50% salary to be clubbed
(c) No amount be clubbed (d) 25% salary be clubbed.
(11) An individual is said to have substantial interest in a concern if he or she, along with his or her relatives, is, at any time during
the previous year-
(a) Beneficial owner of equity shares carrying 20% (b) Entitled to 20% or more of the profits of such concern
or more of the voting power. .
(c) Either (a) or (b) (d) Both (a) and (b)
(12) In the above case meaning of relative of an individual does not include the following -
(a) Grandfather's brother (b) Spouse
(c) Brother and sister (d) Grandfather-in-law of the spouse.
(13) Income from assets transferred to spouse for inadequate consideration, clubbed in the total income of -
(a) Transferor (b) Clubbing shall not apply

(c) Transferee (d) None ofthese
(14) Income from assets transferred to son's wife for inadequate consideration, shall be included in the total income of-
(a) Transferor (b) Son's wife
(c) Both (a) and (b) (d) Individual whose total income (before this
clubbing) is higher.
(15) In the above case, relationship between transferor and transferee should subsist at the time of -
(a) Transfer of the asset (b) Accrual of the income
(c) Either (a) or (b) (d) Both (a) and (b)
(16) Mr. A transfers his house property to his fiancee, in this case the income from house property shall be taxable in the hands of-
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MCQ CLUBBING
(a) Mr. A (b) Mr. A's fiancee
(c) Such individual whose total income (before this (d) None of the above.
clubbing) is higher.
(17) Exemption of will be available ul s 10(32) to the parent in respect of minor's income clubbed with the parent.
(a)`1,500 (b)`5,000
(c) ` 15,000 (d) `1,00,000
(18) In case of clubbing of income of two minor children exemption of…………………..will be available.
(a) ` 1,500 (b)`3,000
(c )`1,000 (d) None of these
(19) Income of minor child has to be included in the income of the assessee for determining rate of income tax
applicable to income of the assessee.
(a) Agricultural (b) Gross total
(c) Business (d) None of these.
(20) Income of a minor child shall be included in the income of -
(a) That parent whose total income (before this (b) Minor child
clubbing) is greater.
(c) That parent whose total income (before this (d) That parent whose total income (after this
clubbing) is lower. clubbing) is greater.
(21) Income of a minor child on account of…………….shall be taxable in his hands.

(a) Any manual work done by him. (b) Any activity involving application of his skill,
talent or specialized knowledge and experience.
(c) Either (a) or (b) (d) None of these
(22) Minor child includes -
(a) Step child (b) Adopted child
(c) Both (a) & (b) (d) None of these.
(23) Mr. Mahesh's, minor son Suresh, earning interest`40,000 on fixed deposit with ABC Ltd., which was gifted to him by his grandfather.
Mahesh's income is higher than that of Mrs. Mahesh. What will be the tax consequences?
(a) ` 40,000 shall be taxable in the hands of Suresh. (b) `40,000 shall be clubbed in the total income of
Mrs. Mahesh.
(c) ` 40,000 shall be clubbed in the total income of (d) `40,000 shall be taxable in the hands of ABC Ltd.
Mr. Mahesh.
(24) In the above case, if Suresh is blind then, -

(a)`40,000 shall be taxable in the hands of Suresh. (b) (c) ` 40,000 shall be exempted.
`40,000 shall be taxable in the hands of Mr Mahesh.. (d) ` 40,000 shall be taxable in the hands of Mrs. Mahesh.
(25) Mr. A transfers`25,000 to Mrs. A. She purchases investments`20,000 in X Ltd. out of such cash transferred to her by Mr. A. She
earnsinterest `5,000 from such investment. Hence this is al an -
(a) Cross transfer (b) Indirect transfer
(c) Revocable transfer (d) Irrevocable transfer
(26) In the above case interest income `5,000 shall be included in the total income of -
(c) Mrs. A or Mr. A (whose total income is higher (d) Mr. A and Mrs. A before this clubbing)
(27) Mr. Y gifts 12.75 debentures worth`10 lakhs to Mrs. X (wife of Mr. X, his brother) and Mr. X gifted a flat worth same amount to Mrs. Y.
The flat yields a rental income of`1,30,000 p.a. Interest income will be included in the total income of
and rental income will be included in the total income of……………………...
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MCQ CLUBBING
(a) Mr. Y and Mrs. X respectively. (b) Mrs. Y and Mr. X respectively.
(c) Mr. X and Mr. Y respectively. (d) Mrs. Y and Mrs. X respectively.
(28) Raja gifts ` 2 lakhs to his wife on 1-4-2017 which she invests in a firm on interest @ 18 p.a. On 1-1-2018, Mrs. Raja withdraws the
money and gifts it to their son's wife. In this case interest of the period 1-4-2017 to 31-12-2017 and 1-1-2018
to 31-3-2018 shall be clubbed in the total income of………………………..
(a) Mr. and Mrs. Raja respectively. (b) Mr. Raja
(c) Mrs. Raja and their son's wife respectively.
(d) Mrs. Raja
(June,
(29) In whose total income, the income of a minor child is included -
(a) Father 2010)
(b) Mother
(c) Father and mother both (d) Parent whose total income is greater.
(30) When the income of an individual includes `20,000 as the income of his minor child in terms of section 64(IA), taxable
income in this respect will be - (Dec. 2011)
(a) Nil (b) ` 20,000

(c) ` 18,500 (d) None of the above.
(31) Income arising to a minor married daughter is -
(a) To be assessed in the hands of the minor (b) To be clubbed with the income of that parent
married daughter 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.
(32) The following income that accrue to a minor child will not be included in the total income of his parent.
(a) Income earned from fixed deposits transferred (b) Income earned from house property transferred by
by his grand father. his father
(c) Income earned from agricultural land (d) Income from from participation in dance
transferred by his mother competition
(33) Mr. Ghose has four minor children consisting 2 daughters and 2 sons. The annual income of 2 daughters was`7,500 and`5,000 and
of sons was`5,500 and`1,250 respectively. The daughter who was having income of`5,000 was suffering from a disability
specified under section 80U. Work out the amount of income earned by minor children to be clubbed in the hands of Mr. Ghose.
(a) ` 9,250 (b) ` 14,250

(c) ` 9,750 (d) ` 10,000
(34) A proprietary business was started by Smt. Rani in the year 2015. As on 1-4-2016 her capital in business was`3,00,000.
Her husband gifted`2,00,000 on 10-4-2016, which amount Smt. Rani invested in her business on the same date. Smt. Rani earned
profits from her proprietory business for the Financial year 2016-2017,`1,50,000 which remained invested in the business. The
profit earned by Mrs. Rani in financial year 2017-2018 `3,90,000. Compute the income, to be clubbed in the hands of Rani's
husband for the Assessment year 2018-2019 with reasons.
(a) `2,70,000 (b)`1,20,000

(c) Nil (d) ` 3,90,000
(35) Income from asset transferred to spouse will be taxable in the hands of transferor if :
(a) asset has been transferred in pursuance of an (b) asset was transferred for an adequate
agreement to live apart; consideration;
(c) asset was transferred before marriage; (d) asset was transferred for inadequate
consideration
(36) Incomes of two minor children are included in the income of their father. Father is entitled to exemption under section
10(32) upto - (Dec. 2014)
(a)`1,500 (b ) `1,000
(c)`3,000 (d) `2,000.
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MCQ CLUBBING
CONVERSION OF SELF-ACQUIRED PROPERTY INTO JOINT FAMILY PROPERTY
((37) If the self acquired property of an individual (being a member of HUF) is _ then the income derived by the joint family on
account of such property shall be included in the total income of the individual who was the owner of such property.
(a) Converted into joint family property. (b) Transferred by him directly or indirectly, to
HUF otherwise than for adequate consideration.
(c) Transferred by him, directly or indirectly to (d) Either (a) or (b)
HUF for adequate consideration. Ans.(d)
(38) Where the converted property has been the subject-matter of a partition amongst the members of the family, the income
derived from such converted property as is received by ------------------on partition shall be deemed to arise to the individual
from assets transferred indirectly by the individual to the ---------------and shall be clubbed in the hands of such individual.
(a) Minor child, minor child (b) Brother, brother
(c) Spouse, spouse (d) Sister, sister Ans.(c)
(39) For the purposes of clubbing of income of the specified person in the income of the individual under section 64, the word
'income' includes _____________ _
(a) Salaries (b) Loss
(c) Capital gains (d) Income from other sources
(40) Mr. A gifts cash of ` 1,00,000 to his brother's wife Mrs. B. Mr. B gifts cash of `1,00,000 to Mrs. A. From the cash 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) Mr. B

(c) Mrs. A (d) Mrs B
1.a 2.c 3.d 4.c 5.a 6.a 7.c 8.b 9.d 10.c
11.c 12.a 13.a 14.a 15.d 16.b 17.a 18.b 19.a 20.a
21.c 22.c 23.c 24.a 25.b 26.b 27.c 28.b 29.d 30.c
31.b 32.d 33.d 34.b 35.d 36.c 37.d 38.c 39.b 40.b
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SET OFF AND CARRY FORWARD &SET OFF OF LOSSES
CHAPTER -9
SET OFF, OR CARRY FORWARD AND SET-OFF OF LOSSES
Process of Setting off of losses & their Carry Forward
Step 1 : Sec. 70 : INTRA head set off (same head set off)
 Loss in respect of any Source of income under any head
 shall be set off
 against income of other source under same head
If loss cannot be set off under step1 ,then proceed to step 2
Step 2 : Sec. 71 : INTER head set off (Different head set off)
 loss under any head
 Shall be set off
 against income of Other head
If loss cannot be set off under step2 ,then proceed to step 3
Step 3 : Carry forward of loss to subsequent A/y & then set off
 Where all loss could not be set off under Sec.70 & Sec.71
 That loss which could not be set off
 Can be Carried forward for subsequent A/Y
 To be set off
 Against income of same head of subsequent A/Y
Page 282
Set off & Carry forward of House Property Loss
Step 1 : Sec. 70 : INTRA head set off (Same head set off)
Loss under any property can be set off against any other income of property.
If loss cannot be fully set off , then proceed to step 2 .
Loss under head house property can be set off against any income of other head except casual
incomes.
However sub-section (3A) in the said section to provide that set-off of loss under the head "Income
from house property" against any other head of income shall be restricted to two lakh rupees for any
assessment year.
Step 3 : Sec 71B : Carry forward of House property loss to subsequent A/y & then set off
 Where Loss under House property
 could not be set off under Sec.70 & Sec.71
 That loss can be Carried forward u/s 71B
 for subsequent 8 A/Y
 to be set off
 against Income from house property of subsequent A/Y
Special Point : Ownership of the same house property, which resulted in loss is not necessary, in the
previous year of carry forward & set off.
Set off & Carry forward of Business/profession Loss
o Loss under any business/profession
o can be set off against
o income of any other business/profession.
If loss cannot be fully set off , then proceed to step 2 .
Page 283
Loss under head Business/Profession can be set off against any Income of other head
Except :
a) Income from Salary
b) Casual Incomes
Step 3 : Sec 72 : C/F of loss of Business/Profession to subsequent A/y & then set off
 Where Loss under Head Business/Profession other than speculation

 could not be set off under Sec.70 & Sec.71
 That loss can be Carried forward u/s 72
 to be set off
 against Income under P/G/B/P of subsequent A/Y
Special Point :
1. Ownership of the same Business/profession, which resulted in loss is not necessary, in the previous
year of carry forward & set off.
2. Unabsorbed depreciation, unabsorbed capital expenditure on scientific research, and unabsorbed

capital expenditure on family planning are not business losses and therefore can be carried forward
for any number of assessment years
3. Priority of Set off under P/G/B/P
Step 1 : 1st set off current previous year depreciation, current previous year capital expenditure on
scientific research and current previous year capital expenditure on family planning
Step 2 : Then set off brought forward business loss
Step 3: Then brought forward depreciation, brought forward capital expenditure on scientific
research and brought forward capital expenditure on family planning
4. Sec 73A : Set off & carry forward of Business u/s 35A
(1) Any loss of specified business u/s 35AD can only be set off except against profits and of any
other specified business.
(2) Where loss of specified business has not been wholly set off under sub-section (1), so much of
the loss as is not so set off shall be carried forward to the following assessment year, and
(i) It shall be set off against the profits of any specified business carried on by him for that
assessment year &
(ii) If the loss can not be wholly so set off, the amount of loss shall be carried forward to the
following assessment year and so on
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Set off & Carry forward of Loss of Speculation Business
o Loss of Speculation Business
o can be only set off against
o Income of any other Speculation Business
Step 2 : Sec. 71 : INTER head set off (Different head set off) : NOT POSSIBLE
Step 3 : Sec 73 : Carry forward of loss of speculation business to subsequent A/y & then set off
 Where Loss of speculation Business
 could not be set as above
 to be set off
 against Income of Speculation Business of subsequent A/Y
Special Point : Sec 43(5) : Speculative transaction means :
A transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is
periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.
Special Point : Following transaction shall not be treated as Speculative transaction :
(a) A contract in respect of raw materials entered into by a person in course of his manufacturing or
merchanting business to guard against loss through future price fluctuations in respect of his contracts for
actual delivery of goods manufactured by him or merchandise sold by him or
(b) A contract in respect of stocks and shares entered into by a dealer or investor therein to guard against
loss in his holdings of stocks and shares through price fluctuations or
(c) A contract entered into by member of stock exchange in course of any transaction in nature of jobbing
or arbitrage to guard against loss which may arise in ordinary course of his business as such member or
(d) A transaction of trading in derivatives carried out in a recognised stock exchange or
(e) An eligible transaction of trading in commodity derivatives carried out in a recognised association
Page 285
Set off & Carry forward of Loss Under Head Capital Gain
Short Term Capital Loss

o Loss under head capital gain being STCL
o Income of any Capital Asset i.e STCG or LTCG
Long Term Capital Loss

o Loss under head capital gain being LTCL
o Income of any Long term Capital Asset i.e LTCG only
NOT POSSIBLE
Step 3 : Sec 74 : Carry forward of loss under Capital gain to subsequent A/y & then set off
 Where Loss under Capital Gain
 to be set off
 against Income of Capital Gain of subsequent A/Y
 However STCL can be set off from any Capital Gain of subsequent A/y & LTCL can only
be set off against LTCG of subsequent A/y only
Page 286
Set off & Carry forward of Loss from Owning & Maintaining Race Horses
o Loss from activity of owning & maintaining race horses
o can be only set off against
o Income of any other activity of owning & maintaining race horses
NOT POSSIBLE
Step 3 : Sec 73 : C/F of loss of speculation business to subsequent A/y & then set off
 Where Loss of owning & maintaining race horses
 That loss can be Carried forward u/s 74A
 to be set off
 against Income of owning & maintaining of subsequent A/Y
Special point : Assessee should carry on with the activity of owning & maintaining race horses in p/y of
carry forward & set off.
Other Important sections of the chapter
1. Sec. 80 : No Loss shall be carried forward u/s 72, 73, 74, 74A, unless ROI filed u/s.139(3)
Sec. 139(3) : For carry forward of losses u/s. 72, 73, 74, 74A, assessee shall have to file ROI within
time u/s.139 (1)
Therefore, loss u/s. 71B, (House property Loss) can be C/f even if return not filed
2. Carry forward & set off possible against Clubbed income also
3. Sec 70 and 71 are mandatory.
Page 287
4. If losses are C/f under sec 71B to 74A and are not set off against profits of succeeding year inspite of
profits being there, they cannot be set off in later years
5. Assessee who incurred the loss & assessee who is claiming carry forward & set off Should be
SAME
Exceptions:
a) Inheritance of Business u/s Sec. 78(2)

 Business/Profession carried by one person
 is Inherited by other person
 losses of predecessor
 shall be C/f by successor
 for remaining A/Y only
b) Amalgamation u/s 72A :

 The accumulated loss & unabsorbed depreciation of Amalgamating company
 shall be deemed to be
 Loss & Depr of the Amalgamated company
 of the p/y of amalgamation &
 loss shall be set off and carried forward for further 8 A/Y by amalgamated company
c) Amalgamation u/s 72AA :

 The accumulated loss & unabsorbed depreciation of banking company
 shall be deemed to be
 loss & depr of such banking institution
 for p/y of amalgamation &
 loss shall be set off & carried forward for further 8 A/Y by banking institution
d) Sec 72AB : Business reorganisation of co-operative banks

The accumulated loss & unabsorbed depreciation of Predecessor Cooperative bank
 shall be deemed to be
 loss & depr of Successor cooperative bank
 for p/y of amalgamation/Demerger &
 loss shall be set off & carried forward for remaining A/Y by Successor cooperative bank
e) Demerger u/s 72A :

 The accumulated loss & unabsorbed depreciation of the Demerged company
 Loss & Depr of the Resulting Company
 of the p/y of demerger &
 loss shall be set off & carried forward for remaining A/Y by Resulting Company
Page 288
f) Conversion of Partnership firm into Company u/s 47(Xiii)

 Where a firm is converted into a company u/s 47
 accumulated loss & unabsorbed depreciation of predecessor firm
 the loss & depreciation of successor company
 of P/y of conversion and
 loss shall be set off & carried forward for further 8 A/Y by Company
g) Conversion of Private company or Unlisted Public Company into LLP u/s 72A
 Where a Private Company or Unlisted Public Company is converted into LLP u/s 47
 accumulated loss & unabsorbed depreciation of predecessor company
 loss & depreciation of successor LLP
 of P/y of conversion and
 loss shall be set off and carried forward for further 8 A/Y by LLP
h) Conversion of Sole Proprietorship into Company

 Where a Sole Proprietary firm is converted into Company
 fulfilling conditions u/s 47
 the accumulated loss & unabsorbed depreciation of the predecessor sole proprietary firm
 shall be deemed to be the
 loss or depreciation of the successor company of
 P/Y of conversion and
 loss shall be set off and carried forward for further 8 A/Y by Company
6. Losses can be carried forward for 8 Assessment Years
Exceptions:
a) Sec 73A : Loss of specified Business u/s 35AD can be c/f for unlimited subsequent p/y
b) Sec 41(5) : Loss of P/Y in which business cease to exist can be set off even after 8 subsequent
P/Y but only from Deemed incomes u/s. 41
c) Proviso to Sec 72(1)

 Business discontinued in any P/Y due to Natural calamity, riots, accidental fire or enemy action
 is re-established before expiry of 3 years from end of that P/Y
 Losses of that P/Y including B/F losses shall be
 C/f for set off from the year in which business re-established and subsequent 7 A/Y
Page 289
7. Sec. 94(7) : Dividend Stripping
 Any person Buys securities or units within 3 months before Record Date &
 Sells securities within 3 months Or units within 9 months after such record date
 Dividend/Income on such securities/units is Exempt
 Then, any LOSS arising on such transaction upto the amount of exempt dividend will be Ignored
 i.e. cannot be set off or Carried forward
Record Date : Date fixed for declaration of Dividend/income by company or mutual fund
8. Sec 94(8): Bonus Stripping
 Any person Buys any units within 3 months prior to record date
 Such person is allotted additional units on the basis of above units without making any payment
 He sells all or any of such original units while continuing to hold all or any of the additional units within
9 months after such record date
 Then, any LOSS arising on such transaction shall be ignored
Special point : Amount of loss so ignored shall be deemed to cost of acquisition of such additional units
held on the date of such sale
9. Carry forward and set off of losses in case of change in constitution of firm : 78(1)
 Where a change has occurred in the constitution of a firm,

 Due to Retirement or Death of partner
 the Firm shall not be entitled to carried forward and set off
 so much of the loss proportionate
 to the share of a retired or deceased partner
 which exceeds his share of profits, if any, in the firm in respect of previous year.
Page 290
10. Carry forward and set off of losses for company other than company in which
public are substantially interested but not being an eligible start-up as referred to in section
80-IAC: Sec 79
 Where a change in shareholding has taken place in a previous year
 in the case of a company, not being a company in which the public are substantially interested,
 loss incurred in any year prior to the previous year
 shall be carried forward and set off against the income of previous year if
 Atleast 51% equity shares were held by same persons as on the last day of the previous year in
which the loss was incurred & last day of previous year in which C/F & set off is to be done
11. Carry forward and set off of losses for company other than company in which
public are substantially interested and an eligible start-up as referred to in section 80-IAC: Sec 79
 Where a change in shareholding has taken place in a previous year
 in the case of a company, not being a company in which the public are substantially interested,
 loss incurred in any year prior to the previous year
 shall be carried forward and set off against the income of previous year if
 100% equity shares were held by same persons as on the last day of the previous year in which the
loss was incurred & last day of previous year in which C/F & set off is to be done.
Special point :
Change in shareholding in a previous year due to death of a shareholder or on account of transfer of shares
by way of gift to any relative , will be not treated as change in shareholding
Page 291
MCQ SET OFF
INCOME FROM UNDISCLOSED SOURCES & ITS TAXABILITY
(1) The following shall be regarded as income from undisclosed sources:
(a) Cash credits (b) Unexplained investments

(c) Unexplained money (d) All of these
(2) Unexplained cash credits is chargeable to tax-
(a) At slab rates (b) @15%
(c) @25% (d) @30%
(3) Mr. X is found to be the owner of unexplained investments of `6,00,000. His tax liability will be _
(a) `1,23,600 (b) `1,85,400
(c) `51,500 (d) `1,64,800
PROVISIONS FOR SET-OFF OR CARRY FORWARD AND SET-OFF - SECTION 70 TO 74A
(4) If a person is eligible to claim:

(1) unabsorbed depreciation
(2) current scientific research expenditure
(3) current depreciation
(4) brought forward business loss
The order of priority to set-off would be
(Dec. 2015)
(a) (4), (3), (2) & (1) (b) (2), (3), (4) & (1)
(c) (3), (4), (1) & (2)
(d) (1), (2), (3) & (4)
(5) Choose the correct answer from the following -
(a) Loss from business of owing and maintaining (b) Loss from lottery, card games etc. can be set off
racehorses can be set off against any income. against any income.
(c) Speculation business loss can be set off only (d) Long-term capital loss can be set off against
against speculation business income. long-term or short-term capital loss.
(6) Long term capital loss can be set off from which of the following:
(a) Short term capital gain only (b) Long term capital gain only
(c) Income from business or profession (d) Income from salary )
(7) Loss from house property can be carried forward and set off in the subsequent 8 Assessment years:
(a) Only if return of loss is filed within due date (b) Even if return of loss is filed after due date
(c) It does not matter when return is filed (d) Carry forward of loss from house property is
not allowed at all.
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MCQ SET OFF
(8) Loss under the head "Profits and Gains of business or profession" cannot be set off against -
(a) Income under the head salaries. (b) Income under the head capital gains.
(c) Income under the head house property. (d) All of the above.
(9) Loss arising under the head capital gain cannot be set-off against -
(a) Income under the head salaries. (b) Income under the head "Profits and gains of
business or profession".
(c) Income under the head house property. (d) All of the above.
(10) Loss arising from specified business can be set-off from -

(a) General business profits (b) Speculation business profits
(c) Both general business profits and speculation (d) Profits of specified business business profits
(11) Loss from specified business can be carried forward for-

(a) 4 Years (b) 8 Years
(c) Indefinite period (d) None of the above
(12) Loss from house property and losses in speculation business can be carried forward respectively for -
(a) 8 Years and 4 Years (b) 4 Years and 8 Years
(c) 8 Years and 8 Years (d) 4 Years and 4 Years
(13) Loss under the head 'Profits & Gains of Business or Profession (except speculation business loss) and loss under the head capital
gains can be carried forward respectively for -
(a) 8 Years and 4 Years (b) 8 Years and 8 Years
(c) 4 Years and 8 Years (d) 4 Years and 4 Years
(14) The sequence applicable for set off of losses shall be -

(a) (i) Inter source set-off; (ii) Inter head set-off; (b) (i) Inter head set-off; (ii) Inter source set-off; and
and (iii) Set-off of brought forward losses. (iii) Set-off of brought forward losses.
(i) Set-off of brought forward losses; (ii) Inter head
(c) (i) Set-off of brought forward losses; (ii) Inter (d)
set-off; and (iii) Inter source set-off.
source set-off; and (iii) Inter head set-off.
(15) A company engaged in business of purchase and sale of shares of other companies shall not be deemed to be speculation bu siness
if -
(a) The principal business of the company is (b) The gross total income of the company consists
business of trading in shares or banking or granting mainly of income under heads "Income from
of loans & advances. house property", "Capital Gains" and "Income
from other sources"
(c) Both (a) and (b) (d) Either (a) or (b)
(16) Short term capital loss can be set-off against:

(a) Short term capital gain (b) Long-term capital gain
(c) Income under any other head (d) Either (a) or (b)
(17) Brought forward losses (except speculation business loss) under Profits & Gains of Business or profession can be set-off against
-
Income from house property. (b) Profits of any Income from any other head.
(a)
business (except speculation (d) business profit). Profits of any business/profession (including
(c) speculation business profit).
(18) Loss incurred in activity of owing and maintaining race horses can be set-off against only:
(a) Any Income under the head 'Income from other (b) Only income from owning and maintaining
Sources'. race horses.
(c) Income from speculation business. (d) Income under head house property.
Page 293
MCQ SET OFF
(19) Which of the following losses available after inter source set-off, cannot be set-off from incomes in other heads in the
same assessment year - (June 2016)
(a) Speculation losses (b) Loss from specified business
(c) Loss under the head capital gains (d) All of the above
(20) To carry forward and set-off losses, a loss return must be filed by the assessee within the stipulated time and gets the loss
determined by the Assessing Officer. However, this condition is not applicable to - (June 2016)
(a) Loss from house property
(b) Loss from speculation business
(c) Loss from discontinued business
(d) Loss from capital assets
(21) Mr. X has earned salary income of `5,00,000 and he has suffered loss from house property amounting `2,00,000.
Speculation business loss - `1,00,000 Find out the gross total income.
(a) `5,00,000 (b) `3,00,000
(c) `2,00,000 (d) 4,00,000
(22) Mr. X has earned salary income of `5,00,000 and he has suffered loss from house property amounting `2,00,000.
General business loss - `1,00,000 Find out the gross total income.
(a) `5,00,000 (b) `3,00,000
(c) `2,00,000 (d) 4,00,000
(23) Mr. X has earned general business income of `5,00,000 and he has suffered loss from house property amounting `2,00,000.
Specified business loss under Section 35AD - `1,00,000 Find out the gross total income.
(a) `5,00,000 (b) `3,00,000
(c) `2,00,000 (d) 4,00,000
(24) Mr. X has earned Long term capital gains on sale of equity shares listed in recognised stock exchange on which SIT _ `7,20,000
Short term capital loss of`2,00,000. General business income of `5,00,000 Find out the gross total income.
(a) `5,00,000 (b) `10,20,000
(c) `12,20,000 (d) 5,20,000
(25) Ashwin has speculation business loss brought forward of the assessment years 201 2-13 `1,00,000; 2013-14 ` 70,000 and 2014-15
`60,000. He has income from the same speculation business for the assessment year 201 8-19 `5,40,000. His total income
chargeable to tax for assessment year 2018-19 would be - (June 2016)
(a) `3,10,000 (b) `4,10,000
(c) `4,80,000 (d) `4,40,000
(26) Find out the gross total income of Mr. A for assessment year 2018-19 from the following information-
Income from salaries `80,000; Loss from house property `50,000;
Profit from textile trade `40,000; Loss from Automotive trade `50,000.
(a) `20,000 (b) `70,000
(c) `30,000 (d) Nil
(27) Mr. Rahul have income from cloth business `1,00,000; Loss from agriculture `50,000; Long-term capital gain `60,000 and short
term capital loss `80,000 find out his gross total income for assessment year 2018-19.
(a) `50,000 (b) `1,00,000
(c) `80,000 (d) `30,000
(28) Mr. Q has profit from speculation business `80,000; Profit from business A `1,00,000; Loss from business B `1,50,000 find out
his gross total income for assessment year 2018-19.
(a) `80,000 (b) `1,00,000
(c) `1,50,000 (d) `30,000
(29) Mr. Ram had incurred loss in activity of owning and maintaining racehorses `90,000; Winnings from lottery (net) `70,000; Loss
in card game of assessment year 2002-03 `4,000 find out his gross total income for AY 2018-19.
(a) `1,00,000 (b) `6,000
(c) `10,000 (d) Nil
Page 294
MCQ SET OFF
(30) If an individual, having a sales turnover of `60 lakh files his return of income for the assessment year 2018-19 after the due date,
showing unabsorbed business loss of `23,000 and unabsorbed depreciation of `45,000, he can carry forward to the subsequent
assessment years _ (June, 2015)
(a) Both unabsorbed business loss of `23,000 and (b) Only unabsorbed business loss of`23,000
unabsorbed depreciation of `45,000
(c) Only unabsorbed depreciation of `45,000 (d) Neither unabsorbed business loss of `23,000
nor unabsorbed depreciation of `45,000.
(31) What can be the maximum amount of negative income of a self occupied house under the head "Income from house property ".
(a) `30,000 (b) `1,00,000

(c) `1,50,000 (d) `2,00,000
(32) XYZ & Company, a partnership firm has three partners, X, Y and Z having equal share in profits of the firm. X retired on
31-12-2017, profits of the firm for year ending 31-3-2018 were `1,50,000 and brought forward business losses for assessment year
2016-17 was `1,20,000 and unabsorbed depreciation `40,000. Find the amount of brought forward loss
that cannot be carried forward?
(b) `3,333 (d)
(a) `2,500
(c) `15,833 Nil
(33) In the above case find out the amount of accumulated loss/unabsorbed depreciation that can be carried forward to the
next assessment year?
(a) `66,671 (b) `7,500
(c) `5,833 (d) Nil
(34) Short-term capital loss can be set-off from - (June, 2012)
(a) Short-term capital gains (b) Long-term capital gains
(c) Both short-term and long-term capital gains (d) Any income of the previous year.
(35) Mr. B incurred short-term capital loss of `10,000 on sale of shares through the National Stock Exchange. Such loss can be
set-off from -
(b) Against both short-term capital gains and long term
(a) Only against short-term capital gains
capital gains
(c) Against any head of income
(36) Mr X has received the following incomes: (i) Salary received as a partner from a partnership firm `7,50,000. (ii) Loss on sale of
shares listed in BSE `3 lakhs. Shares were held for 15 months and SIT paid on sale. (iii) Long-term capital gain
on sale of land `5 lakhs. His gross total income will be -
(a) `12,50,000 (b) `9,50,000
(c) `7,50,000 (d) `5,00,000
(June, 2015)
(37) Loss from the activity of owning and maintaining race horses could be set-off -
(a) Against income under any of the five heads of (b) Only against income under the head 'income
income from other sources'
(c) Only against income under the head 'profits (d) Only against income from same and
gains of business or profession'
(38) For the previous year 2016-17, an assessee suffered a business loss of `2,50,000. His income from other sources is `1,80,000. His due
date of return was 3rd July, 2017 but he submitted the return on 9th September, 2017. The assessee in this case … (June 2016)
(a) Shall be allowed to carry forward the loss of ` (b) Shall not be allowed to carry forward any loss
70,000
Shall not be allowed to set-off the business loss to

(c) Shall be allowed to set-off current year business (d)
the extent of `1,80,000 and would be liable to tax on
loss to the extent of `1,80,000 but shall not be allowed
`1,80,000
to carry forward the balance loss of
`70,000
Page 295
MCQ SET OFF
CARRY FORWARD & SET-OFF LOSS IN CASE OF AMALGAMATION,

DEMERGER & BUSINESS REORGANISATION
(39) Business loss of an amalgamating company shall :

(a) be carried forward and set-off in the hands of (b) be carried forward and set-off in the hands of
amalgamated company unconditionally amalgamated company subject to certain
conditions
(c) not be carried forward (d) be allowed to be carried forward only by
amalgamating company
(40) In case of amalgamation ul s 72A, after fulfilling prescribed conditions accumulated loss can be carried forward for _
(a) Further 8 years in the hands of amalgamating (b) Further 8 years in the hands of amalgamated
company company
(c) Further 4 years in the hands of amalgamating (d) Further 4 years in the hands of amalgamated
company company
(41) The accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the
assessment of the amalgamated company unless the amalgamated company fulfills which of the following conditions.
(a) holds continuously for a minimum period of 5 (b) continues the business of the amalgamating
years from the date of amalgamation at least 3/4 th of company for a minimum period of 5 years from
the book value of fixed assets of the amalgamating the date of amalgamation;
company acquired in a scheme
of amalgamation;
(c) fulfils such other conditions as may be (d) All of these
prescribed to ensure the revival of the business
of the amalgamating company or to ensure that
the amalgamation is for genuine business purpose.
(42) In case of demerger after fulfilling prescribed conditions ul s 72A, the accumulated loss can be carried forward for the …..
(a) Remaining period out of 8 years in the hands of (b) Further 8 years in the hands of resulting
resulting company. company.
(c) Further 8 years in the hands of demerged (d) Remaining period out of 8 years in the hands of
undertaking. demerged undertaking.
(43) In case of reorganization of business whereby firm is succeeded by a company fulfilling conditions given uls 47(xiii)1 (xiv), the
accumulated loss and unabsorbed depreciation can be carried forward in the hands of successor company for -----------
(a) Remaining period out of 8 years (b) Further 8 years

(c) Remaining period out of 4 years (d) Further 4 years
(44) In case of amalgamation of banking company under section 72AA, accumulated loss and unabs orbed depreciation can be carried
forward in the hands of amalgamated company for _
(a) Remaining period out of 8 years (b) Remaining period out of 4 years
(c) Further 8 years (d) Further 4 years
(45) In case of amalgamation of co-operative banks, after fulfilling the prescribed conditions, accumulated loss and unabsorbed
depreciation can be carried forward and set-off for -----------
(a) Further 8 years in the hands of successor co- (b) Remaining period out of 8 years in the hands of
operative bank. amalgamated co-operative bank.
(c) Further 4 years in the hands of successor co- (d) Further 4 years in the hands of predecessor co-
operative bank. operative bank.
(46) In case of demerger of co-operative banks as per prescribed conditions accumulated loss can be carried forward and setoff in the
hands of resulting co-operative bank for _
(a) Further 8 years (b) Further 4 years
(c) Remaining period out of 8 years. (d) Remaining period out of 4 years.
Page 296
MCQ SET OFF
47) In case of succession of any business/profession otherwise than by inheritance, the losses can be carried forward and se t-off ,-
(a) Only by the person incurring the loss. (b) Only by the successor.
(e) Partly by the person incurring the loss and (d) None of the above.
partly by the successor.
(48) A partnership firm with 4 equal partners brought forward depreciation of ` 3 lakh and business loss of ` 3 lakh relating to
assessment year 2017-18. On 1st April, 2017, two partners retired. The amount that assessee-firm can set-off against its income for the
assessment year 2018-19 would be - (Dec. 2015)
(a) Unabsorbed depreciation of ` 3 lakh plus (b) Unabsorbed depreciation 'nil' plus brought
brought forward business loss of ` 3 lakh. forward business loss ` 3 lakh.
(e) Unabsorbed depreciation ` 3 lakh plus brought (d) Unabsorbed depreciation ` 3 lakh plus brought
forward business loss 'nil'. forward business loss of ` 1.50 lakh.
Ans.(b)
(49) In which of the following case loss can be carried forward without furnishing the return of loss?
(a) Loss from house property. (b) Losses under the head Profits & Gains of Business
or Profession except speculation business loss.
(c ) Losses under Profits & Gains of Business or (d) Losses under the head Capital Gains.
Profession including speculation business loss.
(50) In the case of a closely-held company (not being a company in which the public are substantially interested), the losses incurred
in any year prior to the previous year can be carried forward and set off if -
(i) on the last day of the previous year, the shares of the company carrying not less than…………. of the voting power;
(ii) were beneficially held by persons who beneficially held shares of the company carrying not less than -----------of the
voting power on the last day of the year(s) in which the loss was incurred.
(a) 25% ,25% (b) 51% ,51%

(c) 75% ,75% (d) 50% ,50%
(51) Mr. Shahu has loss from house property of Rs. 1,10,000 (computed) for the assessment year 2017-18. He can carry forward
such loss for subsequent ............... assessment years.
(June 2017)
(A) 4
(B) Nil
(C) 8
(D) Indefinite (Ans. c)
Page 297
MCQ SET OFF
1.b 2.d 3.b 4.d 5.c 6.b 7.b 8.a 9.d 10.d
11.c 12.a 13.b 14.a 15.d 16.d 17.d 18.b 19.d 20.a
21.d 22.b 23.b 24.a 25.c 26.c 27.b 28.d 29.a 30.c
31.d 32.a 33.b 34.c 35.b 36.a 37.d 38.c 39.b 40.b
41.d 42.a 43.b 44.c 45.b 46.c 47.a 48.d 49.a 50.b
255
Page 298
DEDUCTIONS
CHAPTER – 10
DEDUCTIONS
Sec 80C Deduction of LIC premium

Sec 80CCC Contribution to pension fund
Sec80CCD Contribution to notified pension scheme
Sec 80CCE Limit of I.5 lac
Sec 80D Medical insurance premium
Sec 80CCG investment made under an equity savings scheme
Sec 80DD Medical treatment of disabled relative
Sec 80DDB Medical treatment for specified disease
Sec 80E Interest on loan for higher education
Sec 80EE Interest on loan taken for Residential House Property
Sec 80G Donations
Sec 80GG Deduction of rent paid
Sec 80GGA Contribution for scientific research, rural devp. etc
Sec 80GGB Contribution to political party by company
Sec 80GGC Contribution to political party by non corporate
Sec 80-IA Industrial undertaking engaged in infrastructure
Sec 80-IAB Assessee engaged in devp. of SEZ
Sec 80-IC Manufacturing in specified areas
Sec 80-ID Operation of Hotels and Convention Centres
Sec 80-IE Manufacturing of specified article in specified area
Sec 80 JJA Business of collecting/processing bio degradable waste
Sec 80JJAA Employment of new workmen
Sec 80QQB Deduction of Royalty from Books
Sec 80RRB Deduction of Royalty from patents
Sec 80TTA Deduction of interest of saving account
Sec 80U Deduction for person with disability
Basis Rules while computing deductions

Deductions are not allowed from LTCG taxable u/s 112 @ 20%, STCG taxable u/s 111A @ 15% and
Casual incomes like winnings from lottery, card games, horse races etc taxable u/s 115BB @ 30%
80A : Restrictions
1. In computing Total Income, deductions u/s 80C to 80U will allowed from GTI
2. Total Deductions cannot exceed amount of GTI
Page 299
DEDUCTIONS
Sec. 80C : Deduction for life insurance premium ,PF contributions etc.
 Available to an Individual or HUF
 Amount deposited in specified investments/securities
 Deduction 1,50,000 or Amount deposited/invested , whichever is less
List of Specified Investments/securities
1. Life insurance premium on life of himself ,spouse and any child (If H.U.F ,for any member )
Special Point :
1. Premium > 10% of capital sum assured shall be ignored for policy issued on or after 1/4/2012
2. Premium > 20% capital sum assured shall be ignored for policy issued upto 31/3/2012
3. Premium > 15% of capital sum assured shall be ignored for person with disability u/s 80U or
suffering from disease u/s 80DDB for policy issued on or after 1.4.2013 ( Refer Working Note 1)
2. Contribution by an employee to Statutory Provident Fund or Recognized Provident Fund or

Approved superannuation fund
3. Contribution by an person to Public Provident Fund for himself ,spouse and any child
4. Subscription to NSC VIII / IX issue including interest accrued ( Refer working note 2)
5. Contribution in ULIP
6. Tuition Fee Paid by an individual

 For any two children of such individual
 At the time of admission or thereafter
 For full time education (Excluding development fees & donation)
 To University, College, School, Other Education Institution situated in India
7. Subscription to Deposit scheme of National Housing Bank
8. Contribution to Deposit Scheme of :

- Public Sector Co. engaged in Long Term Finance for Residential Houses in India.
- Authority in India, Providing Housing accommodation
Page 300
DEDUCTIONS
9. Payment for Purchase/ Construction of Residential House Property

(i) Installment under Scheme of any authority ,board
(ii) Repayment of amount borrowed by assessee from:
 Central/State govt. ,any bank ,LIC, NHB
 Public Companies/ Co-Op Society
 From employer i.e Public Co, University, College, Local Authority or Co-op.
society
(iii) Stamp duty, registration fees for transfer of house property
10. Subscription to Equity shares or Debentures of a Public company registered in India or to a

public financial institution which utilizes the proceeds for infrastructural business u/s 80IA
11. Sum deposited in a scheduled bank for atleast 5 years under notified Cgovt scheme
12. Subscription to bonds of NABARD
13. Contribution to ELSS,2005
14. Deposit in Senior citizen saving scheme ,2004
15. Deposit in 5 year time deposit in an account under post office time deposit rules,1981.
16. Subscription, in the name of any specified person, in deposit scheme notified by C
Government
Specified Person : Individual or any girl child of that individual, or any girl child for whom
such person is legal guardian
Working Note 1 :
Exemption u/s 10(10D) : Sum received under LIC policy including bonus is exempt
Exceptions : The following amount is taxable under Other Sources

(i) Sum received under policy u/s 80DD.
(ii) Sum received under Keyman Insurance Policy.
(iii) Sum received under life Insurance policy where annual premium greater than specified % of sum
insured (However such sum received on death is exempt).
Sec 194DA : TDS on LIC payments
Any person responsible for paying to a resident any sum under a life insurance policy, including bonus,
other than amount exempt u/s 10(10D), shall, at time of payment , deduct TDS @ 2% (1% w.e.f 1/6/16)
Provided No TDS if aggregate amount during P/Y is less than 1,00,000.
Page 301
DEDUCTIONS
Working Note 2 :
Interest Accrued on NSC VIII /IX :
1. Interest accrued every year is included in Income under IOS of each P/Y
2. Interest excluding last year is deemed to be reinvested and therefore allowed as deduction u/s 80C
Sec. 80CCC : Deduction for Contribution to Pension Fund
 Amount paid by Individual during P/Y
 out of his income chargeable to tax
 in annuity plan of any insurance company for receiving Pension
 Amount paid or `1,50,000, whichever is less
Special Points: If assessee or nominee receives pension or other amount on Surrender, such amount
will be taxable in P/Y in which received.
Sec. 80CCD : Deduction for Contribution to Central Govt Notified Pension Scheme (N.P.S)
 Individual employed by any Employer or Individual
 Deposits any amount during p/y under a Pension scheme notified by C govt.
 Deduction to Employee of his own contribution[Sec 80CCD(1)] :

Employee contribution to NPS or 10% of Salary, whichever is less
Additional deduction to employee of employer contribution [Sec 80 CCD(2)] :

Employer contribution to NPS or 10% of Salary , whichever is less
 Deduction to Other Individual [Sec 80CCD(1)] :Contribution to NPS or 20 % of GTI ,whichever is less
Additional deduction u/s 80CCD(IA)

An assessee , shall be allowed additional deduction upto 50,000 for amount deposited in NPS
Page 302
DEDUCTIONS
Special Points :
1. Salary = Basic + DA(retirement Benefits) + Commission % of turnover
2. If amount standing to credit of assessee in his account, in respect of which a deduction has been allowed is
received including accrued thereon by the assessee or his nominee, in any P/Y—
(a) on account of closure or his opting out of pension scheme or

(b) as pension received from annuity plan purchased or taken on such closure or opting out,
such amount shall be deemed as income of assessee or his nominee, in P/Y of receipt
3. Amount received by nominee, on death of assessee, under point (a) above, shall not be deemed as income
of nominee.
4. Sec 10(12A) : Any payment from the National Pension System Trust to an employee on closure of his
account or on his opting out of the pension scheme u/s 80CCD,upto 40% of the total amount payable to him
at the time of such closure or his opting out of the scheme is Exempt
Sec 80CCE : 80C + 80CCC + 80CCD(1) cannot exceed `1,50,000
Sec 80CCG :Investment made under an Equity Savings Scheme.
1) Assessee : Individual resident in India
2) Investment : Acquisition of Listed Equity Shares or listed units of an Equity Oriented fund during p/y
in accordance with scheme notified by the Central Government
3) Deduction : 50% of amount invested in such equity shares or such units or 25,000 ,whichever is less
4) Period : 3 consecutive p/y beginning with p/y of investment
5) Conditions :
(i) GTI of the assessee is upto 12 lacs
(ii) Assessee is a new retail investor as specified under the scheme
(iii) Investment is made in such listed equity shares as may be specified under the scheme
(iv) Investment is locked-in for a period 3yrs from date of acquisition in accordance with the
scheme
Page 303
DEDUCTIONS
6) Breach of conditions : If the assessee, in any previous year, fails to comply with any condition as
above, the deduction originally allowed shall be deemed to be the income of the assessee of such
previous year
Special point : Where an assessee has claimed and allowed a deduction under this section for any
assessment year in respect of any amount, he shall not be allowed any deduction under this section for any
subsequent assessment year.
No deduction under section 80CCG shall be allowed from assessment year 2018-19. However, an
assessee who has claimed deduction under this section for assessment year 2017-18 and earlier
assessment years shall be allowed deduction under this section till the assessment year 2019-20 if he is
otherwise eligible to claim the deduction as per the provisions of this section.
Sec. 80D : Deduction of Health Insurance Premium
 Available to Individual or HUF

 Premium paid during P/Y
 Out of Income chargeable to tax
 by any mode other than cash (except for preventive health check up)
a) INDIVIDUAL
- For Himself, spouse, Dependent children

a) Health Insurance
b) Contribution to Central Government Health Scheme or to other notified scheme
Maximum Deduction for (a) + (b) is `25,000

Upto `5,000 extra deduction if any of above person is Senior Citizen or Very Senior Citizen
c) Payment made on account of preventive health check-up upto 5,000
d) Medical expenditure on health of a Very Senior Citizen upto 30,000 and no amount has been
paid for health insurance of such member
Maximum Deduction : (a) + (b) + (c) + (d) = 30,000
- For Parent/s
a) Health Insurance
Maximum Deduction for (a) is `25,000
but Upto `5,000 extra deduction either parent is Senior Citizen or Very Senior Citizen
Page 304
DEDUCTIONS
b) Payment made on account of preventive health check-up upto 5,000
c) Medical expenditure on health of a Very Senior Citizen upto 30,000 and no amount has
been paid for health insurance of such member
Maximum Deduction : (a) + (b) + (c) = 30,000
b) H.U.F
(a) For Health insurance of any member

Maximum Deduction for (a) is `25,000
but Upto `5,000 extra deduction if memeber is a Senior Citizen or Very Senior Citizen
(b) For Medical expenditure on health of a member who is a very senior citizen upto 30,000 and
no amount has been paid for health insurance of such member [FA,2015]
Maximum Deduction : (a) + (b) = 30,000
Special Point:
1. Dependant: means a person who is dependent for support/maintenance on Assessee
2. Senior Citizen: Individual Resident in India, age of 60 years or more at any time during P/Y
3. Very Senior Citizen : Individual Resident in India, age of 80 years or more at any time during P/Y
Sec. 80U: Deduction in case of a person with Disability
 Individual, Resident in India
 Suffering from disability at any time during the previous year
 Amount of deduction
Flat Amount : ` 75,000 In case of Disability only

: `1,25,000 In case of Severe Disability
Page 305
DEDUCTIONS
Special Points :
1. Disability & Severe disability:
Person with Disability: means a person suffering from at least 40% of the following disability, as
certified by medical authority
Blindness, Low vision, leprosy, Hearing impairment, Locomotor disability Mental retardation/Illness
Severe Disability : means at least 80% of the above Disabilities
2. For claiming deduction, certificate obtained from medical authority to be furnished with ROI for
relevant P/Y
Sec. 80 DD: Medical Treatment of Handicapped Dependant Relatives
 Individual or HUF (Resident in India)
 Incurred Expenditure for medical treatment (including nursing, training etc.) or Amount deposit
under approved scheme for annuity of any insurer
 For Disabled Dependent Relative
 Amount of deduction
Flat Amount : `75,000 in case of Disability only
: `1,25,000 in case of Severe Disability

Special Points:
1. Dependant Relative
Individual : Spouse, Children, Parents, Brothers & Sisters of the Individual
HUF : Any member of HUF
Who is Dependent wholly or mainly on such individual or HUF for his support & maintenance and not
claimed deduction u/s. 80U
3. If disabled dependent dies before the individual, the amount deposited shall be deemed to be income
of the assessee of the previous year in which such amount is received by the assessee
(Exception to 10(10D)
4.For claiming deduction, certificate from medical authority to be furnished with ROI for relevant P/Y
Page 306
DEDUCTIONS
Sec. 80 DDB : Deduction in respect of Medical Treatments
 Individual or HUF (Resident in India)
 Incurred Expenditure for Medical Treatment of Specified Disease
for Himself or Dependant Relative ( Incase of HUF , for any member of HUF)
 Amount paid or `40,000/- whichever is less

`60,000/- (If any of above is Senior Citizen)
`80,000/- (If any of above is a Very senior Citizen)
Special Points:
1. For claiming deduction assessee should obtains the prescription for such medical treatment
from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other
specialist, as may be prescribed
2. Dependant Relative: Same as 80DD
3. Senior Citizen: Individual Resident in India & age of 60 years or more at any time during P/Y
4. Very Senior Citizen: Individual Resident in India & age of 80 years or more at any time during P/Y
Sec. 80E : Deduction for repayment of loan for Higher Education
 Available to Individual
 for Loan taken from Financial Institution(Including Banks) or approved Charitable Institution for
 pursuing Higher education for HIMSELF or RELATIVE
 Deduction : Actual Interest paid during p/y (out of his income chargeable to tax)
Special Points:
1. Period of deduction : 8 A/Y beginning from A/Y of 1st payment of Interest
2. Higher Education : means any course of study after passing the Senior Secondary Examination or its
equivalent from any Recognised.school, board or university
3. Relative means Spouse & children or the student for whom the individual is the legal guardian
Page 307
DEDUCTIONS
Sec 80EE : Interest on loan taken for Residential House Property
Assessee Individual who has taken a loan from any financial institution for the purpose of acquisition of a
residential house property
Deduction Interest payable during P/Y upto 50,000
Conditions (i)loan is sanctioned by financial institution between 1/4/16 & upto 31/3/17
(ii) Loan sanctioned is upto `35,00,000
(iv) Value of residential house property is upto `50,00,000
(iv) Assessee does not own any residential house property on date of sanction of loan
(4) If deduction is allowed under this section than such interest shall not be allowed under any
other provisions of the Act for the same or any other assessment year.
"Financial institution" means a banking company to which the Banking Regulation Act,
applies or a housing finance company”
"Housing finance company" means a public company formed or registered in India with the
main object of carrying on the business of providing long-term finance for construction or
purchase of houses in India for residential purposes” .
Sec. 80G: Deduction in respect of Donation etc.
 Deduction under this section is available to All Assessees. However donations in Kind are not eligible
for deduction.
 No deduction shall be allowed under this section in respect of donation of any sum exceeding two
thousand rupees unless such sum is paid by any mode other than cash.
The following donations are eligible for deduction
100% deduction without qualifying Limit

1) National Defence Fund
2) Army/Naval/Air Force Welfare Fund.
3) National Cultural Fund
4) National Sports Fund
5) National Children Fund
6) National Foundation for communal Harmony.
7) National Illness Assistance Fund.
8) National Trust for Welfare of Person with Mental Retardation & Mental Disabilities.
Page 308
DEDUCTIONS
9) National/State Blood Transfusion Council.

10) Maharashtra CM Earthquake Relief Fund.
11) Andhra Pradesh CM Cyclone Relief Fund.
12) Gujarat Fund for Earthquake Relief.
13) PM National Relief Fund.
14) Chief Minister Relief Fund for the state or Lieutenant Governor relief Fund for union territory.
15) Africa (Public Contribution India) Fund.
16) Any Fund set by State Government for Medical Relief of Poor.
17) Zila Saksharta Samiti of a District.
18) Approved University/Education Institution of National Eminence.
19) Fund for technology Development Set by Central Government
20) National Fund for Control of Drug Abuse
21) Swachh Bharat Kosh, set up by Central Government, other than sum spent by assessee for
Corporate Social Responsibility u/s 135 of Companies Act,2013[FA,2015]
22) Clean Ganga Fund, set up by Central Government, where such assessee is resident, other than the
sum spent by the assessee for Corporate Social Responsibility u/s 135 of Companies Act, 2013
50% Deduction without qualifying Limit

1. Jawaharlal Nehru Memorial Fund.
2. Prime Minister Drought Relief Fund.
3. Indira Gandhi Memorial trust.
4. Rajiv Gandhi Foundation.
100% Deduction subject to Qualifying Limit

i. Govt./Local authority for promoting Family Planning.
ii. Sum paid by Company to Indian Olympic Association or their notified Institutions for development of
Infrastructure for sports or sponsorship of sports in India.
50% Deduction subject to Qualifying Limit

i. Govt/Local Authority for any Charitable Purpose (except Family Planning).
ii. Approved Charitable Institution, which has obtained approval u/s 80G(5).
iii. Authority engaged in planning, development of cities, towns
iv. Corporation established by C Govt or S Govt. for promoting interest of minority community.
v. Notified Temple, Church, Mosque, Gurdwara or other place notified by CG of Artistic Importance for
Renovation/Repairs.
Qualifying Limit : 10% Gross Total Income

Less :
a) LTCG
b) Short Term Capital Gain u/s 111A
c) All deductions u/s. Chapter VI-A (Except 80G)
Page 309
DEDUCTIONS
Sec. 80GG: Deduction of Rent paid
 Available to Individual (other than salaried employee) or If Individual is Salaried employee he

should not be entitled to HRA in order to claim deduction u/s 80GG.
 In respect of Rent paid
 For his Residential Accommodation
 Amount of Deduction
(a) Rent paid – 10% of Adjusted total Income
(b) 25% of Adjusted total Income
(c) `5,000/- per month
Whichever is less
Special Points:
1. Deduction shall be available only if
 Assessee/ Spouse/ Minor Child does not own residential accommodation at a place where
assessee ordinarily resides or carries on Business or Profession AND
 Assessee also does not own residential accommodation at other place

Which is assessed as self occupied property i.e. value as NIL
2. Adjusted Total Income :
Gross Total Income

Less :
a) LTCG
b) STCG u/s 111A
c) All deductions of Chapter VI-A (other than 80GG)
Sec. 80GGA : Donation for Scientific Research or Rural Development
 Available to All Assessee (provided no P/G/B/P Income)
 For payment made to certain Institutions
 100% of sum paid to such Institutions is allowed as deduction
 Provided amount greater than 10,000 shall be paid by any mode other than cash.
Page 310
DEDUCTIONS
Donations to Institutions
Approved Research association or Public Sector Company or LocalAssociation engaged in
University,college for Scientific , Social Authority or Association approved Prog.
Science or Statistical Research approved by National committeefor Rural
for Development or to
Social & Economic welfare Rural development
fund
Special Point : Deduction u/s 80GGA shall not be disallowed if subsequent to payment , approval of such
institution or project is withdrawn
Sec. 80GGB : Contribution to Political Parties
 Assessee being a Indian Company

 Sum contributed to Any Political Party / Electoral Trusts
 100% of Sum Paid is allowed as deduction
 Provided paid by mode other than Cash
Sec. 80GGC : Contribution to Political Parties
 Any Assessee other than Indian Company, (except institution funded by Govt.)
 Sum contributed to Any Political party/ Electoral Trusts
 100% of Sum Paid is allowed as deduction
 Provided paid by mode other than Cash
Special Point :
1. Sec 13A : Exemption of Income of Political Party
Following Incomes of Political Party (Registered under Representation of People Act) is Exempt
 Income from house property
 Income from other sources
 Capital gains
 Voluntary contributions received from any person
 Provided
(a) Books of account and documents are maintained to enable AO to compute its income
(b) For voluntary contribution in excess of `20,000 , Name & address of contributor is maintained
(c) Accounts of such political party are audited by CA
(d) Treasurer submits a report under Representation of the People Act,for financial year
Page 311
DEDUCTIONS
2. Electoral trusts - Sec 2(22AAA) : Trust approved by Board in accordance to scheme of C. govt.
Sec 13B. Exemption of Income of Electoral trust
Any voluntary contributions received by an electoral trust during a previous year shall be exempt if
(a) such electoral trust distributes to any political party, registered under Representation of People
Act, during previous year, 95% aggregate donations received by it during previous year along
with surplus, if any, brought forward from any earlier previous year; and
(b) such electoral trust functions in accordance with the rules made by the Central Government
Profits Based Deductions ( Part C of Chapter VI-A)
Sec 80IAB : Development of SEZ
1. Eligibility : Any assessee carrying on the business of developing a Special economic zone notified
under Special Economic Zone Act
2. Amount of deduction: 100% of profits for any 10 years out of 15 years starting from the year in which
SEZ is notified by the central govt.
3. No deduction to developer, if development of SEZ begins wef 1/4/17.
Sec 10AA : Newly Established units in Special Economic Zones
1 Assessee Undertaking engaged in Export of any Article/compute software

2 Conditions Manufacture on or after p/y 05/06 upto p/y 20/21 in SEZ
3 Amount of (a) 100% profit for 5 consecutive A/Y from A/Y of commencement of
Exemption production
(b) 50% profit for next 5 consecutive A/Y
(c) Next 5 consecutive A/Y: Amount transferred to SEZ reinvestment
reserve or 50% of profits ,whichever is less
4. Computation Profit of 10AA Export turnover of 10AA undertaking
of Profits Undertaking X --------------------------------------------
Total turnover of undertaking
ET = Consideration brought into India within 6 months & extension
5 Restriction of Unabsorbed depreciation, scientific research expenditure or family planning
other Tax Benefits expenditure or business losses or capital gain losses can be c/f., for A/Y
after expiry of the tax holiday period.
6 Option not to Assessee can choose not the claim benefits for any A/Y during tax holiday
claim Tax holiday period provided declaration filed before due date of ROI for relevant A/Y
7. Limitation Where a deduction under this section is claimed & allowed u/s 35AD, for
any A/Y, no deduction shall be allowed u/s 35AD in relation to such
specified business for the same or any A/Y year.
Page 312
DEDUCTIONS
Sec 80IC : Manufacturing in specified areas
1. Eligibility : - Any assessee engaged in manufacturing or production

- The manufacturing should be in Himachal Pradesh, Uttaranchal
- It should start manufacturing within the specified period only
2. Amount of deduction : 100% of profits for 5 years starting from the year in which starts
operation
: 25% of profits for next 5 years (30% for Company)
Sec 80ID : Operation of Hotels and Convention Centres
1. Eligibility : Two–stars, three-stars or four-star category hotels located in specified districts having a world
heritage site. Such hotels should be constructed and start functioning between 1.4.08 to 31.3.2013
Specified districts include Agra, Bharatpur, Bellary, Gaya etc
2. Amount of deduction : 100% of profits for 5 consecutive A/Y starting from the year in which hotel starts
functioning or convention centre starts operating on commercial basis
Sec 80IE : Manufacturing of specified article in specified area
1. Eligibility : - Any undertaking engaged in manufacturing or producing any Eligible

article or thing or substantial expansion of such manufacturing
- The manufacturing should be in North -Eastern states(i.e Arunachal Pradesh, Assam,

Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura
Eligible Article or thing means the article or thing other than Tobacco, Pan masala,Plastic carrybags ,etc
2. Amount of deduction: 100% of profits for any 10 consecutive A/Y starting from the year in which the
undertaking starts to manufacture or produce such article or thing or completes substantial expansion 3.
3. Conditions to be fulfilled: It should start manufacturing between 1st April ,2007 and 1st April,2017
Page 313
DEDUCTIONS
Sec. 80JJA : Deduction from Profit of Collection & Processing of Waste
 Any Assessee
 Engaged in business of collecting & processing of Bio-degradable waste for generating power, or
producing bio-fertilizers, bio-pesticides or bio-Gas
 Amount of Deduction
100% Profits of such Business
 Period of Deduction
Total of 5 consecutive Assessment Years beginning with A/y in which business commenced
Sec. 80JJAA: Deduction for Employment of New Workmen
ALL Assessee engaged in Manufacture of goods in a factory
 Deduction shall be allowed @ 30% of Additional wages paid to New Regular Workmen
employed by the assessee in the previous year
Additional wages
- In case of New Industrial undertaking :
Wages paid to new regular workman in excess of 50 workman employed

during the P/Y
- In case of Existing Industrial undertaking :
Wages paid to new regular workman in excess of 50 workman employed during

the P/Y and new workman employed should be atleast 10 % of existing strength as on last
day of previous year
 Period of Deduction : Total of 3 A/Y beginning with A/y in which employment provided
 Conditions to be fulfilled:
(a) Deduction not allowed if factory is acquired by the assessee by way of transfer from any other
person or as a result of any business reorganization
(b) The report of a CA should be furnished with ROI
Page 314
DEDUCTIONS
Special points:
1. Workman shall have the meaning as per Industrial Disputes Act, 1947
As per Industrial dispute act workman means any person employed in any industry to do any
manual, unskilled, skilled, technical, operational, clerical work but does not include person employed in
(a) managerial or administrative capacity or
(b) employed in a supervisory capacity having wages exceeding 1,600 pm
2. Regular workmen: Does not include casual workman, workman employed through contract labour or
other workman employed for less than 300 days during p/y
3. Factory have the same meaning u/s 2(m) of Factories Act, 1948
Individual
Working Note :
Managerial/ Supervisory capacity

Administrative exceeding 1,600 pm
Worker
capacity
Not Worker
Casual Employed
Contract REGULAR
worker less than 300
Worker WORKER
days
Sec 80LA : Income of offshore Banking unit/International financial service center
1. Assessee : a) Schedule or foreign bank having an offshore Banking unit in SEZ

b) Unit of an International financial services centre
2. Eligible Income : Means income

a) From off shore banking unit in SEZ
b) From Banking Business with an undertaking located in SEZ or with developer of SEZ
c) From any unit of international financial service centre from its business for which it has
been approved for setting up the centre
3.Deduction :
a)100% of Eligible income for 5 consecutive A/Y starting with A/Y in which permission to
operate was obtained
b) Thereafter 50% of Eligible income for next 5 consecutive A/y
4.Conditions : Report of CA in prescribed form to be attached with ROI certifying deduction correctly claimed
Page 315
DEDUCTIONS
Sec. 80QQB: Deduction from Royalty Income
1. Individual Resident in India, who is author of a Book
Book is work of Literary, artistic or Scientific Nature

(Text Books for schools, Magazines ,newspaper, Journals, Guides, Pamphlets excluded)
2. Income from Royalty or copyright fee

- in lumpsum or
- If not in lumpsum then royalty in excess of 15% of books sold during p/y shall be ignored
3. Amount of Deduction : Eligible Royalty income or ` 3,00,000/- whichever is less
Special Points:
1. Where Royalty is earned from outside India , deduction only for that foreign exchange brought into
India within 6 months from end of P/Y or within extended time
2. For claiming deduction following certificate are to be attached with return

- from Payer
- from RBI for Foreign Royalty
Sec. 80RRB: Deduction in respect of Royalty on Patents
1. Individual Resident in India
2. Income from Royalty in respect of a patent
3. Amount of Deduction : Eligible Royalty Income or `3,00,000/-, whichever is less
Special Points:
1. Patentee: True and 1st inventor under patents act & includes Co-patentee.
2. Where Royalty is Earned from outside India, deduction only for that foreign exchange brought into
India within 6 months from end of P/Y or within extended time
3. For claiming deduction following certificate are to be attached with return

- from Controller General under patent Act
- from RBI for Foreign Royalty
Page 316
DEDUCTIONS
Sec 80TTA : Deduction of Interest on Deposits in Savings account
1. Assessee : Individual or HUF
2. Type of Income : Interest on deposits (not being time deposits ) in a savings account with
(a) Banking including Co-operative bank
(b) Post Office
3. Deduction : Interest income or `10,000 , whichever is less
Special Point : Where interest is derived in a savings account on behalf of Firm/AOP/BOI, no deduction
shall be allowed of such interest to partner of firm or member of AOP/BOI
Page 317
MCQ DEDUCTIONS
(1) Gross total income means the total income computed in accordance with the provisions of the Income-tax Act, 1961 before making -
(a) Any rebate and relief (b) Any deductions under chapter VI-A
(c) Surcharge (d) Education Cess and Secondary Higher Education

Cess
(2) Deduction is allowed from income of –

(a) Long term capital gains (b) Short term capital gains except u/s l11A.
(c) Short term capital gains referred uj s 111A (d) Winnings from lotteries
(3) Deduction under section 80C can be claimed for fixed deposit made in any scheduled bank, if the minimum period of
deposit is - (June 2016)

(c) 10 Years (d) 12 Years
(4) Deduction under section 80C is allowed to -
(a) Individual (b) Individual /HUF

(c) HUF (d) Resident Individual /HUF
(5) The maximum amount of deduction under section 80C is -
(a) ` 70,000 (b) ` 1,50,000

(c) ` 50,000 (d) ` 2,00,000
(6) Deduction under section 80C is a deduction in respect of -

(a) Payment of life insurance premia or (b) Contribution to certain Pension Funds.
contributions to provident fund etc.
(c) Payment of medical Insurance Premia. (d) Medical treatment of prescribed disease.
(7) Mr. X has taken a life insurance policy on his own life on 01-04-2017. The capital sum assured is ` 1,00,000. He has paid insurance
premium of ` 30,000 during the previous year. He is eligible for deduction under Section 80C amounting -
(a) ` 30,000 (c) (b) ` 15,000

` 10,000 (d) ` 20,000
(8) Mr. X has taken a life insurance policy on life on his minor son suffering from severe disability on 01-04-2017. The capital sum assured
is ` 1,00,000. He has paid insurance premium of ` 30,000 during the previous year. He is eligible for deduction under Section 80C
amounting -
(a) ` 30,000 (c) (b) ` 15,000

` 10,000 (d) ` 20,000
(9) Mr. X has taken a life insurance policy on life of spouse on 01-04-2011. The capital sum assured is ` 1,00,000. During the previous year
he has paid insurance premium of ` 30,000. He is eligible for deduction under Section 80C amounting -
(a) ` 30,000 (c) (b) ` 15,000

` 10,000 (d) ` 20,000
Page 318
MCQ DEDUCTIONS
(10) Under Section SOC the life Insurance Premium paid by a person to effect or to keep in force a life insurance policy on the life
of the following person shall not qualify for deduction:
(a) Self (b) Spouse of the individual
(c) Father of the individual (d) Any child of the individual.
(11) Any payment by way of tuition fees to any university, college, school or other educational institution situated within India for
the purpose of full-time education for __ of the individual shall qualify for deduction under Section SOC
(a) One child (b) Two children

(c) Spouse (d) Brother
(12) Stamp-duty, registration fee and other expenses for purchase of house are allowed as deduction u/s -
(a) 8OC (b) 8OCC

(c) 8OCCD (d) 8OD
(13) Deduction under section 80C can be claimed for fixed deposit made in any scheduled bank, if the minimum period of
deposit is _ (June, 2009)

(14) Deduction in respect of subscription to notified bonds issued by the National Bank for Agriculture and Rural
Development is allowed u/ s
(a) 8OC (b) 8OG
(c) 8OGG (d) 8OGGC
(15) Mr. A paid tuition fees on admission to Rajasthan university for the purpose of full-time education of his three children.
U / s 8OC deduction in respect of -
(a) All three children of A will be allowed. (b) Any two children of A will be allowed.
(c) Anyone child of A will be allowed. (d) No child will be allowed.
(16) Term Deposit for a fixed period of with a scheduled bank, which is in accordance with a scheme framed and
notified by the Central Government shall qualify for deduction under section 8Oc.
(a) One year or more (b) Two years or more

(c) Three years or more (d) Five years or more
(17) Which of the following cannot claim deduction for the loan taken to purchase a house property - (June, 2015)
(a) Karta, in respect of property purchased by HUF (b) An individual, in respect of property purchased by
him
(e) Partner, in respect of property purchased by the (d) Spouse of an individual, in respect of property
firm purchased jointly by the individual and his/her
spouse.
(18) Under whose name can the amount be deposited under Sukanya Sarnriddhi Account Scheme which has been notified vide
Notification No. 9/2015, dated 21-01-2016 to claim deduction under section 80C-
(a) Individual himself or herself (b) any girl child of the individual
(e) any girl child for whom such individual is the (d) Any of the above legal
guardian
(19) The deduction in respect of contribution to certain pension funds under section 80CCC is allowed to -
(e) HUF (d) None of these
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MCQ DEDUCTIONS
(20) The maximum amount of deduction under section 80CCC is -
(a) ` 70,000 (b) ` 1,50,000

(c) ` 50,000 (d) ` 1,00,000
(21) Eligible Assessee under section 80CCD means -
(a) An individual employed by Central (b) Individual employed by any other employer
Government on or after 1-01-2004
(c) Any individual assessee other than (a) and (c) (d) All of the above
(22) The deduction in respect of contribution to certain pension schemes of Central Government under section 80CCD is allowed to-

(c) HUF (d) None of these
(23) The employers contribution eligible for deduction under Section 80CCD shall not exceed-
(a) 10 of basic salary (b) 10 of basic salary and dearness allowance if the
terms of employment so provide.
(c) 15 of basic salary (d) None of these
(24) In case of non salaried employee, the amount of deduction under Section 80CCD shall not exceed.
(a) Sum paid/ deposited by assessee to the credit of (b) his Sum paid/ deposited by assessee to the credit of his
account in the notified pension scheme, or account in the notified pension scheme, or 15 of
10 of his gross total income in the previous year, his gross total income in the previous year,
whichever is less. whichever is less.
(c) Sum paid/ deposited by assessee to the credit of (d) his Sum paid/ deposited by assessee to the credit of his
account in the notified pension scheme, or account in the notified pension scheme, or 15 of his
10 of his business income in the previous year, business income in the previous year, whichever is
whichever is less. less.
(25) In case, assessee or his nominee receives any amount, in respect of which deduction was allowed under Section 800CCD,
(including interest or bonus thereon) on closure or his opting out of the pension scheme; or as pension, then, such amount shall not
be taxable
(a) If such amount is used for purchasing an (b) If such amount is used for business of the
annuity plan in the same previous year. assessee.
(c) If such amount is expended for personal (d) None of the these
purposes.
(26) The Additional amount of deduction available in respect of contribution to NPS of Central Government under Section
80CCD(lB)] is-
(a) ` 1,50,000 (b) ` 50,000
(c) ` 60,000 (d) ` 40,000
(27) The aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) shall not exceed -
(a) ` 1,50,000 (b) ` 1,00,000

(c) ` 60,000 (d) ` 40,000
(28) The aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) and (1 B) shall not exceed -
(a) ` 1,50,000 (b) ` 1,00,000

(c) ` 2,00,000 (d) ` 50,000
(29) An individual has made investments in the schemes approved under section 80C, and 80CCD of ` 2,50,000 and ` 1,00,000
respectively during the year ended 31 st March, 2018. Amount that can be claimed by him as deduction out of income in
assessment year 2018-19 is - (Dec. 2015)
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MCQ DEDUCTIONS
(a) 50% of ` 3,50,000 (b) ` 1,50,000 under section 80C and ` 1,00,000 under
section 80CCD
(30) The deduction in respect of contribution in respect of investment made under an equity savings scheme under section 80CC G is
allowed to -
(a) Resident Individual (b) Partnership firm

(c) HUF (d) None of these
(31) The maximum deduction in respect of contribution in respect of investment made under an equity savings scheme under sect ion
80CCG is -
(a) ` 50,000 (b) ` 25,000

(c) ` 1,00,000 (d) ` 40,000
(32) Deduction under section 80CCG is available to an eligible resident individual whose gross total income does not exceed - (June,
2015)
(b) ` 12,00,000
(a) ` 10,00,000
(d) No such limit.
(c) ` 5,00,000
(33) The maximum period for which deduction in respect of contribution in respect of investment made under an equity savings
scheme under section 80CCG is admissible is -

(34) For claiming deduction under Section 80CCG in respect of contribution in respect of investment made under an equity savings
scheme the gross total income must not exceed:
(a) ` 10,00,000 (b) ` 15,00,000

(c) ` 12,00,000 (d) ` 20,00,000
(35) The minimum lock-in period in respect of investment under Section 80CCG is ____________ from the date of acquisition in
accordance with the notified scheme.

(36) The assessee is eligible for deduction under Section 80CCG if he makes investment in -
(a) Listed equity shares or listed units of an equity (b) Listed units of an debt oriented fund in a previous
oriented fund in a previous year in accordance with year in accordance with a scheme notified by the
a scheme notified by the Central Government. Central Government.
(c) Unlisted equity shares. (d) Preference shares of company
(37) The maximum amount of deduction admissible under section 80D is - (Dec. 2014)
(a) ` 15,000 (b) ` 20,000

(c) ` 35,000 (d) ` 60,000
(38) A pays (through any mode other than cash) during the previous year medical insurance premia as under:
(i) ` 28,000 to keep in force an insurance policy on his health and on the health of his wife and dependent children;
(ii) ` 28,000 to keep in force an insurance policy on the health of his parents where his father is a senior citizen.
Calculate deduction under section 80D.
(a) ` 56,000 (b) ` 53,000

(c) ` 50,000 (d) ` 25,000
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MCQ DEDUCTIONS
(39) The total amount of deduction under section BOD on account of preventive health check up of the assessee or his family or parents of the
assessee cannot exceed
(a) ` 10,000 (c) (b) ` 5,000

` 15,000 (d) ` 20,000
(40) A pays (through account payee cheque) during the previous year medical insurance premia as under:
(i) ` 28,000 to keep in force an insurance policy on his health and on the health of his wife and dependent children;
(ii) ` 28,000 to keep in force an insurance policy on the health of his father 62 years of age who is non resident.
Calculate deduction under section BOD.
(a) `25,000 (b) `50,000

(c) ` 56,000 (d) `33,000
(41) The maximum amount of deduction in respect of preventive health check up under section 8OD is _
(a) ` 5,000 (b) ` 15,000
(c) ` 20,000 (d) ` 25,000
(42) The deduction in respect of health insurance premia under section BOD is allowed to _
(a) Individual (b) Both individual and HUF
(c) HUF
(d) None of these
(43) The deduction in respect of health insurance premia if insured is senior citizen is-
(a) ` 15,000 (c) (b) ` 20,000

` 30,000 (d) ` 25,000
(44) The deduction in respect of health insurance premia if insured is very senior citizen is -------
(a) ` 15,000 (b) ` 20,000

(c) ` 30,000 (d) ` 25,000
(45) In case of senior citizen quantum of deduction u/s 8OD is _

(a) Sum paid or ` 25,000 whichever is lower. (b) Sum paid or ` 25,000 whichever is higher.
(c) Sum deposited or ` 25,000 whichever is lower. (d) Sum paid or ` 30,000 whichever is lower.
(46) The amount of deduction available on the amount paid on account of medical expenditure incurred on the health of the assessee or any
member of his family, who is a very senior citizen and no amount has been paid to effect or to keep in force an insurance on the health
of such person under section 80D ----
(a) Nil
(b) `30,000 (d)
(c) ` 5,000
` 25,000
(47) Deduction under section BOD in respect of medical insurance premium is available if the premium paid by any payment mode other than
-
(a) Draft (b) Cash
(c) Account payee cheque (d) Bearer's cheque
(48) Mr. Manish pays ` 35,000 as medical insurance premium by cheque under a scheme framed by GIC, for his mother (aged 65 years and
who is dependent upon Manish). If her mother is a resident individual what amount of deduction will be allowed to Manish from his
Gross Total Income -----
(a) ` 35,000 (b) ` 30,000

(c) ` 25,000 (d) ` 75,000
(49) Raghu's father is dependent on him and suffering with 90 disability. Raghu has incurred an amount of ` 72,500 in maintaining and
medical treatment of his father. The deduction he can claim in his income-tax return for assessment year 2018-19 is - (Dec. 2015)
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MCQ DEDUCTIONS
(b) ` 75,000
(a) ` 72,500
(c) ` 1,25,000
(50) Deduction in respect of medical treatment of dependent being a person suffering from severe disability u/s 80DD is -
(a) ` 75,000 (b) `60,000

(c) `40,000 (d) `1,25,000
(51) Under section 80DD, meaning of dependent includes -
(a) Spouse and children of individual. (b) Parents of individual.

(c) Brothers and sisters of individual. (d) All of the above.
(52) Rajan paid ` 25,000 to LIC of India for the maintenance of his disabled son and incurred ` 15,000 for the treatment of his
handicapped wife who is working in State Bank of India. The deduction allowable to him u/s 80DD is - (Julle 2016)
(a) `15,000 (b) `25,000
(c) ` 50,000 (d) ` 75,000
(53) Mr. Ramesh pays ` 80,000 for medical treatment of his dependent brother (resident in India and aged 21 years) who is suffering from
disability. In this case deduction shall be allowed to Ramesh to the extent of -
(a) ` 80,000 (b) ` 75,000 (d)

(c) ` 1,25,000 Nil
(54) In case of senior citizen the quantum of deduction in respect of medical treatment of prescribed disease under section 80DDB is lower of
sum paid or -
(a) ` 40,000 (b) ` 60,000
(c) ` 75,000 (d) ` 50,000
(55) In case of very senior citizen the quantum of deduction in respect of medical treatment of prescribed disease under section 80DDB is
lower of sum paid or -
(a) `40,000 (b) `60,000
(c) ` 75,000 (d) ` 80,000

(56) Mr. Kalyan pays ` 75,000 for medical treatment of his dependent father (resident in India and aged 65 years) who is suffering from
cancer (prescribed disease). Mr. Kalyan has been reimbursed ` 12,000 from his employer. Mr Kalyan shall
be allowed deduction to the extent of -
(a) ` 75,000 (b) ` 63,000
(c) ` 48,000 (d) ` 50,000

(57) Mr. Suresh pays ` 55,000 for medical treatment of his dependent father (resident in India and aged 65 years) who is suffering from cancer
(prescribed disease) and is also severely disabled. In this case deduction shall be allowed to Suresh
to the extent of -
(a) ` 55,000 (c) ` (b) ` 1,60,000
1,80,000 (d) ` 1,55,000
(58) Deduction available to an individual in respect of maintenance including medical treatment of a dependent being
person with 80 disability, when amount incurred in this respect is ` 40,000 will be - (Dec. 2011
(b) ` 50,000
(a) ` 40,000
(c) ` 1,25,000
(59) Deduction in respect of medical treatment of prescribed disease u/ s 80DDB is -
(a) `40,000 (b) `75,000
(c) `1,00,000 (d) `50,000
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MCQ DEDUCTIONS
(60) The maximum amount of deduction under section 80DDB in respect of Medical treatment of specified disease in case of seni or
citizen is -
(a) `1,00,000 (b) `60,000

(c) `15,000 (d) `40,000
(61) Deduction in respect of interest on loan taken for higher education is available to assessee for _
(a) His higher education. (b) The higher education of his relative.
(c) Both (a) or (b) (d) None of the above
(62) For the purpose of section 80E "Relative", in relation to an individual, means-
(a) The spouse of the individual (b) The children of the individual
(c) The student for whom the individual is the (d) All of these
legal guardian
(63) The maximum period for which deduction is admissible under section 80E is :

(c) 8 years (d) No time limit.
(64) Sahil works in a technology company. On 1 st January, 2016, he took a loan of `2,40,000 from his company for the education of his
daughter. During the year 2017-18, he paid an interest of `26,000 towards the said loan and repaid principal component of
` 10,000. The deduction that he can claim under section 80E would be - (June, 2015)
(a) Nil
(b) `24,000
(c) `46,000
(d) `10,000,
(65) Repayment of interest on loan borrowed from a bank, in respect of purchase of residential house property will be allowed as
deduction under section -
(a) 80C (b) 80G

(c) 80GG (d) 80EE
(66) The maximum amount of deduction under Section 80EE in respect of payment of interest on loan taken for residential house
property is -
(a) Nil
(b) `50,000
(c) `1,00,000
(d) `1,50,000.
(67) For claiming deduction of interest on loan taken for residential house property under Section 80EE, the amount of loan
sanctioned for acquisition of the residential house property must not exceed ______________ _
(a) `25,00,000 (b) `35,00,000

(c) `50,00,000 (d) `15,00,000.
(68) For claiming deduction of interest on loan taken for residential house property under Section 80EE,the value of the
residential house property must not exceed _______________ _
(a) `25,00,000
(b) `35,00,000
(c) `50,00,000
(d) `15,00,000.
(69) Deduction under section 80G is available in respect of -
(a) Donation made to certain funds or charitable (b) Rent paid for any residential house occupied by
institutions. individual.
(c) Donation for scientific research.
(d) Both (a) and (c).
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MCQ DEDUCTIONS
(June, 2015)
(70) Deduction in respect of donations to National Defence Fund is allowed under section -
(b) 8OCCG
(a) 8OG (d) None of the above.
(c) 8OC
(71) Deduction in respect of donations to Clean Ganga Fund is allowed under section -
(b) 8OCCG
(c) 8OC
(72) Deduction in respect of donations to the the Swachh Bharat Kosh is allowed under section -
(b) 8OCCG
(c) 8OC
(73) Deduction in respect of donations to the National Fund for Control of Drug Abuse is allowed under section -
(b) 8OCCG
(c) 8OC
(74) Mr. Mohan whose adjusted gross total income is ` 1,90,000 pays by account payee cheque ` 20,000 as donation to National Children fund
the amount of deduction available to him is -
(b) ` 10,000
(a) `20,000 (c)
(d) ` 9,500
` 19,000
(75) Mr. Rajeev whose adjusted gross total income is ` 1,90,000 pays by account payee cheque ` 21,000 as donation to Prime Ministers
Drought Relief Fund. The amount of deduction available to him is -
(a) ` 21,000 (c) (b) ` 19,000
` 10,500 (d) ` 9,500

(76) Mr. Kamal whose adjusted gross total income is ` 1,90,000 pays by account payee cheque ` 21,000 as donation to family planning fund.
The amount of deduction available to him is -
(b) ` 19,000
(a) ` 21,000 (c)
(d) ` 9,500
` 10,500
(77) Mr. Gautam whose adjusted gross total income is ` 1,90,000 pays by account payee cheque ` 21,000 as donation to notified charitable
institution. The amount of deduction available to him is -
(a) ` 21,000 (c) (b) ` 19,000
` 10,500 (d) ` 9,500

(7S) Mr. Kamal whose adjusted gross total income is ` 1,90,000 has donated clothes worth ` 21,000 as donation to notified charitable
institution. The amount of deduction available to him is -
(a) ` 21,000 (b) ` 19,000
(c) Nil (d) ` 9,500

(79) No deduction shall be allowed under section 8OG in respect of donation of any sum exceeding _______________ unless such sum
is paid by any mode other than cash.
(a) ` 20,000 (c) (b) ` 10,000
` 19,000 (d) ` 9,500

(June, 2011)
(SO) The maximum amount of deduction under section 8OGG in respect of rent paid is -
(b) ` 3,000 per month
(a) ` 2,000 per month
(d) ` 10,000 per month.
(c) ` 5,000 per month
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MCQ DEDUCTIONS
(81) Bharat, engaged in business, claimed that he paid ` 10,000 per month by cheque as rent for his residence. He does not own any
residential building. His total income computed before deduction under section 80GG is ` 3,40,000. The amount he can claim'as
deduction under section 80GG is - (June 2016)
(a) ` 24,000 (b) ` 34,000

(c) ` 1,20,000 (d) ` 60,000
(82) Deduction under section 80GG in respect of rent paid is not available to -
(a) Individual (b) Salaried employee who is in receipt
of any HRA from his employer.
(c) Salaried employee, who is in receipt of house (d) Both (b) and (c)
facility from his employer.
(83) Mr. Raj Kamal a salaried employee whose adjusted gross total income is ` 1,90,000 has donated ` 21,000 to national rural
development fund through account payee cheque. The amount of deduction available to him is -
(a) ` 21,000 (b) ` 19,000

(c) Nil (d) ` 9,500
(84) Mr. Raj Kamal a salaried employee whose adjusted gross total income is ` 1,90,000 has donated ` 25000,to Bhartiya Janta party
in cash. The amount of deduction available to him is -
(a) ` 19,000 (b) ` 25,000

(e) Nil (d) ` 12,500
(85) Under the Income-tax Act, 1961, which of the following can claim deduction for any sum contributed during the
previous year to a political party or electoral trust - (June, 2015)
(a) Local authority (b) Individual

(e) Artificial juridical person (d) None of the above.
(86) The maximum tax holiday period under Section 80lA for undertakings engaged in infrastructure development is -
(87) Eligible business under section 80lE does not include -

(a) Hotel (below two star category); (b) Adventure and leisure sports including
ropeways;
(c) Bio-technology. (d) Manufacturing of information technology
hardware.
(88) Deduction in respect of contribution to political party will :

(a) be allowed in respect of sum paid by way of (b) not be allowed if payment made in cash cash
(c) This type of deduction is not allowed whether (d) be allowed if payment made in cash, subject to
payment is in cash or not. certain conditions
(89) The amount of deduction under Section 80JJA is available for a period of consecutive assessment years
beginning with the assessment year relevant to the previous year in which the business commences.

(90) An assessee, being an eligible start-up, whose gross total income includes any profits and gains derived from business which
involves innovation, development, deployment or commercialisation of new products, processes or services driven by
technology or intellectual property shall be allowed a deduction of an amount equal to of the profits and ga ins derived from such
business.
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MCQ DEDUCTIONS
(a) @ 10% (b) @20%
(c) @ 100% (d) @50%

(91) An assessee whose gross total income of includes any profits and gains derived from the business of developing and
building housing projects shall be allowed deduction of an amount equal to-------------of the profits and gains derived
from such business under Section 80IBA of the Act.
(a) @10% (b) @20%
(c) @ 100% (d) @50%

(92) Deduction under Section 80JJAA is allowed --------------of additional employees cost incurred in the course of such
business in the previous year.
(a) @10% (b) @20%
(c) @30% (d) @50%

(93) For the purpose of deduction under Section 80JJAA "Additional employee" does not include an employee whose total
emoluments are more than `-------------per month.
(a) `15,000 (b) `20,000
(c) `25,000 (d) `30,000
(94) For the purpose of deduction under Section 80JJAA, " Additional employee" does not include an employee employed for a period of less
than __ days during the previous year;
(a) 240 (b) 300
(c) 200 (d) 180
(95) The maximum amount of deduction in case of consumers cooperative society under section 80P for other business activities is:
(a) ` 50,000 (b) `75,000
(c) `1,00,000 (d) `1,50,000

(96) In case of which of the following co-operative society, the deduction u/s 80P is restricted to `1,00,000 - (June 2016)
(a) Consumers' co-operative society (b) Society engaged in collection and disposal of labour
(d) Society engaged in processing of agricultural produce
(c) Society engaged in fishing without the aid of power
(97) Mr. X has authored a book eligible for deduction u] s 8OQQB. The price of book is `150 and 10,000 copies of books are sold. He has
received royalty @ 25% of the price of book. The amount of deduction admissible u/s 80QQB will be -
(a) `1,00,000 (b) `3,75,000
(c) `2,25,000 (d) `3,00,000
(98) An Indian resident patentee is entitled to a deduction under section 80RRB to the extent of - (Dec. 2014)
(a) 100% of such income (b) 50% of such income

(c) 100% of such income or `3,00,000 whichever is (d) 50% of such income or `3,00,000 whichever is
less more.
(99) Deduction available u/s 80RRB in respect of royalty income of patents shall not exceed `----------in a previous year.
(a) `3,00,000 (b) `12,00,000
(c) `5,00,000 (d) ` 10,00,000
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MCQ DEDUCTIONS
(100) Amount of deduction in case of a person with severe disability under section 80U will be:
(a) ` 75,000 (b) ` 50,000

(c) ` 1,25,000 (d) ` 1,00,000
(101) Deduction available to an individual in respect of interest on saving bank account is _ (Dec. 2011)
(a) Such Interest Income (b) ` 10,000
(c) Such interest income or ` 10,000 which ever is (d) Such interest income or ` 10,000 which ever is
less more.
(102) Mr. X has earned income from salary ` 5,00,000, Income from House Property ` 1,20,000 and interest on saving bank deposits :
` 15,000. He has made investment of ` 50,000 in public provident fund. His Total Income is _
(a) ` 5,85,000 (b) ` 6,85,000

(c) ` 5,75,000 (d) ` 6,20,000 )
(103) Mr. X has earned income from salary ` 5,00,000, Long term capital loss ` 1,20,000 and interest on saving bank deposits : ` 15,000. He has
made investment of ` 50,000 in public provident fund. His Total Income is _
(a) ` 4,55,000 (b) ` 3,35,000

(c) ` 4,65,000
(d) ` 3,45,000
(104) Mr. X, 45 years of age has earned income from salary ` 5,00,000, Business Loss ` 1,80,000 and Income from house property : `
1,50,000. He has made investment of ` 1,50,000 in public provident fund and paid health insurance premium of'{ 18,000 by cheque. His
Total Income is -
(a) ` 3,32,000 (b) `3,35,000

(c) `3,02,000 (d) `3,05,000
(105) Mr. X, 45 years of age has earned income from salary ` 10,00,000 and Income from house property : ` 1,50,000. He has made investment
of `1,50,000 in public provident fund and paid health insurance premium of ` 18,000 by cheque. He has also paid LIC premium of `
35,000 (capital sum assured: `3,00,000, policy is taken on 1-4-2017) His Total Income is-
(a) ` 9,55,000 (b) ` 9,82,000 (d)

(c) `9,50,000 ` 9,80,000
(106) The maximum amount of deduction under section 80U allowed to a person with 80 or more of one or more disabilities
is - (Dec. 2014)
(a) `40,000 (b) `60,000

(c) ` 50,000 (d) ` 1,25,000
(107) When a person suffers from severe disability, the quantum of deduction allowable under section 80U is- (June 2016)
(a) `50,000
(b) ` 75,000
(c) `1,25,000
(d) `1,00,000
(108) The following is not allowed as deduction under section 80TT A _ (Dec. 2014)
(a) Interest on deposits in a savings account with (b) Interest on time deposits with bank upto
bank upto `10,000 `10,000
(c) Interest on deposits in a savings account with post
(d) Interest on deposits with co-operative society
office upto ` 10,000 engaged in carrying on the business of banking upto `
10,000.
(109) Deduction in respect of interest on savings accounts under section 80TTA shall be allowed with respect to savings
account with - (June 2016)
(a) Bank
(b) Co-operative society
(c) Post office
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MCQ DEDUCTIONS
(110) Alternate minimum tax under section 115JC is not applicable to - (Dec. 2015)
(a) Company (b) Individual

(c) Partnership Firm (d) Association of persons.
(June, 2015)
(111) Provision of section 115JC are not at all applicable to -
(a) LLPs (b) Companies
(c) Partnership firrns (d) Individuals.
(112) The provisions of Section 115JC shall be applicable to a person, other than a company, whose regular income-tax payable for a
previous year is __ than the alternate minimum tax payable.
(b) More
(a) Less (c)
(d) Any of the above.
Equal
(113) Alternate minimum tax shall be payable at rate of :

(b) 15%
(a) 18.5%
(c) 20%
(114) Alternate minimum tax rate is levied on:

(b) Total income
(a) Gross total income
(d) Income from business & profession
(c) Adjusted total income
(115) Adjusted total income shall be the total income as increased by -
(a) Deductions claimed under sections 80-IA to (b) Deduction under section 10AA.
80RRB (other than section 80P).
(c) Both (a) & (b) (d) Either (a) or (b)
(116) Provisions of alternate minimum tax shall be applicable when adjusted total income exceeds:
(a) ` 20 lakhs (b) ` 50 lakhs
(c) ` 10 lakhs (d) ` 10,000
(117) The tax credit for alternate minimum tax so allowed shall be carried forward and set-off during ______________ subsequent
assessment year :
(a) 10 (b) 12
(c) 20 (d) Nil
(118) For the Assessment Year 2018-19, the amount of tax payable by SEZ as per normal provisions of Income Tax Act is ` 4,20,000.
Alternate minimum tax payable by it on the adjusted total income comes to be ` 4,90,000. Compute the amount of tax payable by
the SEZ.
(a) ` 4,20,000 (b) ` 4,90,000

(c) ` 70,000 (d) Nil
(119) In the above case, tax credit for alternate minimum tax so paid shall be allowed to be carried forward and set-off till :
(a) AY. 2033-34 (b) AY.2026-27

(c) AY. 2028-29 (d) AY.2023-24
(120) As per section 13A, income earned by a political party eligible for exemption are:
(a) Income from house property. (b) Income from capital gains.
(c) Income from voluntary contributions received (d) All of the above.
and income from other sources.
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MCQ DEDUCTIONS
(121) Conditions to be fulfilled by an electoral trust to claim exemption of the income of voluntary contributions received by such electoral
trust are:
(a) Such electoral trust distributes the amount to (b) Amount distributed is 95 of the aggregate donations
any registered political party. received during previous year along with surplus, if
any, brought forward.
(c) Such electoral trust functions in accordance (d) All of the above.
with rules made by the Central Government.
(122) Voluntary contributions received by electoral trusts during the p/y 2017-18 is -
(a) Fully taxable (b) Fully exempt from tax
(c) Exempt only if the trust distributes to a (d) None of the above.
registered political party during the year, 95
of the aggregate donations received by it.
(123) The voluntary contributions received by an electoral trust during the year is not included in its income _
(a) When 85% of contribution is distributed in (b) When 95% of contribution is distributed in the
year year
(c) To the extent of `10 lakh (d) To the extent of 50% of contribution or ` 100 lakh
whichever is less.
1.b 2.b 3.a 4.b 5.b 6.a 7.c 8.b 9.d 10.c
11.b 12.a 13.a 14.a 15.b 16.d 17.c 18.d 19.a 20.b
21.d 22.a 23.b 24.a 25.a 26.b 27.a 28.c 29.c 30.a
31.b 32.b 33.c 34.c 35.c 36.a 37.d 38.b 39.b 40.b
41.a 42.b 43.c 44.c 45.d 46.b 47.b 48.b 49.c 50.d
51.d 52.d 53.b 54.b 55.d 56.c 57.c 58.c 59.a 60.b
61.c 62.a 63.c 64.a 65.d 66.b 67.b 68.c 69.a 70.a
71.a 72.a 73.a 74.a 75.c 76.b 77.d 78.c 79.b 80.c
81.d 82.b 83.a 84.c 85.b 86.b 87.a 88.b 89.b 90.c
91.c 92.c 93.c 94.a 95.c 96.a 97.c 98.c 99.a 100.c
101.c 102.c 103.a 104.a 105.b 106.b 107.c 108.b 109.d 110.a
111.b 112.a 113.a 114.c 115.c 116.a 117.a 118.b 119.a 120.d
121.d 122.c 123.b
Page 330
AGRICULTURAL INCOME
CHAPTER – 11
AGRICULTURAL INCOME
Sec. 10(1) : Agricultural Income In India shall be Exempt from Income Tax
Partial Integration of Agricultural Income with Non-Agricultural Income

 Applicable only for Individual/HUF/AOP/BOI/AJP
 Done for Computation of tax on Non-agricultural Income
 Provided Both of below conditions are satisfied
 Agricultural Income exceeds ` 5,000 &
 Non-Agricultural Income exceeds Exemption Limit (As applicable)
Computation of Tax on Non Agricultural Income

Step 1 : Calculate Tax on [Total Income + Agricultural income exempt u/s 10(1)]
Step 2 : Subtract Agricultural Rebate i.e Tax on [Exemption limit + Agricultural income exempt u/s 10(1)]
Step 3 : Subtract Rebate u/s 87A is Individuals Total Income upto 5 lacs & Resident during P/Y
Step 4 : Add 10% Surcharge if Total income exceeds 1 crore
Step 5 : Add 3 % Education Cess
Sec. 2(1A) : Definition of Agriculture Income
Agricultural Income includes
(A) (B) (C)
Rent derived from Land Income derived from Income derived from any Building
situated in India & used for such land occupied by cultivator provided :
agriculture 1. Building is the immediate vicinity
of land and building is used by
above as dwelling house or store
house
By 2. Land assessed to local rates or

Agriculture By process Through Sale of
employed by the produce situated in Rural area.
cultivator to render raised or
produce fit for received as rent 3. L & B is used for Agricultural
market in kind purposes only & not for other
purposes
Special Point : For meaning of Urban Area/Rural Area refer Capital Gains
Page 331
AGRICULTURAL INCOME
Special Points :
1. Any income derieved from seedling or sapling grown in nursery shall also be treated as
agricultural Income.
2. Agricultural Income will not include Income from transfer of land situated in Urban Area
3. For point C : If such building is let out for residential or commercial purpose than such income shall not
be treated as agricultural income
Income which is Partially Agricultural and Partially from Business
RULE 8 RULE 7A RULE 7B

Growing & Growing &
manufacturing TEA manufacturing Growing & manufacturing COFFEE
RUBBER
Agrl. Non Agrl. Non Coffee grown & cured Coffee grown , cured,
Agrl. Agrl. roasted & grounded
Agrl. Non Agrl. Non Agrl.
60% 40% 65% 35% Agrl.
75% 25% 60% 40%
Growing & Manufacture Product other than Tea ,Rubber, Coffee ( Rule 7)
Agricultural Income Non-Agricultural Income

Market Value of
Agricultural produce grown Sale value of other product
or Received as rent in Kind
& Less : Market value of Raw material grown & utilized for
utilized as raw material in production
business
Less : Other Business expenses
Less : Cultivation expenses
Computation of Income in case of Growing & Manufacturing Business
a. Compute the Income from Growing & Manufacturing Operations under head P/G/B/P
b. Then Apply Percentage/formula as above in order to determine Agricultural & Non Agricultural
Income.
Page 332
TAX PLANNING
CHAPTER 12
TAX PLANNING
Tax Planning is an legitimate exercise undertaken to minimize tax liability through the best use of
all available allowances, deductions, exclusions, exemptions, etc., to reduce income and/or capital
gains.
The Hon’ble Supreme Court in McDowell & Co. v. CTO (1985) 154 ITR 148 has observed that “tax
planning may be legitimate provided it is within the framework of the law. Colourable devices
cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is
honourable to avoid payment of tax by resorting to dubious methods.”
The form and substance of a transaction is real test of any tax-planning device. The form of
transaction refers to transaction, as it appears superficially and the real intention behind such
transaction may remain concealed. Substance of a transaction refers to lifting the veil of legal
documents and ascertaining the true intention of parties behind the transaction.
TAX PRACTICES : In the context of saving tax, There are three commonly used practices, namely
(a) Tax Evasion;
(b) Tax Avoidance;
(c) Tax Planning. They are being considered in greater details in subsequent discussion.
(a) TAX EVASION

It refers to a situation where a person tries to reduce his tax liability by deliberately suppressing the
income or by inflating the expenditure showing the income lower than the actual income and
resorting to various types of deliberate manipulations.
Tax evasion can never be construed as tax planning because it amounts to breaking of law
whereas tax planning is devised within the legal framework by availing of what the legislature
provides. Tax planning ensures not only accrual of tax benefits within the four corners of law but it
also ensures that tax obligations are properly discharged ,so as to avoid penal provisions.
(b) TAX AVOIDANCE

The type of cases that come under ‘Tax avoidance’ are those where the tax payer has apparently
circumvented the law (without giving rise to an offence) by using a scheme, arrangement or device
though of a complex nature with the main or sole purpose of deferring, reducing or completely
avoid the tax payable under the law
Earlier tax avoidance was considered completely legitimate, but at present it may be illegitimate in
certain situations. In the judgement of the Supreme Court in McDowell’s case 1985 (154 ITR 148)
SC, tax avoidance has been considered as heinous as tax evasion and a crime against society.
Most of the amendments are now aimed at curbing practice of tax avoidance.
(c) TAX PLANNING

It means arranging the financial activities in such a way that maximum tax benefits are enjoyed by
making use of all beneficial provisions in the tax laws which entitle the assessee to get certain
rebates and reliefs. This is permitted and not frowned upon by law.
Thus, tax planning would imply compliance with the taxation provisions in such a manner that full
advantage is taken of all tax exemptions, deductions, concessions, rebates and reliefs permissible
under the Income Tax Act so that the incidence of tax is the least.
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TAX PLANNING
Objective of Tax planning
The basic objectives of tax planning are:

(a) Reduction of tax liability
(b) Minimisation of litigation
(c) Productive investment
(d) Healthy growth of economy
(e) Economic stability
Essential of Tax planning
Successful tax planning techniques should have following attributes :
(a) Assesees must have an upto date knowledge of the statute he must also be aware of
judgments of the courts, the circulars, notifications, clarifications and Administrative instructions
issued by the CBDT from time to time.
(b) Disclosure of all material information and furnishing the same to the income-tax department
(c) The use of sham transactions and colourable devices, with a view to circumvent the legal
provisions, must be avoided.
(d) Tax regime is flexible in nature and tax planning model must also be flexible so that it could be
scrutinised in relative situations.
Type of Tax Planning NG
The tax planning exercise ranges from devising a model for specific transaction as well as for
systematic corporate planning.
These are:
(a) Short-range and long-range tax planning.
(b) Permissive tax planning.
(c) Purposive tax planning.
(a) Short-range planning & Long-range planning

Short-range planning refers to year to year planning to achieve some specific or limited objective.
(b) Permissive tax planning

Permissive tax planning is tax planning under the expressed provisions of tax laws. Tax laws of our
country offer many exemptions and incentives.
(c) Purposive tax planning

Purposive tax planning is based on the measures which circumvent the law. The permissive tax
planning has the express sanction of the Statute while the purposive tax planning does not carry
such sanction.
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TAX PLANNING
Diversion of Income v Application of Income
The Supreme Court’s verdict in CIT v. Sitaldas Tirthdas (1961) is the authority for the proposition
that where by an obligation income is diverted before it reaches the assessee, it is deductible from
his income as for all practical purposes it is not his income at all but where the income is required
to be applied to discharge an obligation after it reaches the assessee, it is not deductible. Thus,
there is the difference between diversion of income by an overriding title and application of income
as the former is deductible while the latter is not.
Areas of TAX Planning in context of Income Tax Act
(a) SETTING UP AND COMMENCEMENT OF BUSINESS
(b) FORM OF THE ORGANISATION
 Company Form of Organisation
 Partnership Firm or Limited liability Partnership
 Sole proprietorship
 Hindu Undivided Family
(c) LOCATIONAL ASPECTS
(d) NATURE OF BUSINESS
(e) TAX PLANNING RELATING TO CORPORATE RESTRUCTURING
(f) TAX PLANNING RELATING TO FINANCIAL MANAGEMENT DECISIONS
Capital Borrowings
(a) Dividend/Interest Not deductible Fully deductible
(b) Cost of raising finance 1/5th allowed under Section 35D Fully deductible in first year.
Taking the same sources of finance, the comparison between pre-commencement period and
postcommencement period is as follows :
(a)
(i) Dividend is not deductible either for pre-commencement period or in the post-commencement
period in India.
(ii) Interest is capitalised for pre-commencement period, i.e. added to the cost of project’ (cost of
fixed assets) and its depreciation is calculated on capitalised value of assets. In post-
commencement period, interest is fully deductible.
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TAX PLANNING
(b) (i) Cost of raising finance in case of capital is not deductible as revenue expenditure but
amortised under Section 35D of the Act. If such expenditure is incurred after the commencement of
the business. Section 35D is applicable, provided the expenditure is undertaken for expansion
purposes in case of industrial undertaking.
(ii) Cost of borrowing funds in case of pre-commencement period is capitalised and in case of
postcommencement period, it is deductible fully in the year.
The above consideration will go a long way in suggesting the managements of corporate entities to
adopt a suitable capital structure and selecting the appropriate financing sources by providing an
optimum capital mix for the organization
(g) TAX PLANNING RELATING TO NON-RESIDENTS
(h) TAX PLANNING FOR INDIAN COLLABORATORS
 Capitalisation of installation expenses
 Treating purchase of spares as revenue expenditure
 Treating plans and drawings, etc. as “Plant for availing of full value as depreciation
(i) TAX PLANNING FOR EMPLOYEES
Organisation of Tax planning cells
Some companies can afford to have separate tax planning departments while others cannot. The
need for having tax planning department does not depend upon the amount of tax liability of the
company. In fact, in certain cases, companies having effective tax planning cells can plan their
transactions with a view to attract the least incidence of tax organisation of such a cell can be
justified on the following grounds :
(a) Complexity and volume of work
(b) Separate Documentation
(c) Data Collection
(d) Integration
(e) Constant Monitoring
(f) Developing Tax effective Alternatives
(g) Take advantage of variance allowances and deductions
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Income Tax Authorities, Return of Income & Assessment
CHAPTER - 13
Income Tax Authorities(Appointment,jurisdiction,power) Sec 116
The following are the income-tax authorities who are statutorily empowered to administer the law of Income-
tax:
(i) CBDT
(ii) Directors-General/Chief Commissioners
(iii) Directors/Commissioners/Commissioner(Appeals);
(iv) Additional Directors /Additional Commissioners/ Additional Commissioner (Appeals);
(v) Joint Directors/Joint Commissioner.
(vi) Deputy Directors/ Deputy Commissioners/ Deputy Commissioners(Appeals);
(vii) Assistant Directors/Assistant Commissioner ;
(viii) Income-tax (Assessing) Officers;
(ix) Tax Recovery Officers;
(x) Inspectors of Income-tax.
Appointment of Income-tax Authorities (Section 117)
The Central Government may appoint such persons as it thinks fit to be income-tax authorities.
POWERS OF CENTRAL BOARD OF DIRECT TAXES (CBDT)
(i) Power to make Rules: It has the power to make rules (u/s 295) for carrying out the purposes of this Act.
The Rules may be made for whole or any part of India.
(ii) To issue instructions: It may issue orders, instructions and directions to all officers and persons
employed in the execution of the Act (Section 119).
(iii) Power to relax mandatory provisions: The Board is empowered to relax the provision relating to the
charge of mandatory interest for defaults of TDS or payment of advance tax or defaults in furnishing return
etc
Page 337
(iv) Power to admit belated refund application: To avoid genuine hardship, the Board may authorise any
income-tax authority, not being Commissioner (Appeals) to admit belated application or claim for any
exemption, deduction, refund or any other relief.
(v) Power to decide jurisdiction:
(vi) Power to disclose information: The Board may disclose information relating to any assessee, to any
officer, authority, or body performing any functions under any tax law
POWERS OF Principal Director-General or Director-General or Director of Income-Tax
(a) To appoint an income-tax authority below rank of an Assistant Commissioner (Sec 117):
.
(b) To delegate powers of AO to Joint Commissioner (Section 120):
(c) To transfer cases (Section 127):

.
(d) Enquiry into concealment [Section 131(1A)]: If he has reason to suspect that any income has been
concealed by any person, within his jurisdiction, he is empowered to make any enquiry or investigation
(e) Search and seizure [Section 132(1)]: As a consequence of information in his possession has reason to
believe that
(a) Any person to whom notice has been issued of discovery, inspection , production of documents etc or
(b) Any person is in possession of undisclosed income or property,
he is empowered to authorise enter and search any building, place, vessel, vehicle or aircraft, where he has reason to
suspect about their availability and seize any such books of accounts, other documents, money, bullion, jewellery or
other valuable article or thing found as a result of such search.
(f) To requisition books of account/Assets etc. (Section 132A) : Where any books of account or
documents have been taken into custody by any officer or authority under any other law and there are reason
to believe that
(i) any person, required to produce such accounts/documents has failed to do so, or
(ii) such accounts or documents will be useful for any proceeding under income-tax law but such person
would not produce them on their return by the officer or authority under any other law, or
(iii) income or property which has not been disclosed by any person from whose possession such assets have
been taken into custody by any officer or authority under any other law,
he may require such officer or authority under any other law to deliver such books of account or documents
or such assets to the requisitioning officer under income-tax law.
(g) To make any enquiry (Section 135):
Page 338
Powers of Chief Commissioner or Commissioner of Income-Tax
(i) To appoint income-tax authority below AC (Section 117)
(ii) To delegate the powers of AO to Deputy Commissioner (Section 120)
(iii) To transfer case (Section 127)
(iv) Power regarding discovery, production of evidence etc. (Section 131): Chief Commissioner or
Commissioner has the same powers as are vested in Court under Code of Civil Procedure
(v) Search and seizure (Section 132)
(vi) To requisition books of accounts etc. (Section 132A)
(vii) Power of survey (Section 133A)

 An income-tax authority may enter, after sunrise and before sunset,
 any office, or any other place (where business or profession is carried on or where any books of
accounts etc relating to business are kept),
 for the purpose of verifying whether tax has been deducted or collected at source
 Provided that such place is within the limits of the area assigned to him,
 He may also require the deductor or the collector to afford him facility to inspect such books of
 account or other documents
 The income-tax authority may also place marks of identification, impound or retain in his custody
books of account or other documents
(viii) To make any enquiry (Section 135):
(ix) Disclosure of information respecting assessees (Section 138):
(x) To sanction reopening of the assessment after the expiry of four years [Section 151(2)]:
(xi) To approve withholding of refund in certain cases (Section 241):
(xii) Set-off of refund against arrears of tax (Section 245):
(xiv) To revise any order passed by AO which is prejudicial to revenue (Sec263):
(xv) Revision of any order passed by a subordinate authority on application by assessee or suo motu
(Section 264):
Page 339
Powers of Commissioner of Income-Tax (Appeals)
The Commissioner of Income-tax (Appeals) is an appellate authority. It is vested with the judicial powers:
(1) Power regarding discovery, production of evidence (Section 131):
(2) Power to call for information (Section 133): The Commissioner of Income-tax (Appeals) may, for the
purposes of this Act:
(a) require any firm to furnish him with a return of the names and addresses of the partners of the firm
and their respective shares;
(b) require any HUF to furnish him with a return of the names and addresses of the manager and the
members of the family;
(c) require any person whom he has reason to believe to be a trustee, guardian or agent, to furnish him with a
return of the names of the persons for or of whom he is trustee, guardian or agent, and of their addresses;
(d) require any assessee to furnish a statement of the names and addresses of all persons to whom he has paid
in any previous year rent, interest, commission, royalty or brokerage, or any annuity together with particulars
of such such payments made;
(3) Power to inspect register of companies (Section 134):
(4) Set-off of refund against arrears of tax (Section 245):
(5) Disposal of appeal (Section 251): In disposing of an appeal, the Commissioner (Appeals) has the
following powers:
(a) in an appeal against an order of assessment he may confirm, reduce, enhance or annual the
assessment, or he may set aside the assessment and refer back to AO
.
(b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as
either to enhance or reduce the penalty.
(6) Imposition of penalty (Section 271): The Commissioner (Appeals) may impose penalty for not producing
the books of accounts or other documents or for concealment of income
Page 340
Types of Assessment
(a) Self assessment (Section 140A)

(b) Regular assessment (Section 143)
(c) Best judgement assessment (Section 144)
(d) Income escaping assessment or re-assessment (Section 147)
(e) Precautionary assessment.
(f) Assessment in case of search or requisition (Section 153A)
(A) SELF ASSESSMENT (SECTION 140A)
Every person, before furnishing return shall make self assessment of his income and pay the tax, if due on the
basis of such assessment. The total tax payable is calculated on the total income of the assessee after
considering the following amount:
(i) Tax already paid or deducted

(ii) Relief of tax or deduction of tax claimed
Such determined value of tax along with the interest is paid before furnishing the return and the proof of
payment of such tax is attached with the return.
Inquiry before Assessment u/s 142
1. Issue of notice to assessee to submit return (if not submitted earlier)

In a case where a person has not made a return of his income before the end of relevant A/Y, AO may serve a notice
after the end of relevant A/Y requiring such person to furnish his return of income.
The AO may ask to produce, such accounts or documents and to furnish in writing and verified in the prescribed
manner information in such form and on such points or matters (including a statement of all assets & liabilities,
whether included in the accounts or not).
However, previous approval of Joint Commissioner shall be obtained before requiring assessee to furnish a
statement of all assets and liabilities not included in the accounts.
Further, AO shall not require the production of any accounts relating to a period more than 3 years prior to p/y.
2. Make Inquiry and give opportunity of being heard u/s 142(2)
3. Give direction to get books of accounts audited u/s 142(2A) to (2D):
Having regard to the nature and complexity of the accounts volume of the accounts, doubts about the correctness of
accounts, multiplicity of transaction in the accounts of the assessee and the interests of the revenue,
assessing officer is of the opinion that it is necessary to order audit
then with the previous approval of Chief Commissioner or Commissioner the Assessing Officer may direct an
assessee to get his accounts audited by an accountant even if the accounts have earlier been audited.
Page 341
ESTIMATION OF VALUE OF ASSETS BY VALUATION OFFICER (SECTION 142A)
(1) The AO may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to
estimate the value, including FMV, of any asset, property or investment and submit a copy of report to him.
(2) The Valuation Officer shall, estimate the value of the asset, property or investment after taking into
account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving
an opportunity of being heard to the assessee.
(3) The AO may, on receipt of the report from the Valuation Officer, and after giving assessee an opportunity of
being heard, take into account such report in making the assessment orreassessment.
Processing of Return/Intimation to Assessee u/s 143(1)
Where a return has been made u/s 139(1), or u/s 142(1), such return shall be processed in following manner,
namely:—
(a) Total income or loss shall be computed after making following adjustments, :—
(i) Arithmetical error in the return;
(ii) Incorrect claim apparent from any information in return;
(iii) Disallowance of loss claimed, if return of P/Y for which set off of loss is claimed was furnished
beyond the due date u/s 139(1);
(iv) Disallowance of expenditure indicated in the audit report but not taken into account in
computing the total income in return;
(v) Disallowance of deduction claimed u/s 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section
80-IE, if the return is furnished beyond the due date u/s 139(1); or
(vi) Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been
included in computing the total income in the return:
Provided that no such adjustments shall be made unless an intimation is given to assessee of such
adjustments either in writing or in electronic mode:
Provided further that the response received from assessee, if any, shall be considered before making
any adjustment, and in a case where no response is received within 30 days of the issue of such
intimation, such adjustments shall be made
(b) Tax and Interest, if any, shall be computed on the basis of the total income computed under
clause (a);
(c) Sum payable by, or Refundable to, the assessee shall be determined after adjustment of the
tax and interest , if any
(d) Intimation shall be prepared or generated and sent to the assessee specifying sum payable or
refundable and
Page 342
(e) Amount of refund due to the assessee in pursuance of the determination under clause (c) shall
be granted to assessee:
Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the
return by the assessee is adjusted but no tax or interest is payable by, or no refund is due to, him:
Provided further that no intimation under this sub-section shall be sent after the expiry of one year
from the end of F/Y in which the return is made.
Special Point :
1. Acknowledgement of return shall be deemed to be intimation in a case where no sum is
payable or refundable to assessee.
2. Sec 143(1D) : Notwithstanding anything contained in sec143(1), the processing of a return shall
not be necessary, where a notice has been issued to the assessee u/s 143(2)
Provided that the provisions of this sub-section shall not apply to any return furnished for A/Y
17/18 onwards
(B) SCRUTINY (REGULAR) ASSESSMENT [SECTION 143(2) & (3)]
 Where a return has been, the AO shall, if he considers necessary or expedient to ensure that
 the assessee has not understated the income or
 has not computed excessive loss or
 has not underpaid the tax in any manner,
 serve on the assessee a notice requiring him,
 on a date to be specified therein,
 either to attend his office or to produce
 any evidence on which the assessee may rely in support of the return
Provided that no notice shall be served on assessee after expiry of 6 months from the end of F/Y in which
the return is furnished.
AO shall, by an order in writing, make an assessment of the total income or loss , and determine the sum
payable or refundable
(C) BEST JUDGEMENT ASSESSMENT U/S 144
The AO, after taking into account all relevant material which he has gathered, and after giving the
assessee an opportunity of being heard,
makes the assessment of the total income or loss to the best of his judgment and determine the sum payable
by the assessee on the basis of such assessment in the following cases:
Page 343
 If any person fails to make the return required u/s 139(1)
 When a person fails to comply with all the terms of a notice u/s 142(1) or
 fails to comply with a direction u/s 142(2A) for getting the accounts audited, or
 fails to comply with all the terms of a notice issued u/s 143(2).
Prior to the proceedings the AO should issue a show cause notice to the assessee. However if the assessee
has already issued notice under section 142(1)and the assessee has not complied with the terms then AO can
proceed further without issuing a show cause notice.
Further AO cannot assess the income below returned income and cannot assess losses higher than the
returned losses. A refund cannot be granted under section 144.
The AO can also reject accounts book u/s 145 and can make best judgment assessment u/s144 if:
 The accounts books are incorrect, false or incomplete.
 If the accounting method employed is such that profit cannot be derived from it correctly.
 Where the method of accounting adopted is not followed regularly or
 Income has not been computed in accordance with notified standards or
 income computation and disclosure standards notified by the government are not followed
(D) INCOME ESCAPING ASSESSMENT OR RE-ASSESSMENT (SECTION 147)
If AO has reason to believe that any income chargeable to tax has escaped assessment for any A/Y, he may
– assess or reassess income which has escaped assessment or
– recompute the loss or depreciation allowance or any other allowance,
Assessing Officer shall serve on assessee a notice requiring him to furnish, within such period, as may be
specified in the notice,
a return of his income or the income of any other person in respect of which he is assessable under this Act
during P/Y corresponding to the relevant A/Y,
Page 344
Cases upto 4 years from the end of Beyond 4 years but upto 6
relevant A/Y years from end of the relevant
A/Y
Where assessment order Notice can be issued for any Notice can be issued only if
passed u/s 143(3) or 147 amount of escaped income escaped income is of ` 100,000
or more.
Notice by AC or DC or
by AO with approval of JC
Notice by AO with approval
CCIT or CIT
Where no assessment order Notice can be issued by AO Notice can be issued by the AO
passed u/s 143(3) or 147 whatever be the amount. with approval JC only when
the amount is likely to be
`100,000 or more
However, the time lime of 6 years is not sufficient in cases where assets are located outside India because
gathering information regarding such assets takes much more time on account of additional procedures
and laws of foreign jurisdictions.
Therefore, the time limit for issue of notice for reopening an assessment has been increased to 16 years,
where the income in relation to any asset (including financial interest in any entity) located outside India,
chargeable to tax, has escaped assessment.
(E) PRECAUTIONARY ASSESSMENT
Where it is not clear as to who has received the income and prima facie, it appears that the income may have
been received either by A or by B or by both together, the Assessing Officer can commence proceedings
against both A and B to determine the question as to who is responsible to pay the tax [Lalji Haridas v. I.T.O
(S.C.)].
ASSESSMENT IN CASE OF SEARCH OR REQUISITION (SECTION 153A)
Time limit for completion of Assessment/Reassessment (Sec 153)
Section reference New time limit

Regular assessment u/s 143 18 months from the end of the AY in which
Best judgment assessment u/s 144 which income was first income was first assessable
Reassessment u/s 147 9 months from the end of the financial year
in which notice for reassessment is served
An order of fresh assessment as a result 9 months from the end of the financial year
of an order u/s 254 or 263 or 264 setting in which such in which such order is received by
Page 345
aside or cancelling assessment prescribed authorities
Assessment u/s 153A 21 months from the end of the financial year in
which the last of the authorisations for search u/s 132
or for requisition u/s 132A was executed prior to FY
2018-19
18 months from the end of the financial year in
or for requisition u/s 132A was executed during FY
2018-19

or for requisition u/s 132A was executed after FY
2018-19
Assessment u/s 153C 21 months from the end of the financial year
in which the last of the authorisation for search u/s
132 or requisition u/s 132A was executed prior to FY
2018-19
18 months from the end of the financial year

in which the last of the authorisation for search u/s
132 or requisition u/s 132A was executed during
2018-19

or for requisition u/s 132A was executed after FY
2018-19
Rectification of mistake (sec 154)
With a view to rectifying any mistakes apparent from the record, an income-tax authority referred to in
Section 116 may amend
– any order passed by it under provisions of this Act or
– any intimation or deemed intimation
This power of rectification can be exercised by the authorities either on their own motion or at the instance of
the assessee.
Time limit
The time limit for rectification of mistakes is a period of 4 years from the end of F/Y in which the
order sought to be amended was passed.
Page 346
Sec.139(1): Furnishing of Return of Income
 Every Person
 Being a company or a firm

 Being a person other than a company or firm , if his Gross Total Income before exemption u/s 10(38)
exceeds exemption amount
 Shall file return of income

 On or before due date
 In the prescribed form
 Verified in the prescribed manner
 And containing prescribed particulars
Mandatory return for assessee having foreign assets
 ROR ,who is not required to furnish a return u/s 139(1)
 Holds, Any asset (including any financial interest in any entity) located outside India or
 has signing authority in any account located outside India; or
 shall furnish ,Return of income or loss, on or before the due date,
DUE DATE OF FILING RETURN OF INCOME
Assessee required to furnish a report u/s 92E : 30th Nov. OF A/Y
Assessee is a Company : 30th Sept. OF A/Y
Other than Company
1) Accounts audited under this act. or any other law : 30th Sept. OF A/Y
2) Working Partner a firm & Firms accounts are : 30th Sept. OF A/Y
audited under this act or any other law
3) Other assessee : 31ST JULY OF A/Y
Special Point : Sec 92E: Every person who has entered into an international transaction during P/Y shall
obtain a report from accountant & furnish such report on or before specified date in the prescribed form
duly signed and verified in prescribed manner by such accountant & setting forth prescribed particulars
Page 347
Sec. 139(3) : Return of Loss
 Loss under
 Business/Profession
 Speculation
 Specified Business u/s 35AD
 Capital Gains or
 Owning & maintaining race horses
 Can be carried forward only if
 return of Loss is furnished
 Within due date prescribed u/s. 139(1)
Special Points:
1. Return filed u/s 139(3) shall be deemed to be return filed u/s. 139(1)
2. If loss return not filed within due date, then loss cannot be carried forward
3. Set off of Losses : Sec. 139(3) restricts only carry forward of losses. Therefore, losses can be set off
even if ROI filed after due date
4. Unabsorbed Depreciation: Sec. 139(3) deals with C/f of losses only. Therefore, unabsorbed
depreciation can be C/f if ROI filed after due date
5. Loss under Head House Property: Loss under this head can be C/f even if ROI filed after due date
6. Loss Return furnished u/s. 142(1): Loss determined under return u/s. 142 (1) cannot be C/f
Page 348
Sec. 139(4) : Belated Return
 Person not furnished ROI

 within time allowed u/s. 139(1) or 142(1)
 He may still furnish ROI
 At any time before
 Upto end of relevant A/Y or completion of Assessment , whichever is earlier
Sec. 139(5) : Revised Return
 Person having furnished ROI u/s. 139(1) or 139(4)

 Discovers any Omission or Wrong statement
 May furnish Revised ROI
 At any time before
 the end of relevant A/Y or completion of Assessment , whichever is earlier
Special Points :
 Revised return substitutes original return

 Loss return u/s. 139(3) can be revised
 Return can be revised any number of times
Sec. 139(4A): ROI of Charitable or Religious Trust
 Total Income of a trust

 before Exemption u/s. 11 & 12 Exceeds Exempted amount
 Then it shall file ROI
 Within time allowed u/s. 139(1)
 Return filed u/s 139(4A) shall be deemed to be return u/s. 139(1)
Sec. 139(4B): ROI of Political Party
 Total Income of party

 before Exemption u/s. 13A Exceeds Exempted amount
 Then it shall file ROI
 Within time allowed u/s. 139(1)
 Return filed u/s 139(4A) shall be deemed to be return u/s. 139(1)
Page 349
Sec 139(4C): ROI by Assessees Claiming Exemption u/s 10
 Total income of
 Research association u/s. 10(21) or
 News Agency u/s. 10(22B) or
 Profession associations u/s. 10(23A) or
 Funds, Trusts, University, Hospitals etc u/s 10(23C) or
 Trade Unions, Associations u/s. 10(24)
 Body, Trust u/s 10(46)
 Infrastructure Debt Fund u/s 10(47)
 Before Exemption u/s.10 Exceeds Exempted amount.
 Then such Assessee shall file ROI
 Within time allowed u/s. 139(1)
Sec 139(4D): ROI by various institutions
 Every university, college or other institution

 Referred in sec 35(1)(ii) & 35(1)(iii)
 Which is not required to furnish return of income or loss under any other provisions
 Shall furnish the return in respect of its income or loss in every previous year
 And it shall be deemed to be a return u/s 139(1)
Sec 139(6) : Particulars to be furnished with the return of income
As per section 139(6), the prescribed form of return of income, shall in certain prescribed cases, require the
assessee to furnish the particulars of:
1) Income exempt from tax;

2) Assets of the prescribed nature and value, held by him as a beneficial owner or otherwise
or in which he is a beneficiary.
3) Details of bank account and credit card held ;
4) Expenditure exceeding prescribed limits incurred under prescribed heads; and
5) Such other outgoings, as may be prescribed
Sec. 139(9) : Defective Return
ROI shall be regarded as defective unless it is filed in prescribed form with all columns &annexures duly filled
in.
Special Points:
1. Notice by AO to rectify defect
 If AO considers ROI to be defective,
 he may intimate assessee to rectify the defect
 within 15 days from the date of receiving the intimation
Page 350
 AO can also extend the time limit of 15 days upon application by the assessee
If defect is not rectified within above time period then return treated as void-ab-initio.(invalid)
2. Unsigned return is not invalid return but void-ab-initio. (invalid)
Sec. 140 : Verification of ROI
1. Individual
 Present in India : Himself

 Absent from India : Either himself or authorised person
 Mentally Incapacitated : Legal Guardian
 Other reasons : Authorised Person
(Where ROI is verified by an authorised person, attach Power of Attorney with ROI)
2. Partnership Firm
 If
there is a Managing Partner : Managing Partner.
 Due to unavoidable reasons MD cannot verify or If no Managing Partner: Any partner (not a
minor)
3. Limited Liability partnership
 By Designated Partner or
 Due to unavoidable reason such designated partner cannot verify or If no designated partner : Any
partner
4. Company
If there is No MD or he Where Company Company whose

Managing cannot sign due company is a being management taken
Director to unavoidable Non-resident wound-up over by C or S Govt
reasons
By Managing By any Director By any person By the By Principal Officer

Director duly authorised liquidator
himself
5. HUF
 By the Karta himself

 If Karta is absent from India or Mentally incapacitated : By Any Adult member
Page 351
6. Political Party : By Chief Executive Officer of the Party
7. Local Authority : By the Principal Officer of the authority
8. AOP/BOI : By any member or Principal Officer of such AOP/BOI
9. Any other Assessee : By that person or a person who is competent to act on his behalf
Sec. 139A : Permanent Account Number (PAN )
Application for allotment of PAN shall be made in the following cases
1) If total income of the person exceeds exemption amount

2) If total sales, turnover or receipts are or likely to exceed 5 lakhs in any p/y
3) If return is to be filed u/s 139(4A)
Time limit for making an application
For point (1) : Upto 31st May of A/Y relevant to P/Y whose Income exceeds exemption amount
For point (2) & (3) : Before the end of financial year
Special points:
1. PAN Suo Moto By AO : Having regard to prescribed transactions, AO may also allot a PAN to any
person whether tax is payable by him or not
2. PAN under Central Govt. Directions : for collecting any useful information ,central govt. may direct
any class of persons to apply for allotment of PAN
3. Voluntary application of PAN : Any person not required under this section to apply for a PAN may
also apply for allotment of PAN
Cases where PAN has to be quoted
 In all returns, correspondences with any Income Tax authority
Page 352
 In all challans for payment of any sum due under this act
 In documents relating to PRESCRIBED TRANSACTIONS
Prescribed Transactions where PAN has to be Quoted : Rule 114B
Particulars of Transactions Value of

Transaction
1. Sale & Purchase of Immovable property `5,00,000 or
2. Payment to a dealer for purchase of bullion or jewellery
More
3. Sale/Purchase of Securities Greater than

`1,00,000
4. Time deposit with any bank Greater than
5. Deposit with post Office Saving Banks `50,000
6. Cash Payment for purchase of bank draft, pay order, banker cheque
from any bank during one day
Atleast
7. Cash Deposit in any bank in one account in a day
`50,000
8. Payment to Mutual Fund for purchase of its units
9. Payment to company for acquiring shares issued by it
10. Payment to company for acquiring debentures or bonds issued by it
11. Payment to RBI for acquiring bonds issued by it
12 Payment of life insurance premium to an insurer
13. Payment of Hotel/Restaurant bill at one time
14. Cash payment for travel to foreign country

(Does not includes travel to Pakistan ,Nepal ,Bhutan, Bangladesh Greater than
,Srilanka, Maldives or travel to China on kailash mansarover or to
Saudi Arabia on Haj `25,000
15. Sale/Purchase of Motor vehicle (other than 2 wheelers)

16. Application for installation of Telephone/Cellular
17. Opening an Account with any bank Any value
18. Application for Credit/Debit Card
Special Points : A person does not have PAN Has to give declaration in Form 60
Page 353
139B : Scheme for submission of returns through Tax return Preparers
 Every person Other than

 A company or person required to get his accounts audited under any law
 May furnish his return
 Through Tax Return Preparers
 Authorised to act under scheme framed by CBDT
Special Points :
1. Every TRP shall assist, the person furnishing the return, in manner as specified in scheme and affix his
signature on such return
2. TRP shall not include

 Officer of schedule bank in which assessee has current a/c or has regular dealings or
 a Legal practitioner in civil courts or
 a Chartered accountant or
 an employee
Page 354
MCQ RETURN
1. As per section 139( 1), a company shall have to file return of income:
(A) when its total income exceeds `2,50,000
(B) when its total income exceeds the maximum amount which is not chargeable to income-tax
(C) in all cases irrespective of any income or loss earned by it
(D) in all cases irrespective of any income earned by it
2. As per section 139( 1), a firm shall have to file return of income:
(A) when its total income exceeds `2,50,000
(B) when its total income exceeds the maximum amount which is not chargeable to income
(C) in all cases, irrespective of any income or loss made by it

(D) in all cases irrespective of any income earned by it
3. As per section 139(1), an individual other than a individual of age of 60 years or more shall have to file return of
income if:
(A) his total income before allowing deduction uls 80C to 8OU exceeds `2,50,000
(B) his total income before allowing deduction uls 80C to 80U exceeds 3,00,000
(C) his total income exceeds `2,00,000
(D) his total income before claiming exemption uls 10(35) and before allowing deduction U/S 80C to 80U exceeds `2,50,000
4. As per section 139( 1) an individual, who is of the age of 60 years but less than 60 years and resident in India shall
have to file return of income if ----
(A) his total income exceeds 3,00,000
(B) his gross total income exceeds 3,00,000
(C) If his total income before claiming exemption uls 10(38) &before allowing deduction U/S 80C to 80U exceeds 2,50,000.
(D) If his total income after allowing of deduction uls 80C to 80U exceeds 3,00,000
5. An individual who is of the age of 60 years or more but non-resident in India shall have to file return of income if:
(A) his total income exceeds `3,00,000
(B) his total income before claiming exemption uls 10(38) and before allowing deduction under section 80C to 80U exceeds
`3,00,000
(C) his total income before claiming exemption uls 10(38) and before allowing deduction under section 80C to 80U exceeds
`2,50,000
(D) his total income before claiming exemption uls 10(38) and before allowing deduction under section 80C to 80U exceeds
`5,00,000
Page 355
MCQ RETURN
6 A woman who is resident in India and less than 60 years of age shall have to file the return of income if her total income
exceeds:
(A) `2,00,000
(B) `2,50,000 before claiming exemption U/S 10(38) and before allowing deduction under section 80C to 80U
(C) `2,00,000 before claiming exemption uls 10(38) and before allowing deduction under section 80C to 80U
(D) `3,00,000 before claiming exemption uls 10(38) and before allowing deduction under section 80C to 80U
7 A woman who is non-resident in India and who is 60 years of age shall have to file the return of income if her total
exceeds:
(A) `2,50,000 before claiming exemption uls 10(38)and before allowing deduction under section 80C to 80U
(B) `2,50,000 after claiming exemption U/S 10(38)and after allowing deduction under section 80C to 80U
(C) `3,00,000before claiming exemption uls 10(38)and before allowing deduction under section 80C to 80U
(D) `5,00,000 before claiming exemption U/S 10(38)and before allowing deduction under section 80C to 80U
8. As per section 139(1), a person other than a company or a firm shall have to file return of income if:
(A) his total income exceeds `2,50,000
(B) his total income exceeds the maximum amount which is not chargeable to tax
(C) his total income exclusive of exemption uls 10(38)and deduction under Chapter VIA exceeds the maximum amount which
is not chargeable income tax
(D) in all cases irrespective of any income or loss
9 The total income of a trust before claiming exemption u/s 11 is `3,40,000 It is eligible for exemption U/S 11 to the
extent `1,00,000. Such trust shall:
(A) have to file a return of income
(B) not be required to file return of income as its taxable income is `2,40,000
(C) have to file a return of income as its taxable income is `3,40,000
(D) not be required to file return of income as its income is exempt uls 11
10. A dies on 15.11.2016 and his total income till 15.11.2016 was `2,60,000. Thereafter the business of A was inherited by his
son R & his total income from such business was `1,95,000. The son does not have any other income. In this case the
son:
(A) has to file a consolidated return of income amounting to `4,55,000
(B) has to file two returns of income, one on behalf of his father for 2,60,000 & other in his own capacity for 1,95,000.
(C) has to file one return of income on behalf of his father for `4,55,000
(D) has to file only one return of income on behalf of his father for `2,60,000
Page 356
MCQ RETURN
11 The last date of filing the return of income u/s 139( 1) for assessment year 2017 -18 in case of a Company assessee is:
(A) 30th September
(B) 30th September of the assessment year
(C) 31 st March of the assessment year
(D) 30th November of the assessment year in case it is required to furnish report referred to in section 92E and 30th September of the
assessment year in any other case
12 The last date of filing the return of income u/s 139(1) for assessment year 2017-18 in case of non corporate assessee who does not
have any income UIH profits and gains from business or profession is:
(A) 31st July of the assessment year
(C) 31st March of the assessment year
(D) 30th November of the assessment year
13 The last date of filing the return of Income U/S 139(1) for assessment year 20'17-18 in case of non-corporate business assessee
whose accounts are not liable to be audited shall be:
(A) 31 st July of the assessment year
(B) 30th June of the assessment year
(C) 30th September of the assessment year
14 The due date of filing the return of income for assessment year 2017-18 in case of a working partner of a firm whose accounts are
liable to be audited shall be:
(A) 31 st July of the assessment year
(C) 30th June of the assessment year.
(D) 30th November of the assessment year in case it is required to furnish report referred to in section 92E and 30th September of the
assessment year in any other case
15 All companies other than those covered u/s 25 are required to file return of Income in:
(A) Form ITR6
(B) Form ITR5
(C) Form ITR4
(D) Form ITR7
16 An individual or HUF having income (other than presumptive income) U/H profits or gain from Business & Profession is required to
file the return in:
(A) Form ITR6
(B) Form ITR4
(C) Form ITR5
(D) Form ITR7
17 E-filing of return in case of an office of the Government/company and a firm whose accounts are liable to be audited is:
(A) mandatory
(B) optional
(C) mandatory when its income exceeds `5,00,000
(D) mandatory when its income exceeds 10,00,000
18 The filing of return ofloss in case ofa person other than a company or firm is:
(A) mandatory
(B) not mandatory
(C) mandatory if the assessee has to carry forward the loss which are allowed to be carried forward & set off
Page 357
MCQ RETURN
19 If the assessee has to carry forward the loss, the return ofloss must be submitted:
(A) on or before the due date mentioned in section 139(1)
(B) at any time before the end of the relevant assessment year
(C) at any time before the expiry of one year from the end of the relevant assessment year
(D) at any time before 30th September of the relevant assessment year
20 If there is a loss U/H house property, it will be allowed to be carried forward (if it could not be set off from other heads of
income). In this case, however the assessee:
(A) has to submit the return of loss before the due date mentioned under section 139(1)
(B) need not submit the return of income
(C) must submit the return of income but it can be a belated return submitted as per section 139(4)
21 Belated return u/s 139(4) can be filed at any time:

(A) before the expiry of one year from the end of the relevant assessment year
(B) before the expiry of the relevant assessment year
(C) before the expiry of the relevant assessment year or before the assessment is complete, whichever happens to be earlier
(D) before the expiry of one year from the end of the relevant assessment year or before the assessment is complete, whichever
happens to be earlier
.22 An assessee was issued a notice u/s 142(1 )(i) to file his return of income within 30 days of the receipt of notice. He submitted
his return within 30 days. Such return shall be treated as:
(A) belated return as per section 139(4) though filed within time
(B) return filed within time
(C) return filed within due date mentioned u/s 139(1)
(D)return filed with in time if he is neither covered under section 139(1) and belated return as per section 139(4) though filed within
time if he is covered either under section 139(1).
23 The assessee could not file his return of income for assessment year 2017-18 within the time allowed U/S 139(1). No
assessment has so far been made. The assessee in this case can file his return of income till:
(A) 31.3.2018 (B) 31.3.2019 (C) 31.3.2020 (D) 31.12.2018
24 The assessee could not file his return of income for the previous year 2016-17 within the time allowed U/S 139(1). No assessment
has so far been made. The assessee in this can file his return of income till:
(A) 31.3.2018 (B) 31.3.2019 (C) 31.3.2017 (D) 31.12.2019
25 The assessee could not file his return of income for assessment year 2017-18 within the time allowed as per section 139(1). His
assessment u/s 144 was completed on 15.2.2018 & it was communicated to him on 19.2.2018. The assessee in this case could file
the belated return till:
(A) 14.2.2018 (B) 15.2.2018 (C) 18.2.2018 (D) 31.3.2018
26 For the previous year 2017-18 assessee has suffered a business loss of `2,50,000. His income from other sources is 1,80,000. His due
date of return was 31.7.2018 but he submitted the return on 9.9.2018, the assessee in this case:
(A) shall be allowed to carry forward the loss of 70,000
(B) shall not allowed to carry forward any loss
(C) shall be allowed to set off current year business loss to the extent of ` 1,80,000 but shall not be allowed to carry forward the
balance loss of 70,000
(D) shall not allowed to set off the business loss to the extent of 1,80,000 & would be liable to tax on 1,80,000
Page 358
MCQ RETURN
27 For the previous year 2017-18, the assessee incurred loss under the head, income from house property amounting to H,20,000. His
other income for the same previous year is `50,000. The due date of filing the return of income is 31. 7 .2018 but he submitted the
return of income on 9.9.2018. In this case the assessee:
(A) shall be allowed to carry forward the loss of 70,000
(B) shall not be allowed to carry forward the loss of 70,000
(C) shall be allowed to carry forward the loss of l,20,000
28 For P/Y 2017-18, the business income of the assessee, before providing current year depreciation of 3,00,000 was `2,40,000. His due
date for furnishing the return of income was 30.9.2018 but he submitted the return on 15.12.2018. In this case, the assessee shall:
(A) be allowed to carry forward unabsorbed depreciation of 60,000
(B) not be allowed to carry forward unabsorbed depreciation of 60,000
(C) be allowed to carry forward unabsorbed depreciation of 3,00,000
29 For the previous year 2017-18, the business loss of the assessee was1,00,000 and the current year depreciation was 1,40,000. The
assessee furnished the return of income on 15.12.2018 although the due date was 30.9.2086. In this case the assessee shall:
(A) be allowed to carry forward business loss of 1,00,000 and unabsorbed depreciation of 1,40,000
(B) neither be allowed to carry forward business loss nor the unabsorbed depreciation
(C) not be allowed to carry forward business loss but shall be allowed to carry forward unabsorbed depreciation
30 The assessee in response to a notice uls 142( I) submitted a return of loss of 1, 1 0,000 within the time allowed in the said notice. In
this case the assessee:
(A) shall be allowed to carry forward such loss as the return is filed within the time allowed:
(B) shall not be allowed to carry forward such loss
(C) shall not be allowed to carry forward such loss as the return is not filed uls 139
31 The due date of furnishing the return of income for assessment year 2018-19 in case of charitable trust is:
(A) 30th June of the assessment year
(B) 31 st July of the assessment year
(C) 30th September of the assessment year
32 R finds some mistake in the return of income submitted by him on 5.6.2018 for assessment year 2018-19. He wishes to revise
such return. No assessment has been done in this case. R can revise such return till:
(A) 31.3.2018 (B) 31.3.2019 (C) 31.3.2020 (D) 31.12.2019
33 R Ltd., who submitted the return of income for assessment year 2018-19 on 5.12.2018 finds some mistake in the return submitted by
it. In this case R Ltd.,
(A) can revise the return of income till31.3.2018
(B) can revise the return of income till 31.3.2019
(C) cannot revise such return of income
(D) can revise the return of income till 31.12.2019
34 R did not file any return of income for assessment year 2017-18 although he was required to do so by 31.7.2017. He was issued
notice uls 142(1) to file return of income which he furnished within the time allowed in the notice. He, later on finds some mistake
in the return. In this case R:
(A) can revise such return (B) cannot revise such return (C) can revise such return but the loss, if any, cannot be carried
forward (D) none of the above
Page 359
MCQ RETURN
35 The notice under section 143(2) must be served within:

(A) 12 months from the date of filing of return
(B) 12 months from the due date of filing the return U/S 139(1) or from the date of filing of return of income
(C) 6 months from the end of the financial year in which the return was furnished
(D) 6 months from the end of month in which the return was furnished
36 Intimation U/S 143(1) cannot be sent after the expiry of:

(A) 4 years from the end of the month in which return of time was furnished
(B) 2 years from the end of the month in which return of income was furnished
(C) 2 years from the end of the assessment year in which the income was so assessable
(D) One year from the end of the financial year in which the return is made
37 Return of income of assessment year 2018-19 was furnished on 16.8.2018. Intimation in respect of such assessment year must be sent
by:
(A) 31.3.2019
(B) 31.3.2020
(C) 31.3.2021
(D) 31.12.2021
38 Assessment under section 143(3) for assessment year 2012-13 was completed 10.12.2014. Thereafter on l.6.2016 the Assessing
Officer notices that income of `72,000 had escaped assessment. The Assessing Officer in this case could issue notice till:
(A) 31.3.2016
(B) 31.3.2017
(C) 31.3.2020
(D) 31.3.2021
39 The last date for issue of notice U/S 148 was 3l.3.2017. The Assessing Officer issued the notice on 3l.3.2017 which was received by
the assessee on 4.4.2017. In this case, the notice:
(A) is not a valid notice
(B) is a valid notice
(C) is not a valid notice as it should be received by the assessee on or before 3l.3.2017
40 Assessment uls 143(3) for assessment year 2011-12 was completed on 28.12.2012. On 28.12.2016 the Assessing Officer notices that
income of `90,000 has escaped assessment. The notice U/S 148 in this case can/could be issued till:
(A) 31.3.2016
(B) 31.3.2018
(C) 31.3.2019
(D) 31.12.2019
41 Assessment U/S 144 for assessment year 2010-11 was completed on 25.12.2011 at 3,00,000. On 28.10.2016 the Assessing
Officer issued a notice U/S 148 as the income of `65,000 had escaped assessment. The notice issue is:
(A) valid notice
(B) not a valid notice
(C) valid notice as it can be issued within 6 years
42 If the person on whom a notice under section 148 is to served is a person treated as agent of a non-resident, such notice cannot be
issued:
(A) after the expiry of 4 years from the end of the relevant A/Y for which notice for reassessment is to be issued
(B) after the expiry of 6 years from the end of the relevant assessment year
C) after the expiry of 7 years from the end of the relevant assessment year
(D) after the expiry of2 years from the end of the relevant assessment year
Page 360
MCQ RETURN
.43 The time limit for completion of assessment under section 143/144 shall be:
(A) 4 years from the end of the relevant assessment year in which income was first assessable
(B) 21 months from the end of the relevant assessment year which income was first assessable
(C) 2 years from the end of the month in which the return was so furnished
(D) 36 months from the end of the relevant assessment year which income was first assessable
44 The time limit for completion of assessment/reassessment u/s 147 shall be:
(A) 9 months from the end of the financial year in which notice U/S 148 was served on the assessee
(B) 2 years from the end of the financial year in which notice U/S 148 was served on the assessee
(C) 4 years from the end of the financial year in which notice u/s 148 was served on the assessee
(D) 3 years from the end of the financial year in which notice u/s 148 was served on the assessee
45 The assessee furnished the return of income for the assessment year 2016-17 on 28.3.2018. The assessing officer in this case
should complete the assessment by:
(A) 3l..l2.20l7
(B) 31.12.2018
(C) 28.3.2018
(D) 3l.l2.2018
46 For assessment year 2011-12, assessment U/S 143(3) was completed on 10.12.2013, assessing the income at n,oo,OOO. On
29.3.2017, the Assessing Officer issued notice for reassessment of income as he notices a sum of n,20,000 has escaped
assessment. The above notice was issued on 29.3.2017 but was received by the assessee on 3.4.2017. In this case the
reassessment should be completed by:
(A) 31.3.2018
(B) 31.12.2018
(C) 31.3.2019
(D) 31.3.2020
47 For assessment year 2015-16, the assessment was made by the Assessing Officer U/S 143(3) for3,00,000whereas the income
returned was `2, 70,000. The CIT on a revision petition set aside the above order u/s 264. The said order was passed by CIT
on 29.3.2018 which was received by the Assessing Officer and the assessee on 3.4.2018. In this case the assessment should
be completed by:
(A) 30.09.2017 (B) 31.3.2018 (C) 29.3.2017 (D) 31.12.2018
48 The amendment of an order under section 154 can be made:

(A) within four years from the date when the order sought to be amended was passed
(B) within four years from the date of receipt of such order by the assessee
(C) within four years from the end of the financial year in which the order sought to be amended was passed
(D) within six months from the end of the financial year in which the order sought to be amended was passed
49 Where an income in relation to any asset (including financial interest in any entity) located outside India has escaped
assessment, notice under section 148 cannot be issued:
(A) after the expiry of 6 years from the end of the relevant A/Y for which notice for reassessment is issued
(B) after the expiry of 10 years from the end of the relevant assessment year
(C) after the expiry of 16 years from the end of the relevant assessment year
(D) after the expiry of20 years from the end of the relevant assessment year
50 Where a search is initiated under section 132, the Assessing Officer shall assess or reassess the total income of
(A) four A/Y immediately preceding the assessment year relevant to the P/Y in which such search is conducted
(B) five A/Y immediately preceding the assessment year relevant to the P/Y in which such search is conducted
(C) six A/Y immediately preceding the assessment year relevant to the P/Y in which such search is conducted
(D) sixteen A/Y immediately preceding the assessment year relevant to the P/Y in which such search is conducted
Page 361
,
MCQ RETURN
51 Where a search is initiated under section 132, the Assessing Officer shall issue notice to such person requiring him to furnish
within such period as may be specified in the notice
(A) return of income of six P/Y immediately preceding the A/Y relevant to P/Y in which search was conducted u/s 132
(B) return of income of six A/Y immediately preceding the A/Y relevant to P/Y in which search was conducted u/s 132
(C) return of income of seven A/Y immediately preceding A/Y relevant toP/Y in which search was conducted u/s 132
(D) return of income of six A/Y immediately preceding the A/Y relevant to the P/Y in which the search was conducted u/s 132
and for the A/Y in which was the search was conducted
52 The Assessing Officer shall make an order of assessment or reassessment in respect of each assessment year, falling
within six assessment years under section 153A within a period of
(A) 9 months from the end of the financial year in which the last of the authorisations for search u/s 132
(B) 12 months from the end of the financial year in which the last of the authorisations for search u/s 132
(C) 21 months from the end of the financial year in which the last of the authorisations for search u/s 132
(D) 24 months from the end of the financial year in which the last of the authorisations for search u/s 132
53 Time limit of completion of assessment year relevant to the previous year in which search is conducted shall be
(A) a period of18 months from the end of the financial year in which the last of the authorisations for search u/s 132
(B) a period of 18months from the end of the assessment year in which the last of the authorisations for search u/s 132
(C) a period of 18 months [30 months, in case a reference is made u/s 92CA(I) to TPO] from the end of the financial
year in which the last of the authorisations for search u/s 132
(D) a period of18 months [30 months, in case a reference is made u/s 92CA(1) to TPO] from the end of the assessment
year in which the last of the authorisations for search u/s 132
1 (C) 17 (A) 33 (B) 49 (C)

2 (C) 18 (C) 34 (C) 50 (C)
3 (D) 19 (A) 35 (C) 51 (B)
4 (C) 20 (C) 36 (D) 52 (C)
5 (C) 21 (C) 37 (B) 53 (C)
6 (B) 22 (D) 38 (B)
7 (A) 23 (A) 39 (B)
8 (C) 24 (A) 40 (A)
9 (A) 25 (A) 41 (B)
10 (D) 26 (C) 42 (B)
11 (D) 27 (A) 43 (B)
12 (A) 28 (A) 44 (A)
13 (A) .29 (C) 45 (B)
14 (D) 30 (B) 46 (B)
15 (A) 31 (C) 47 (A)
16 (B) 32 (B) 48 (C)
Page 362
ADVANCE TAX
CHAPTER - 14
ADVANCE TAX
Sec 207 Liability for payment of advance tax

Sec 208 Advance tax if 10,000 or more
Sec 209 Computation of advance tax
Sec 210 Computation of advance tax by AO
Sec 211 Due date of advance tax
Sec 234B Interest for non payment of advance tax
Sec 234C Interest for deferment of advance tax
Proviso to sec 234C Advance tax in case of capital gain/casual income
Sec 207 : Liability for payment of Advance Tax
 Tax shall be payable

 in ADVANCE
 during any financial year
 on Total Income which would be chargeable in following assessment year
 as per sections 208 to 219
Special point : Advance Tax is not applicable for Individual who is a Senior Citizen & does not have any
income chargeable under the head "Profits and Gains of business or profession.
Sec 211 : Liability for payment of Advance tax for person u/s 44AD/ADA
An eligible assessee engaged in an eligible business referred to in section 44AD/ADA is liable to pay
advance tax in a single instalment on or before the 15th of March every financial year.
Interest under the said section shall be levied, if the advance tax paid on or before the 15th March, is less
than the tax due on the returned income
Sec 208 : When liability arises
 Advance tax shall be payable during a financial year
 where amount of Advance tax Liability
 during that year is 10,000 or more
Page 363
ADVANCE TAX
Sec 209 : Computation of Advance tax Liability
Step 1 : Estimate TOTAL INCOME of the current financial year

Step 2 : Compute Tax on such Estimated income
Step 3 : Add Education cess @ 3%
Step 4 : Deduct T.D.S
Balance is advance tax liability during the financial year
Special point : For computing liability for advance tax, income-tax calculated shall not be reduced by TDS
during the said F/Y if payer has paid such income without deduction of tax.
Sec 210 : Payment of Advance Tax
Payment by assessee on his own

 Every person who is liable to pay advance tax u/s 208
 Shall on his own
 Pay Advance tax on his income
 on or before due date u/s 211
 Calculated in manner u/s 209
Increase or decrease of subsequent installments

 A person who pays any installment of advance tax
 May increase or reduce advance tax payable in remaining installment
 In accordance with estimate of current income
Sec 211: Due dates for Payment of Advance Tax
Due Date of installment % of Advance Tax

Upto 15 June Atleast 15%
of current financial year of advance tax liability
Upto 15 September Atleast 45%

Upto 15 December Atleast 75%
Upto 15 March Atleast 100%

Special point
1. Where assessee declares profits u/s 44AD, whole amount of such advance tax can be paid on or
before the 15th March of the F/Y
2. Any amount paid by way of advance tax on or before 31st day of March shall also be treated as
advance tax paid during F/Y ending on that day for all the purposes of this Act.
Page 364
ADVANCE TAX
Sec 234C: Interest for Deferment of Advance Tax
Conditions Rate Months Amount on which

interest payable
Advance tax paid upto 15th june is less 1% Pm 3 15% of Tax as per ROI
than 12% of Tax as per ROI Less Advance tax paid
upto 15th june
Advance tax paid upto 15th Sept is less 1% Pm 3 45% of Tax as per ROI
upto 15th Sept.
Advance tax paid upto 15th Dec is less 1% Pm 3 75% of Tax as per ROI
upto 15th Dec
Advance tax paid upto 15th March is less 1% Pm 3 100% of Tax as per ROI
upto 15th March
For assessee covererd u/s 44AD

Advance tax paid upto 15th March is less 1% Pm 1 100% of Tax as per ROI
than 100 % of Tax as per ROI Less Advance tax paid
upto 15th March
Proviso to Sec 234C: Payment of Advance tax in case of Capital Gain/Casual income
Advance tax is payable on all incomes including capital gains and winnings from lottery and cross word
puzzles etc
Normally it is not possible for an assessee to estimate such gains.
No interest liability will arise u/s 234C if advance tax is paid as follows
 If such gains arises after due date of installment

 Then entire tax payable on such incomes
 Should be paid in remaining installments which are due
 However if such income arises after 15 march, then entire tax has to be paid by 31st march of
relevant financial year.
Page 365
ADVANCE TAX
Sec 234B: Interest for Non Payment of Advance tax
 If advance tax not paid or
 If advance tax paid is less than 90% of tax as per ROI
 Interest shall be payable @ 1% per month or part of the month
 From 1st April of the following financial year
 Upto the date of payment of self assessment tax
 Interest shall be payable on Tax as per ROI less Tax paid
Sec 234A : Interest for defaults in furnishing Return of Income
 Where the Return of Income for any assessment year
 Is furnished after the due date
 Interest shall be payable @ 1% per month or part of the month
 From date after Due date of return to Date of payment of tax
On Tax as per ROI less Tax Paid
Sec 244A : Interest on Refund
 Where refund of any amount becomes due to the assessee under this Act,
 he shall be entitled to receive,
 in addition to the said amount
 Interest @ 0.5 % pm or part
 from the 1st April of assessment year to the date on which the refund is granted
Special point :
1) No interest u/s 244A shall be receivable if the amount of refund is less than 10%of the tax
2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether
wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which
interest is payable.
Page 366
ADVANCE TAX
Sec 210 : Payment of Advance Tax on order of AO
 If AO is of opinion that any person is liable to pay advance tax

 Then he issue an order u/s 210requiring him
 To pay advance tax
 Provided that person has already been assessed by way of Regular assessment
 Such order can be passed any time during the financial year but not later than last date of February
Special Point :
Sec 2(40) : Regular Assessment means the assessment made under section 143(3) or section 144
Computation of advance tax by AO

For computing advance tax AO shall take the higher of following as current income
 Total income of the latest previous year for which the assessee has been assessed by way of regular
assessment
OR
 Total income declared in return by assessee for any previous year after the above previous year
Amendment of order by AO
 AO can also amend his original order for payment of advance tax , If
 subsequent to passing of his original order
 Return of income is filed by assessee or regular assessment is made for later previous year
 Then AO shall amend his order
 However amended order has to be served upto last day of February only
Assessee can also estimate his income after receiving AO order

 If after receiving the order u/s 210
 Assessee estimates his income to be less than estimate of AO,
 Then assessee can submit his own estimate and pay advance tax on such lower estimate
 However if assessee estimates his income to be higher ,than
 There is no need to submit estimate, and assessee will pay advance tax on such higher estimate
Page 367
TAX DEDUCTED AT SOURCE
CHAPTER – 15
Sec 191 Direct payment

Sec 192 TDS on salary
Sec 193 TDS on interest on security
Sec 194 TDS on dividend
Sec 194A TDS on other interest
Sec 194B TDS on lottery, crossword puzzles etc
Sec 194BB TDS on horse races
Sec 194C TDS on contractor
Sec 194D TDS on insurance commission
Sec 194E TDS on payment to NR sportsman or sports Association
Sec 194G TDS on commission on sale of lottery tickets
Sec 194H TDS on commission & Brokerage
Sec 194I TDS on rent
Sec 194 IA TDS on acquisition of immovable property
Sec 194J TDS on fees for professional/technical services
Sec 194LA TDS on compulsory acquisition of immovable property
Sec 195 TDS on Non resident
Sec 195A Tax free payments
Sec 196 No TDS if payments to specified payees
Sec 197 Certificate for no TDS/lower rates
Sec 197A Self declaration
Sec 198 TDS is deemed Income
Sec 199 Credit of TDS
Sec 200 Duty of person deducting tax
Sec 201 Consequences of failure to Deduct/Pay TDS
Sec 203 TDS certificates
Sec 203A TAN
Sec 203AA Annual Tax deduction/Deposit statement
Sec 205 Bar against direct demand on Assessee
Sec 206AA Deductee to disclose PAN
Sec 206CC Disclosure of PAN
Page 368
Sec 191 : Direct Payment
 Where Tax has not been deducted

 as per provisions of TDS
 Income tax shall be payable
 By the assessee directly as advance tax or otherwise
Special point :
If any person who is required to deduct any sum in accordance with the provisions of this Act or does not
deduct, or after so deducting fails to pay whole/any part of tax but the assessee has paid such tax directly,
then, such person shall not be deemed to be an assessee in default u/s 201
Sec 192 : TDS on Salary
1. Type of Payment Salary
2. Payer Any employer
3. Payee Any Employee
4. Time of TDS Payment
5. Rate of TDS Slab rates + Education cess
7. Exemption Limit `2,50,000, `3,00,000, `5,00,000 (as the case may be )
6. Other provisions Where a person employed with more than one employer, may
furnish details of previous salary to other employer.
Employee may also disclose other income & TDS on them or

loss from HP for same previous yr to employer
In both cases employer shall take the above and then deduct
tax
The payer shall, for the purposes of estimating income of the assessee or computing tax deductible, shall
obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-
off of loss) under the provisions of the Act in such form and manner as may be prescribed.
Page 369
Sec 193 : TDS on Interest on Security : Refer Income from other sources
Sec 194 : TDS on Dividend : Refer Income from other sources
Sec 194A : TDS on Other Interest : Refer Income from other sources
Sec 194B : TDS on Lottery Income etc : Refer Income from other sources
Sec 194BB : TDS on Horse Races etc : Refer Income from other sources
Sec 192A : TDS on Provident Fund Payment
1. Type of Payment Payment of Recognised Provident fund Balance

[Which is not exempt u/s 10(12)]
2. Payer Trustees under EPF Act,1952
3. Payee Employee
4. Time of TDS Payment
5. Rate of TDS 10%

TDS @ Maximum Marginal rate if payee does not
disclose his PAN to Payer
6. Exemption Limit
Less than 50,000
(earlier it was 30,000 upto 31/5/2016)
Page 370
Sec 194 C : Payment to Contractor
1. Type of Payment Payment to Contractor/Sub contractor
2. Payer Any person (Ind/HUF subjected to tax audit for prior

P/Y or Other Payer
3. Payee Resident Contractor
4. Time of TDS Payment or credit, earlier
5. Rate of TDS Contractor Ind/HUF : 1%

Other case : 2%
NO TDS for payment of transportation expenses to

contractor if owns ten or less goods carriages at any
time during P/Y & discloses his PAN
6. Exemption Limit `30,000 per payment & `1,00,000 in aggregate for

financial year
(Earlier it was `75,000 upto 31/5/2016)
7. Other provisions No TDS by Ind/HUF if payment for personal purpose
Sec 194 D : TDS on Insurance Commission
1. Type of Payment Insurance commission
2. Payer Any person
3. Payee Resident
4. Time of TDS Payment or credit, whichever earlier
5. Rate of TDS 5%
6. Exemption Limit Aggregate `15,000 in a Previous Year
Page 371
Sec 194 E : TDS on Payment to Non Resident Sportsmen/Sport Association
1. Type of Payment Income u/s 115BBA
2. Payer Any person

3. Payee Non resident sportsmen/Sport association or Entertainer
5. Rate of TDS 20%
6. Exemption Limit NIL
Sec 115BBA : Income of Non Resident Sportsmen/Sport Association
(1) Where the total income of an assessee being
(a) A sportsman (including an athlete), who is foreign citizen & non-resident, includes any income from
(i) Participation in India in any game (other than a game whose winnings taxable u/s 115BB) or sport or
(ii) Advertisement or
(iii) Contribution of articles relating to any game or sport in India in newspapers, magazines or journals
(b) A non-resident sports association, includes any amount guaranteed to be paid to such association in
relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or
sport played in India,
(c) An entertainer, who is foreign Citizen & non-resident, includes any income from his performance
in India.
Such income shall be taxable @ 20%
(2) It shall not be necessary for assessee to furnish a return of his income u/s 139(1) if
(a) His total income during P/Y consisted only of income referred to as above and
(b) TDS was deducted u/s 194E
Sec 115BB. : Where the total income of an assessee includes any income by way of winnings from any lottery or
crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race
horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever
such income shall be taxable @ 30%
Page 372
Sec 194 G : TDS on lottery Commission
1. Type of Payment Commission on sale of lottery ticket

2. Payer Any person
3. Payee Any person
5. Rate of TDS 5%
(Earlier it was 10% upto 31/5/2016)
6. Exemption Limit ` 15,000
Sec 194 H : TDS on Commission/Brokerage
1. Type of Payment Commission/Brokerage

2. Payer Ind /HUF subjected to tax audit for prior P/Y or Other person
3. Payee Resident
5. Rate of TDS 5%
(Earlier it was 10% upto 31/5/2016)
6. Exemption Limit Aggregate `15,000 in P/Y
Sec 194 I : Payment of Rent
1. Type of Payment Rent
2. Payer Ind/HUF subjected to tax audit for prior P/Y or other person
3. Payee Resident
5. Rate of TDS Rent of P&M :2%
Rent of L&B or F/F : 10%

6. Exemption Limit Aggregate `1,80,000 in P/Y
No deduction shall be made under this section where rent is paid

to real estate investment trust, in respect of any real estate asset,
owned directly by such business trust.
Page 373
Sec 194 J : TDS on fees for Professional / Technical services/ Royalty
1. Type of Payment Fees for Professional/Technical services/Royalty/ Remuneration

or fees or commission to a director of a company other than those
on which tax is deductible u/s 192
2. Payer Ind /HUF subjected to tax audit for prior P/Y or Other Payer
3. Payee Resident
5. Rate of TDS 10%
6. Exemption Limit Aggregate `30,000 in a P/Y
7. Other provisions No TDS by Ind/HUF if payment for personal purpose
Sec 194 IA :TDS on Payment for Transfer of Immovable property other than Compulsory Acquisition
1. Type of Payment Consideration for transfer of any Immovable Property (other than
Rural Agricultural land)
2. Payer Any Person
3. Payee Resident
5. Rate of TDS 1%
6. Exemption Limit Consideration less than `50,00,000 in P/Y
7. Conditions Deductor need not apply for TAX DEDUCTION ACCOUNT
NUMBER(TAN)
Sec 194 LA : TDS on Compensation on Compulsory Acquisition of Immovable Property
1. Type of Payment Compensation on Acquisition of Immovable Property

(other than Rural Agriculture land)
2. Payer Any person
3. Payee Resident
5. Rate of TDS 10%
6. Exemption Limit `2,50,000
(Earlier it was `2,00,000 upto 31/5/2016)
Page 374
Sec 195 : TDS on Payment to Non Resident
1. Type of Payment Payment other than salary

2. Payer Any person
3. Payee Non resident
5. Rate of TDS Prescribed rates
Sec 195A : Tax Free Payments
 Where under an agreement
 TDS is to be borne by Payer
 Then Payment made to payee
 will be treated as net amount after TDS
Gross Amount to be = Net Amount Received X 100

TDS = Gross Amount – Net Amount
Sec 196 : No TDS if payments to Specified Payee
No deduction of tax shall be made by any person from any sums payable to
 Government
 Reserve Bank of India
 Corporation established under Central Act which is exempt from income-tax on its income
 Mutual Fund specified u/s 10(23D)
Page 375
Sec 197 : Certificate for No deduction or deduction at lower rates
 Assessee can make an application to AO
 For deduction of tax at lower rates/No deduction (Except for Sec 194B , 194BB , 194E)
 AO is satisfied that assessee application is justified
 Grant the assessee a certificate for deduction of tax at lower rates/No deduction
Special Point:
1. Upon furnishing of such certificate ,person responsible for deducting tax shall deduct tax at lower rates
or deduct no tax, as the case may be.
2. Certificate will be valid until it is cancelled by AO
Sec 197A : Self Declaration for No deduction of Tax
 Individual, who is resident in India
 having income liable for deduction u/s 193, 194 or 194A or 194I
 furnishes declaration in writing
 In duplicate in prescribed form to the payer
 no deduction of tax shall be made by Payer
Special point : This declaration shall be made only if
a) Tax on his estimated Total income of the previous year is NIL &
b) Aggregate such incomes during previous year does not exceed Exemption limit
Sec 198 : Tax deducted is Income Received
 All sums deducted under TDS provisions shall

 for the purpose of computing the income of an assessee
 be deemed to be income received
Special point :
This section is not applicable if payment u/s 192(1A) is applicable (i.eTax on non monetary perquisite paid
by employer is not deemed as income of employee)
Page 376
Sec 199 : Credit for Tax Deducted
 Any TDS deducted & paid to Central Government by payer
 Shall be treated as payment of tax on behalf of payee &
 Payee shall get the Credit of Tax deducted
Sec 201 : Consequences of Failure to Deduct / Pay TDS
 Where any person
 who is required to deduct TDS
 does not deduct, or after deducting fails to pay
 the whole or any part of the tax
 then, such person be deemed to be an Assessee in default and liable to Penalty u/s 221 upto the
amount of Tax in Arrears and
 Liable to pay Interest @ 1% pm or part
 for period from Due date of deduction TO Date of actual Deduction AND
 Interest @ 1.5% Pm or part
 for the period from Date of actual deduction TO Date of actual deposit
 and such interest shall be paid before furnishing the statement u/s 200
Sec 203 : Certificate for Tax Deducted
 Every person deducting TDS

 Shall, within Prescribed period & Prescribed form
 furnish to Payee
 a Certificate of deduction
 Specifying the amount so deducted
 Rate of TDS and
 Other prescribed particulars
Page 377
Sec 203A : Tax deduction Account Number (TAN)
 Every person, liable to deduct tax

 Shall apply to the Assessing Officer
 for the allotment of TAN in prescribed form
 TAN shall be quoted in all
 Challans for the Deposit of TDS
 Certificates furnished under section 203
 Statements u/s section 200
 other documents
Sec 203AA : Furnishing of Statement of tax deducted
 The Income-tax authority shall

 within prescribed time after the end of each financial year
 prepare and deliver to every person
 on whose income Tax Deducted or Paid
 a statement in the prescribed form
 specifying the amount of tax deducted or paid
Sec 205 : Bar against direct demand on Assessee
Where tax is deductible

assessee shall not be called upon to pay the tax himself
to the extent to which tax has been deducted from that income
Sec 206AA : Requirement to furnish Permanent Account Number
 Any person entitled to receive any amount on which tax is deductible (Deductee)
 shall furnish his Permanent Account Number (PAN)
 to the person responsible for deducting such tax ( Deductor)
If Deductee does not disclose his PAN, TDS will be deducted at Higher of the following rate
 Applicable TDS rate or 20%
Page 378
Sec 206CC : Requirement to furnish Permanent Account Number
 Any person paying any amount on which tax is collectible (Collectee)

 shall furnish his Permanent Account Number (PAN)
 to the person responsible for collecting such tax ( Collector)
If Deductee does not disclose his PAN, TDS will be deducted at Higher of the following rate
 Twice the Applicable TDS rate or 5%
Page 379
MCQ ADVANCE TAX & TDS
TAX DEDUCTION/COLLECTION AT SOURCE
(1) Tax is to be deducted at source under section 192 on salaries at the time of :
(a) Payment of salary to the employee (b) Crediting the salary to the account of employee
(c) Payment of salary to the employee or Crediting (d) Payment of salary to the employee or Crediting the
the salary to the account of employee whichever is earlier salary to the account of employee whichever is earlier
(2) Deduction of tax from salary as per section 192 shall be at - (June 2016)
(a) 10% of salary (b) The average rate of income-tax computed on
the basis of rates in force for the financial year in
which the payment is made
(c) The maximum marginal rate of 30% (d) None of the above.
(3) X Ltd. pays salary of ` 2,50,000 as salary to Mr. Ram. Mr Ram does not have any other income. The amount of tax deducted at source
will be -
(a) ` 20,000 (b) ` 10,000
(c) ` 20,600 (d) Nil
(4) X Ltd. pays salary of ` 5,20,000 as salary to Mr. Ram. Mr Ram has reported a loss from house property amounting ` 2,00,000. The
amount on which tax to be deducted at source will be -
(a) ` 5,00,000 (b) ` 2,00,000

(c) ` 3,20,000 (d) Nil
(5) X Ltd. pays salary of ` 5,00,000 as salary to Mr. Shyam. Mr Shyam has reported a business loss of ` 1,50,000 to his employer. The
amount on which tax to be deducted at source will be -
(a) ` 5,00,000 (b) ` 1,50,000
(c) ` 3,50,000 (d) Nil
(6) X Ltd. pays salary of ` 5,00,000 to Mr. Shyam. Mr. Shyam has reported a business loss of ` 1,50,000 to his employer. The monthly
amount of tax deducted at source will be -
(a) ` 1,073 (b) ` 687
(c) ` 2,146 (d) Nil
(7) X Ltd. pays salary of ` 6,00,000 as salary to Mr. Kamlesh. Mr. Kamlesh has reported a loss from house property of ` 2,00,000 to his
employer. The monthly amount of tax deducted at source will be -
(a) ` 2,043 (b) ` 644
(c) ` 1,288 (d) Nil
(8) At what rate tax is to be deducted at source u/s 192A in a case where the accumulated balance due to an employee participating in a
recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being
applicable if the assessee fails to furnish the permanent account number:
(a) 20% (b) 15%

(c) 10% (d) 2%
(9) At what rate tax is to be deducted ul s 192A in a case where the accumulated balance due to an employee participating in a recognised
provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable,
in case where the assessee fails to furnish his PAN.
(a) 30.9% (b) 35.54%
(c) 33.6% (d) 30%
Page 380
(10) No TDS shall be made under section 192A in a case where the accumulated balance due to an employee participating in a recognised
provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth
Schedule' not being applicable does not exceed ` __________ _
(a) 30,000 (b) 50,000

(c) 10,000 (d) 5,000
(11) The amount of TDS payable on the sum of ` 25,000 payable to X Ltd. by Government of India by way of interest on securities owned by
it would be -
(a) ` 2,575
(b) ` 5,150
(c) Nil
(d) ` 7,725
(12) The amount of TDS payable on the sum of ` 25,000 payable to Mr. A by way of securities owned by him of a company listed in
recognised stock exchange and issued in dematerialized form would be _
(a) ` 2,575 (b) ` 5,150

(c) Nil (d) ` 7,725
(13) Mr. X has invested ` 10,00,000 in 12% debentures of ABC Ltd. The gross amount of interest payable by the company is ` 1,20,000. The
amount of tax deducted at source will be :
(a) ` 12,000 (b) ` 24,000

(c) ` 12,360 (d) ` 24,720
(14) Tax shall be deducted @ 10% if the interest payable on 8% Savings (Taxable) Bonds, 2003 exceeds ________________ during the
financial year.
(a) ` 5,000
(b) ` 10,000
(c) ` 20,000
(d) ` 25,000
(15) Rohan won a State Government lottery of ` 1,00,000 on 11th October, 2016. The government should deduct tax on such
winning amounting to - (June 2016)
(a) ` 30,000
(b) ` 33,000
(c) ` 33,990
(d) ` 30,900
(16) The person responsible for paying any income by way of winnings from lottery an amount exceeding ` 10,000, shall
deduct - (Dec. 2015)
(a) TDS@30% (b) TDS @ 30.9%

(c) TDS@10% (d) No TDS.
(17) While making payment of winnings from horse race, tax will be deducted at source, if the payment exceeds - (June 2016)
(a) ` 5,000
(b) `10,000 (d)
(c) ` 25,000
` 50,000
(18) X Ltd. pays dividend u/s 2(22)(e) to its shareholder's. Mr. A resident who is the shareholder of such company receives dividend ` 2,000
what will be the amount of IDS payable -
(a) `206 (b) ` 618

(c) ` 412 (d) Nil
(19) What would be your answer if in the above case, Mr. A receives dividend ` 5,500.
(a) ` 618 (b) ` 550

(c) ` 1,700 (d) Nil
(20) M/ s. X & Company a partnership firm pays interest ` 5,000 to a resident company on loan borrowed from such company. What will be
the amount of TDS payable?
Page 381
(a) ` 2,060 (b) ` 1,030

(c) ` 3,090 (d) Nil
(21) Individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business exceeds ____ in case of
business during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be
liable to deduct tax at source under section 194A.
(a) ` 25,00,000 (b) ` 1,00,00,000

(c) ` 15,00,000 (d) ` 60,00,000
(22) No tax shall be deducted under Section 194A where the amount of such income or, as the case may be, the aggregate of the
amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or
to, the payee, does not exceed where the payer is a banking company (including any bank or banking institution).
(a) ` 10,000 (b) ` 15,000

(c) ` 25,000 (d) ` 5,000
(23) No tax shall be deducted under Section 194A on such interest income paid by way of interest on the compensation amount
awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the
amounts of such income paid during the financial year does not exceed ----
(a) ` 10,000 (b) ` 15,000

(c) ` 25,000 (d) ` 50,000
(24) No tax shall be deducted under Section 194A to such income credited or paid by a co-operative society (other than a co-
operative bank) to _______
(a) a member thereof (b) Neither (a) nor (b)
(c) any other co-operative society (d) Both (a) and (b)
(25) Tax is to be deducted at source under section 194B on lottery winnings at the time of:
(a) Payment of such income to the payee (b) Crediting of such income to the account of payee
(c) Payment or credit to the account of payee (d) Payment or credit to the account of payee whichever
whichever is earlier is later
(26) Rate of tax deduction at source in case of winnings from camel race will be :
(a) 30% (b) 20%
(c) 10% (d) Nil
(27) Mr. A won a cash prize of ` 5,000 from a crossword puzzles published by Rajasthan Patrika. The amount of TDS, payable will be-
(a) ` 7,725 (b) ` 8,498

(c) ` 15,450 (d) Nil
(28) In a contest, Amit wins `50,000 cash and a motor-cycle worth ` 50,000. The amount of tax deducted at source will be - (Dec. 2014)
(a) ` 30,000 (b) ` 15,000
(c) ` 27,000 (d) ` 27,810.
(29) The amount of TDS payable on the sum of ` 50,000 payable to Mr. X by Government of India by way of interest on securities
owned by it would be -
(a) ` 2,575 (b) ` 5,150

(c) Nil (d) ` 7,725
(30) Interest ` 5,000 is payable to a resident individual on listed debentures through account payee cheque. The TDS payable will be-
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(31) Rate of tax deduction at source in case of payment in respect of life insurance policy u/s 194DA will be :
(a) 3% (b) 2%
(c) 1% (d) Nil
(42) In case of payment in respect of life insurance policy u/s 194DA, tax is not required to be deducted if the payment is less
than ______
(a) ` 1,00,000 (b) ` 2,00,000

(c) ` 5,000 (d) ` 10,000
(43) Rate of TDS in case of payment made by a business trust to Unit holder of such business trust being a resident is:
(a) 30% (b) 20%
(c) 10% (d) Nil
(44) Rate of tax deduction at source in case of payment of interest by a business trust to Non-resident, not being a company, or a foreign
company is :
(a) 30% (b) 20%
(c) 10% (d) 5%
(45) In case of payment in respect of commission under section 194G, tax is not required to be deducted if the payment does
not exceed ________
(a) ` 15,000 (b) ` 2,00,000

(c) `5,000 (d) ` 10,000
(46) In case of payment in respect of commission u/s 194G, tax is required to be deducted @ ----
(a) 10% (b) 5%

(d) 20%
(c) 30%
(47) What will be the amount of TDS in case of commission `15,000 payable by Bharat Sanchar Nigam Ltd. to their public call office
franchisees ?
(b) ` 1,030
(a) ` 515
(d) Nil
(c) ` 258
(48) Any person responsible for paying to a non-resident sportsman, who is not a citizen of India referred under section 115BBA shall be
liable to deduct tax at source:
(a) 20% (b) 40%

(c) 30% (d) 10%
(49) Mr. Anderson, a British citizen, is non resident entertainer has performed in India and has been paid remuneration of ` 10,00,000, The
amount of tax deducted at source will be :
(a) ` 3,09,000 (b) ` 2,06,000

(d) Nil
(c) ` 1,03,000
(50) Any person who is responsible for paying, to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets,
any income by way of commission, remuneration or prize on such tickets shall be liable to deduct tax at
source if such amount exceeds,
(a) ` 15,000 (b) ` 5,000

(d) ` 20,000
(c) ` 10,000
(51) Any person, who is responsible for paying, to a resident, any income by way of commission or brokerage, shall be liable to deduct tax at
source, in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid
or likely to be credited or paid during the financial year to the account of, or to, the payee, exceeds
Page 383
(a) ` 1,000
(b) `15,000
(c) ` 10,000
(d) ` 20,000
(52) Any person who is responsible for paying to a resident any income by way of rent shall be liable to deduct tax at source where the amount
of such income credited or paid or likely to be credited or paid during the financial year to the account
of, or to, the payee, exceeds _____________ _
(a) ` 1,80,000 (b) ` 10,000

(c) ` 2,00,000 (d) ` 50,000
(53) Any person who is responsible for paying to a resident any income by way of rent and such income is credited or paid to a being a real
---J
estate investment trust, in respect of any real estate asset, referred to in section 10 (23FCA), owned directly by such business trust, TDS
provisions will not be attracted.
(a) Business trust
(b) Individual
(c) Association of persons
(d) HUF
(54) The maximum amount of rent payment where deduction of tax at source is not required in a financial year is _ (Dec. 2014)
(a) ` 1,20,000 (b) ` 1,80,000
(55) Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration for transfer of any
immovable property shall not be liable to deduct tax at source where the total amount of consideration for
the transfer of immovable property is less than ____________ _
(a) ` 50,00,000 (b) ` 1,00,000

(c) ` 25,00,000 (d) ` 10,00,000
(56) Pradip acquired an urban land from Chitra for ` 70 lakh on 10th October, 2016. At what rate, tax is deductible at source in
respect of such transaction - (June 2016)
(a) 2% (b) 5%
(c) 1% (d) 3%
(57) Compute the amount of tax to be deducted. Interest of ` 1,650 paid by XYZ Ltd. to Kush on 15-05-2016, by way of account payee cheque
on account of debentures of the company held by them separately. Debentures of XYZ Ltd. are listed in Bombay Stock Exchange.
(a) Nil (b) 165
© 330 (d) 660
(58) Compute the amount of tax to be deducted. PQR Ltd. paid ` 10,00,000 to non-resident entertainer on 28-07-2016 in respect performance
in an event of promotion of a new product.
(a) ` 2,06,000 (b) ` 3,09,000
(c) ` 1,03,000 (d) Nil
(59) Compute the amount of tax to be deducted. Sports World Magazine paid ` 4,00,000 to Ricky Ponting, a non-resident cricketer, for
writing an article for the September issue. The payment for the same was made on 25-06-2016.
(a) ` 82,400 (b) ` 41,200

(c) `1,23,600 (d) Nil
(60) Compute the amount of tax to be deducted. Sitting fees of ` 25,700 paid to director of the company on 28-08-2016.
(a) 2570 (b) 5140
(c) 257 (d) Nil
(61) Compute the amount of tax to be deducted. ` 2,40,000 paid to Mr. A on 25-03-2017 by Rajasthan State Government on compulsory
acquisition of his urban land.
Page 384
(b) 1,800
(a) 8,000
(d) Nil
(c) 36,000
(62) Payment has been made by X Ltd. to Mr. A by way of royalty ` 20,000 and fees for technical services ` 20,000. What will be the amount
of TDS payable -
(b) Nil
(a) ` 4,120
(d) `12,360
(c) ` 8,240
(63) What will be the amount of TDS payable by a company if it pays ` 10,00,000 non competing fees to y Ltd. ?
(a) Nil (b) ` 1,13,300
(c) ` 1,00,000 (d) ` 2,06,000
(64) No deduction of tax shall be made by any person from any sums payable to -
(a) The Government (b) The Reserve Bank of India

(c) A Mutual Fund specified u/s 10(23D) (d) All of these.
(65) An intimation shall be sent to the deductor specifying the sum determined to be payable by, or the amount of refund due
to, him before the expiry of from the end of the financial year in which the statement is filed.
(b) One year

(a) 6 months
(d) Five years
(c) 2 years
(66) In case of failure to deduct/collect tax at source, the defaulter shall be liable to pay -
(a) Simple interest @ 12% p.a. (b) Simple interest @ 10% p.a.
(c) Simple interest @ 1% p.m. or part thereof. (d) Simple interest @ 1% p.m.
(67) In case of failure to pay the tax deducted at source, defaulter shall be liable to pay -
(a) Simple interest @ 12% p.a.

(b) Simple interest @ 10% p.a.
(d) Simple interest @ 1.5% p.m. or part thereof
(c) Simple interest @ 1% p.m. or part thereof.
(68) An amount of ` 40,000 was paid to Mr. X on 01-07-2017 towards fees for professional services without deduction of tax at source,
Subsequently, another payment of ` 50,000 was due to Mr. X on 28-02-2018, 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 22-06-2018.
Compute the interest chargeable under section 201(lA).
(a) ` 860 (b) ` 320
(c) ` 540 (d) ` 1,180
(69) Every seller shall collect tax at source from the buyer at the time of debiting of the amount payable by the buyer to the account of the
buyer; or receipt of such amount from the buyer in cash or by cheque or draft or any other mode,
whichever is earlier, collect tax at source at the rate of in case of tendu leaves.
(b) 2.50%
(a) 1%
(d) 5%
(c) 2%
(70) Every seller shall collect tax at source from the buyer at the time of debiting of the amount payable by the buyer to the account of the buyer;
or receipt of such amount from the buyer in cash or by cheque or draft or any other mode,
whichever is earlier, collect tax at source at the rate of in case of Timber obtained under a forest lease.
(b) 2.50%
(a) 1%
(d) 5%
(c) 2%
(71) Every seller shall collect tax at source from the buyer at the time of debiting of the amount payable by the buyer to the account of the buyer;
or receipt of such amount from the buyer in cash or by cheque or draft or any other mode,
whichever is earlier, collect tax at source at the rate of in case of alcoholic liquor.
Page 385
(a) 1% (b) 2.50%

(c) 2% (d) 5%
(72) Every seller shall collect tax at source from the buyer at the time of debiting of the amount payable by the buyer to the account of
the buyer; or receipt of such c mount from the buyer in cash or by cheque or draft or any other mode,
whichever is earlier, collect tax at source at the rate of in case of Minerals, being coal or lignite or iron ore.
(a) 1% (b) 2.50%
(c) 2% (d) 5%
(73) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion shall, at the time of receipt of
such amount in cash, collect tax at source @ 1 from the buyer, if such consideration, for bullion, exceeds
(a) `2,00,000 (b) `5,00,000

(c) `1,00,000 (d) `10,00,000
(74) Every person, being a seller, who receives any amount in cash as consideration for sale of jewellery shall, at the time of
receipt of such amount in cash, collect tax at source from the buyer, if such consideration, for jewellery, exceeds _____
(a) `2,00,000 (b) `5,00,000

(c) `1,00,000 (d) `10,00,000
(75) Every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole
or in part in any parking lot or toll plaza or mine or quarry, to licensee or lessee, (other than a public sector company) for
the use of such parking lot or toll plaza or mine or quarry for the purpose of business, shall be liable to
collect tax at source @ ____________
(a) 1% (b) 2%
(c) 3% (d) 10%
(76) In case of tax collection at source, buyer doesn't includes-
(a) A public sector company (b) State or central Government

(c) An embassy (d) All of these
(77) No order shall be made under section 201(1) deeming a person to be an assessee in default for failure to deduct the whole
or any part of the tax from a person resident in India, at any time after the expiry of from the end of the
financial year in which payment is made or credit is given.-
(78) In case of payment to be made by or on behalf of Govt., TDS/TCS shall be paid -

(a) On the same day when such deduction/ (b) With in two months from lost day of the month
collection is made. in which deduction/ collection is made.
(c) With in one week from last day of the month in (d) None of the above.
which deduction/ collection is made.
(79) XYZ Ltd. paid `55,00,000 in part payment to contractor ABC contractors Ltd. on 15-10-2017. What is the due date for payment of
TDS ?
(a) 15-10-2017 (b) 07-11-2017

(c) 31-12-2017 (d) 15-12-2017
(80) What is the due date of payment of TDS in the above case, if XYZ Ltd. credited such amount to the account of ABC contractor
Ltd. on 31-3-2018 (XYZ finalises its accounts on 31-3-2018) ?
(a) 30-04-2018 (b) 07-04-2018

(c) 31-03-2018 (d) 15-04-2018
Page 386
(81) Which of the following assessee is not liable to pay advance tax u/s 207 during the FY 2017-18 - (June, 2015)
(a) A senior citizen having income chargeable (b) A senior citizen not having income chargeable
under the head 'profits and gains of business or under the head 'profits and gains of business or
profession' profession'
(c) A super senior citizen having income (d) A resident individual not being senior citizen
chargeable under the head 'profits and gains of having income chargeable under the head 'profits
business or profession' and gains of business or profession'.
(82) Under section 208, it is obligatory for an assessee to pay advance tax where the tax payable is - (June, 2015)
(a) ` 10,000 or more (b) ` 20,000 or more (d)

(c) ` 5,000 or more ` 8,000 or more.
(83) Tax is payable in advance only if such amount of such tax is -
(a) ` 2,500 or more (b) ` 5,500 or more

(c) ` 5,000 or more (d) ` 10,000 or more
(84) In case of individual assessee, amount of advance tax payable in the third instalment (i.e. on or before 15th December) shall be-
(a) 30% of total advance tax payable (b) 75% of total advance tax - Advance tax paid in
earlier instalments
(c) 45% of total advance tax - Advance tax paid in (d) 60% of total advance tax - Advance tax paid on
earlier instalments earlier instalments
(85) In case of individual assessee, amount of advance tax payable in the first instalment (i.e. on or before 15th June) shall be-
earlier installments
earlier installments earlier installments
(86) In case of individual assessee, amount of advance tax payable in the last installment (i.e. on or before 15th March) shall be-
(87) In case of Company assessee, amount of advance tax payable in the third installment (i.e. on or before 15th December) shall be-
(88) In case of Company assessee, amount of advance tax payable in the second installment (i.e. on or before 15th September) shall be-
Page 387
(89) In case of Company assessee, amount of advance tax payable in the first instalment (i.e. on or before 15th June) shall be -
(a) 15% of total advance tax payable (b) 75% of total advance tax - Advance tax paid in earlier
instalments
earlier instalments earlier instalments
(90) Calculate advance tax payable by Sumit on or before 15th September, 2017 from the following: Rent from house property
` 46,000 per month; municipal taxes paid by him ` 32,000 - (Dec. 2014)
(a) ` 4,920 (b) `4,320
(c) ` 4,450 (d) ` 2,643
(91) Raghu, aged 62 years, has pension income of ` 2,40,000 and rental income (computed) of ` 3,60,000 for the financial year 2017-18. How
much amount he must have paid as advance tax in September, 2017 - (June 2016)
(a) ` 12,000 (b) ` 10,000 (d)
(c) ` 30,000 Nil
(92) An assessee liable to pay advance tax is not liable to pay interest under section 234B, if advance tax paid by him is not
less than - (Dec. 2014)
(a) 90% of advance tax payable by him (b) 80% of advance tax payable by him
(c) 100% of advance tax payable by him (d) 70% of advance tax payable by him.
(93) If an assessee fails to pay advance tax as required under the Act, or the advance tax paid by him is less than of
the assessed tax, he shall be liable to pay interest u/s 234B.
(a) 80% (b) 90%

(c) 95% (d) 98%
(94) Steam (P) Ltd. reports total income of ` 20 lakh for the year ended 31st March, 2018. The total tax liability payable before
15th September, 2017 by way of advance tax is - (Dec. 2015)
(a) ` 92,700 (b) ` 2,78,100

(c) ` 1,85,400 (d) ` 3,09,600
(95) An individual needs to pay ` 1,00,000 as advance tax. By 15th of December, how much amount must be paid by the individual:
(a) ` 30,000 (b) ` 75,000

(c) ` 1,00,000
(d) Nil
(96) ABC Ltd. whose due date of filing the return for the assessment year 2018-19 was 30-9-2018 failed to file his return. The Assessing
Officer completed his assessment on 25-12-2019 and determined a tax liability of ` 2,20,000 (without giving credit for advance tax or
IDS). ABC Ltd. had paid an advance tax of ` 40,000 and TDS of ` 18,000. Determine the interest payable by 'ABC Ltd.' under section
234B.
(a) `30,000 (b) `34,020

(c) ` 60,000 (d) ` 78,000
(97) The following particulars are furnished by Ms. Priyanka for the financial year 2017-18 (assessment year 2018-19) :
Tax on total income (paid on 31-7-2018) ` 1,50,000
Date of filing the return 31-7-2018
Due date for filing the return 31-7-2018
Compute the total interest payable under sections 234C.
(a) `1,350 (b) ` 2,700

(c) ` 1,500 (d) ` 7,575
Page 388
(Jllne, 2015)
(98) Interest payable under section 234C is computed at –
(a) Compound interest @ 1% per month (b) Simple interest @ 1% per annum
(c) Compound interest @ 1% per annum (d) Simple interest @ 1% per month.
(99) Interest for default in payment of installment(s) of advance tax is levied under section- (Jllne, 2015)
(a) 234A (b) 234B

(c) 234C (d) 234D.
(100) Interest for deferment in payment of advance tax u/ s 234C is calculated on the tax liability computed on - (Dec. 2015)
(a) Assessed income (b) Returned income

(c) Disputed income (d) Appealed income
(101) An assessee is required to make payment of interest where he failed to make the payment, of demand before the expiry
of 30 days from the service of notice of demand @ - (Dec. 2015)
(a) 1% for every month or part thereof till the date (b) 2% p.m. Till the date of payment
of payment
(c) 1.5% p.m. till the date of payment (d) 1.25% for every month or part thereof till the
date of payment.
1.a 2.b 3.d 4.c 5.a 6.a 7.b 8.c 9.b 10.b
11.c 12.c 13.a 14.b 15.a 16.a 17.b 18.d 19.b 20.d
21.b 22.a 23.d 24.d 25.a 26.d 27.d 28.a 29.c 30.
31.c 32. 33. 34. 35. 36. 37. 38. 39. 40.
41. 42.a 43.c 44.d 45.a 46.b 47.d 48.a 49.b 50.a
51.b 52.a 53.a 54.d 55.a 56.c 57. 58.a 59.a 60.a
61.d 62.b 63.c 64.d 65.b 66.c 67.d 68.a 69.d 70.b
71.a 72.a 73.a 74.b 75.b 76.d 77.a 78.a 79.b 80.a
81.b 82.a 83.d 84.b 85.a 86.c 87.b 88.c 89.a 90.d
91.d 92.a 93.b 94.b 95.b 96.b 97.d 98.d 99.c 100.b
101.a
Page 389
Alternate Minimum Tax
CHAPTER –16
ALTERNATE MINIMUM TAX
Sec 115JC : Special provisions for payment of tax by certain persons other than a company
Notwithstanding anything contained in this Act,
Tax payable by Eligible Person shall be
 Regular Income tax or
 Alternate Minimum Tax (AMT) ,
Whichever is higher
AMT = Adjusted Total Income X 18.5%.
Special point :
1. Eligible person : Individual or HUF or AOP or BOI or AJP, if Adjusted total income is upto `20
lakh & such person has claimed any deduction under—
(a) Profit bases decutions from 80C to 80U eg 80IA,80IB,etc or
(b) Section 10AA or
(c) Sec 35AD
2. Adjusted Total Income is Total income as increased by

(a) Profit bases decutions from 80C to 80U eg 80IA,80IB,etc
(b) Section 10AA.
(c) Deduction claimed u/s 35AD as reduced by depreciation allowable u/s 32 as if no
deduction u/s 35AD was allowed in respect of asset.
3. Eligible person shall obtain a prescribed report, from an accountant, certifying that computation is
per this Chapter and furnish such report upto due date of return of income u/s 139(1)
4. All other provisions of this Act shall apply to Eligible person
Sec 115JD : Tax credit for Alternate Minimum Tax
1. Tax credit of an assessment year to be allowed = [AMT] – [Regular Income Tax]
2. No interest shall be payable on tax credit
3. Tax credit shall be carried forward and set off upto 15 succeeding A/Y
4. Maximum set off in succeeding A/Y = [Regular Income Tax of succeeding A/Y] – [AMT of such
year]
Page 390
INCOMES WHICH ARE EXEMPT
CHAPTER – 17
SECTION NATURE OF INCOME
10(2) Sum received by member of HUF out of family Income
10(10BC) Any amount received or receivable from Central Govt or State Govt or local authority by an Individual
or his legal heir by way of compensation on account of any Disaster
Sec10(11A) Any payment from an account, opened in accordance with the Sukanya Samriddhi Account Rules,
2014 made under the Government Savings Bank Act, 1873
Sec 10(2A) Any payment from National Pension System Trust to employee on closure of his account or on his
opting out of the pension scheme u/s 80CCD, to the extent it does not exceed
40% of the total amount payable to him at the time of such closure or his opting out of the scheme
10(16) Scholarship to meet cost of education
Payment in Cash or Kind

- For Award in public interest by Central Govt., or State Govt, or by body approved by Central Govt.
10(17A)
- For Reward by Central Govt., or State Govt, for purpose approved by Central Govt.
10(19A) Annual value of one palace in occupation of an ex ruler provided such annual value was exempt before
28.12.1971
The following incomes of Local authority
-House property
10(20) -Capital gains
-Other sources
-Trade/Business income from supply of :
- water /electricity within or outside its jurisdictional area
- any other service within own jurisdictional area
10(22B) Income of Specified news agency set up in India solely for collection and distribution of news,
provided does not distribute its income to its members
10(23A) Income of professional associations/institutions provided certain conditions are fulfilled.
However, the following incomes are not exempt
-Income from house property
-Investment Incomes
-Income from specific services to its member
Income of certain institutions like
10(23C) -Notified funds
-Educational institutions not for profit
-Hospital treating specified ailments not for profit
-Fund /institutions for charitable purposes, having importance throughout India/States
10(24) Following income arising to a registered trade union
-House property
-Income from other sources
10(39) Any specified Income arising from any International sporting event held in India if such event is
-approved by international body regulating such sport
-has participation by more than two countries
-is notified by central govt for this clause
Page 391
10(43) Amount received by an Individual as a loan, either in lumpsum or in instalment,in a transaction of

reverse mortage referred in sec 47
Any allowance or perquisite, as may be notified by the Central Government in the Official Gazette in
10(45) this behalf, paid to the Chairman or a retired Chairman or any other member or retired member of the
Union Public Service Commission.
Central Government has notified the following allowances and perquisites for exemption u/s
10(45)
(1) In case of Serving Chairman and members of UPSC
(i) Rent Free accommodation
(ii) Conveyance facilities including transport allowance
(iii) Sumptuary allowance;
(iv) LTC
(2) In case of Retired Chairman and Retired members of UPSC

(i) Maximum Rs.14,000 pm for meeting expenses incurred towards secretarial assistance
on contract basis
(ii) Residential telephone free of cost and free calls to the extent of 1500 per month (over
and above the number of free calls per month allowed by the telephone authorities).
10(46) Any specified income arising to a body or authority or Board or Trust or Commission which—
(a) Has been established or constituted by or under a Central, State or Provincial Act, or constituted by
the Central Government or a State Government,
(b) With the object of regulating or administering any activity for the benefit of general public
(c) Not engaged in any commercial activity
(d) Notified by Central Government in Official Gazette
Special Point :
“specified income”means the income, of the nature and to the extent arising to a body or authority or
Board or Trust or Commission referred to in this clause, which the Central Government may, by
notification in the Official Gazette, specify in this behalf
10(47) Any income of an infrastructure debt fund, set up in accordance with the guidelines as may be
prescribed, which is notified by the Central Government in the Official Gazette for the purposes of this
clause
Any income received in India in Indian currency by a foreign company on account of sale of crude oil,
10(48) any other goods or rendering of services, as may be notified by the Central Government, to any person
Provided that
(i) Receipt of such income in India by the foreign company is pursuant to an agreement or an
arrangement entered into by the Central Government or approved by the Central Government
(ii) Having regard to the national interest, the foreign company and the agreement or arrangement are
notified by the Central Government in this behalf and
(iii) Foreign company is not engaged in any activity, other than receipt of such income, in India.
Page 392
10(48A) Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in
India , sale of crude oil and sale of leftover stock of crude oil therefrom to any person resident in India:
Provided that —
(i) the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered
into by the Central Government or approved by the Central Government; and
(ii) having regard to the national interest, the foreign company and the agreement or arrangement are
notified by the Central Government
10(50) Any income arising from any specified service provided on or after the date on which the provisions of
Chapter VIII of Finance Act, 2016 comes into force and chargeable to equalisation levy under that
Chapter.
Explanation.—For the purposes of this clause, “specified service” shall have the meaning assigned to it
in clause (i) of section 161 of Chapter VIII of the Finance Act, 2016.
OTHER EXEMPTIONS
Family pension received by widow or children or nominated heirs of member of armed forces, if death of such
member has occurred in course of operational duties and in prescribed
Income of Central Electricity Regulatory Commission.
Contributions received from commodity exchanges and the members thereof, by any notified Investor Protection
Fund set up by commodity Exchanges in India. When the exempted income of the Fund is shared with commodity
exchanges in any previous year, the amount so shared shall be deemed to be its taxable income of that previous
year.
Income of Venture Capital Fund or Company registered under SEBI Act, 1992 from investment in venture capital
undertaking. However, nothing contained above shall apply in respect of any income of a venture capital
company. or venture capital fund, being an investment fund specified in Explanation l(a) to Section 115UB, of p/y
relevant to A/Y beginning on or after the 1st day of April, 2016.
Any income of the Prasar Bharati (Broadcasting Corporation of India) established under section 3(1) of the
Prasar Bharati (Broadcasting Corporation of India) Act, 1990 is exempt from tax.
Certain grants, etc. received by a subsidiary company from its Indian holding company engaged in the business
of generation or transmission or distribution of power.
Income of notified infrastructure debt fund and concessional tax rate on interest received by non -residents from
such fund.
Payment from National Pension System trust - 40 of the amount received exempt: Any payment from the National
Pension System Trust to an employee on closure of his account or on his opting out of the pension scheme
referred to in section SOCCD, to the extent it does not exceed 40 of the total amount payable to him at the time of
such closure or his opting out of the scheme.
Any specified income of such Core Settlement Guarantee Fund, set up by a recognised clearing corporation in
accordance with the regulations, as the Central Government may, by notification in the Official Gazette, specify in
this behalf
However where any amount standing to the credit of the Fund and not charged to income-tax during any previous
year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be
deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be
chargeable to income-tax.
Page 393
INCOME OF CHARITABLE &RELIGIOUS TRUST
In order to claim exemption of its Income u/s.11 &12, a Charitable/Religious trust should fulfill below
condition
 Trust should be created for a lawful purpose
 Trust should be for charitable or religious purpose
 Property should be held under trust
 Trust should be registered with CIT
 Accounts should be audited if TI before exemption u/s11 & 12 Exceeds exemption amount
 Trust should not be created for the benefit of particular community or caste
Sec 2 (15) : Charitable & Religious purpose includes
1) Relief to the poor,

2) Education,
3) YOGA [FA,2015]
4) Medical relief,
5) Preservation of environment (including watersheds, forests and wildlife)
6) Preservation of monuments or places or objects of artistic or historic interest and
7) Advancement of any other object of General Public Utility
Any other object of General Public Utility shall not be a charitable purpose if it involves the carrying on of
(a) Any activity in nature of Trade, commerce or business or,

(b) Any activity of rendering of any service in relation to any trade, commerce or business for a fees or any
other consideration, irrespective of the nature of use of the income from such activity or retention of such
income ,unless
(i) Such activity is undertaken in course of actual carrying out of such advancement of any other object
of general public utility and
(ii) Aggregate receipts from such activity during the P/Y, do not exceed 20% of the total receipts, of the
trust or institution undertaking such activity or activities, of that previous year.
Various Types of Income of a Trust
1. Income from property held under trust

2. Voluntary contributions (donations) not forming part of Corpus
3. Voluntary contributions (donations) forming part of Corpus.
4. Anonymous donations
5. Business Income
Page 394
1. Section 11: Income from property held for charitable or religious purposes
Income From Property Held Under Trust
APPLIED for Charitable or Religious purpose in India

Amount of Exemption
Income applied is at
least 85% : 100%
Income applied less than 85% : Amount applied + 15%
Question 1 : A registered charitable trust discloses the following particulars for p/y 17-18.
Gross receipts from property held under trust : 10,00,000
Expenditure for charitable & religious purpose in India
Case 1 : 9,00,000
Case 2 : 5,00,000
Determine the Total Income for A/Y 18-19
Solution : Case 1
Gross receipts : 10,00,000
Less : Exemption u/s 11 : 10,00,000
Total income Nil
100% exemption where amount applied for charitable & religious purpose exceeds 85% of Gross receipts
Case 2
Less : Exemption u/s 11
Amount applied : 5,00,000
(+) 15% of 10,00,000 : 1,50,000 : 6,50,000
Total income 3,50,000
Amount applied is less than 85%,therefore exemption is amount applied + 15%
INCOME APPLIED for charitable or religious purpose means

 Income actually applied for Charitable or Religious purposes in India
 Income deemed to be applied for Charitable or Religious purpose in India
Income Deemed to be Applied :
A) Where income not applied due to non-receipt of Income during previous year : Such income should be
applied for Charitable & Religious purpose during P/Y of actual receipt or during next P/Y
B) Where income not applied due to other reasons : Such income should be applied for Charitable &
Religious purpose during P/Y next to previous year to which such income relates.
Special Points : Option (under A or B) has to be exercise by the trust in writing to AO
Page 395
Question 2 : Assume in question one, case 2, `2,50,00 could not be applied upto 31.3.2018 because
a) Amount was not received upto 31.3.2018
b) Due to other reasons
Solution :
a) Where amount was not received upto 31.3.2018 :
+ 15% of 10,00,000 : 1,50,000
+ Deemed to be applied : 2,50,000 : 9,00,000
The Trust has to exercise an option in writing stating that `2,50,000 will be utilized for charitable & religious
purpose during P/Y when such `2,50,000 is actually received or during subsequent P/Y
b) Due to other reasons :

+ 15% of 10,00,000 : 1,50,000
+ Deemed to be applied : 2,50,000 : 9,00,000
Total income : 1,00,000
The Trust has to exercise an option in writing stating that `2,50,000 will be utilized for charitable & religious
purpose during A/Y 19-20
Additional exemption for Income accumulated or set apart in excess of 15%
 Where 85% income not applied (actual or deemed) for charitable &religious purpose
 then additional exemption shall be available for such amount
 which is accumulated or set apart for application in future year
Provided Notice is given to A.O in Form 10 on or before due date of return u/s 139(1) specifying period
and purpose for which such income is accumulated.
However, period cannot exceed 5 yrs from P/Y in which such income is derived and Money so
accumulated or set apart is invested or deposited specified manner
Question 3 : A registered charitable trust discloses the following particulars for P/Y 17-18.
Gross receipts from property held under trust : 10,00,000
Expenditure for charitable & religious purpose in India : 5,00,000
The trust wants to set apart 2,00,000 for application for Charitable or religious purpose in future years.
Determine the conditions to be fulfilled and what will be the total Income for A/y 18-19 if such conditions
are fulfilled.
Page 396
Solution : If trust wants to set apart 2,00,000 for application in future years,it can be accumulated upto
31.3.2023 and it has to be invested in specified manner . Notice is to be given to A.O specifying period and
purpose for which 2,00,000 is accumulated .If such condition are fulfilled, the Total Income for A/Y 18-19
will be as follows :
+ 15% of 10,00,000 : 1,50,000
+ Additional exemption u/s 11(2) : 2,00,000 : 8,50,000
2. Voluntary contribution (Donations) not forming part of corpus (Sec.12) :

(Same treatment as income from property held under trust)
3. Voluntary contributions (Donation) forming part of corpus [Sec. 11] :

100% exempt irrespective of the fact whether applied or not
4. Anonymous donations : Means any voluntary contribution where a person receiving such contribution
does not maintain a record of the identity indicating the name and address of the person making such
contribution and such other particulars as may be prescribed.
115BBC : Tax treatment of Anonymous Donation
(1)Income-tax shall be payable @ 30% on the aggregate of anonymous donations received in excess of
the higher of the following :
5% of the total donations received by assessee or 1,00,000
(2) The provisions of sub-section (1) shall not apply to any anonymous donation received by
(a) any trust or institution created wholly for religious purposes
(b) any trust or institution created or established wholly for religious and charitable purposes other than
any anonymous donation made with a specific direction that such donation is for any university or other
educational institution or any hospital or other medical institution run by such trust or institution.
5. Business Income
 Business income arising from business carried on by trust
 is also Exempt u/s. 11
 Provided
Such business is incidental to the attainment of objectives of the trust and
Separate books of accounts of such business are maintained.
Special Point : However If income shown in accounts of such business undertaking is less than income
determined by AO, then such excess will not be exempt\
Page 397
Section 13: Cases when Exemption u/s 11 or 12 is Not Available
Income used for Trust created for During P/Y Funds not
private religious benefit of income used for invested in
purpose, not for particular benefit of specified specified
public benefit religious person u/s. 13(3) manner
community
In above cases Income of such trust will be taxable at maximum Marginal rate
Amendment of section 13 :
Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total
income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause
(15) of section 2 become applicable in the case of such person in the said previous year.
Sec. 13(3): Specified Persons
1. Author of Trust.
2. Person contributed greater than 50,000/- during P/Y
3. Trustee/Manager of trust
4. Relatives of above persons
5. Concern in which above persons has Substantial interest (i.e. atleast 20% of equity shares/profits of)
Section 12A : Registration of Trust
Every trust wanting to claim exemption of its income u/s 11 or 12 shall make an application for registration
of the trust in the prescribed form & manner to CIT
Section 12AA : Procedure for Registration
 The CIT on receipt of an application for registration u/s 12A

 Shall call for documents & information from the trust
 In order to satisfy himself about the genuineness about the activities of the trust
 After being satisfied that trust is genuine
 Pass an order in writing registering the trust
Special Point : Every order granting registration or refusing registration shall be passed before expiry of 6
months from the end of month in which application was received
Page 398
Sec. 12AA(3) : Cancellation of Registration
 Where trust/institution has been granted registration and

 Subsequently CIT satisfied that activities of charitable trust or institution
 are not genuine or are not being carried in accordance to the object.
 Pass order in writing canceling the registration of such trust or Institution.
Sec 12AA(4) :
Where a trust has been granted registration u/s 12AA and section 13 becomes applicable, then, the
Commissioner may by an order in writing cancel the registration of such trust.
Provided that the registration shall not be cancelled if the trust proves that there was a reasonable cause
for the activities to be carried out in the said manner.
Page 399
MCQ EXEMPT INCOME
INCOMES EXEMPT FROM TAX
(1) Which of the following income is not exempt under section 10 - (Dec. 2011)
(a) Share in total income of firm (b) Income from agriculture in Lahore
(c) Bonus on life insurance (d) Income from mutual funds.
(2) Mr. X received compensation of ` 2,60,000 from the Central Government on account of disaster. He claimed ` 1,20,000 as a
deduction on account of loss or damage caused by such disaster under this Act. -What amount of compensation received shall
be exempt?
(a) ` 2,60,000 (b) ` 1,40,000

(c) ` 1,20,000 (d) Nil
(3) If in the above case, Mr. X claimed ` 2,60,000 as a deduction on account of loss or damage caused by such disaster under this
Act then what amount of compensation received shall be exempt?
(a) ` 2,60,000 (b) ` 1,40,000
(c) ` 1,20,000 (d) Nil
(4) Any income of a business trust by way of interest received or receivable from a special purpose vehicle shall _________ .
(b) Be conditionally exempt
(a) Be unconditionally exempt
(d) Be taxable after deduction of 50%.
(c) Be taxable
(5) The amount received including bonus under Life Insurance Policy issued on 1-4-2017 in respect of which the premium payable
for the year during the term of the policy was 15 of the actual capital sum assured. What shall be the not exempt amount?
(a) Premium payable exceeds 15% of actual capital Premium payable exceeds 10% of actual capital
(b) sum assured. sum assured.
(c) Premium payable exceeds 20% of actual capital (d) No exemption

sum assured.
(6) If in the above case, the Life Insurance Policy is issued on life of any person, who is a person with disability or a person with
severe disability as referred to in section 80U; or suffering from disease or ailment as specified in the rules made under se ction
80DDB then what shall be the not exempt amount?
(a) Premium payable exceeds 15% of actual capital (b) Premium payable exceeds 10% of actual capital
sum assured. sum assured.

sum assured.
(7) The amount received including bonus under Life Insurance Policy issued on 01-04-2011 in respect of which the premium
payable for the year during the term of the policy was 15 of the actual capital sum assured. What shall be the not exempt
amount?
(a) Premium payable exceeds 15% of actual capital (b) Premium payable exceeds 10% of actual capital
sum assured.
sum assured.
sum assured.
(8) The sum received under Life Insurance Policy including sum allocated by way on bonus on the policy which shall not be exempt
includes:
Page 400
MCQ EXEMPT INCOME
(a) Any sum received u/s 80DD(3) and 80 DDA(3). (b) Any sum received under Keyman Insurance Policy.
(c) Any sum received under policy issued on or (d) All of the above.
after 1-4-2012 in respect of which premium
payable for any year exceeds 10% of actual sum
assured.
(9) Any income of a business trust by way of interest received or receivable from a special purpose vehicle is _________ _
(a) Fully exempt from tax (b) Partly exempt from tax
(c) Fully taxable (d) None of the above.
(10) In case, the income of an individual (i.e. the parent) includes the income of his minor child in terms of Section 64(lA),
such parent shall be entitled to exemption of ________
(a) `1,500 in respect of each minor child or actual (b) `1,500 in respect of each minor child or actual
income of minor child, whichever is less. income of minor child, whichever is more.
(c) `3,000 in respect of each minor child or actual (d) `3,000 in respect of each minor child or actual
income of minor child, whichever is less. income of minor child, whichever is more.
(11) Mr. X, a resident employee of Hinduja Company established in India, received a scholarship of `3,00,000 from his employer to
meet education cost of his children. The employee spent an amount of ` 2,75,000 on education of his children. What amount of
income shall be exempt to employee?
(a) `3,00,000 (b) `2,75,000
(c) No exemption available (d) `25,000
(12) Education scholarship received by an employee of a company to meet education cost of his children shall be e xempt if the
employee is :
(a) Indian (b) Foreigner
(c) Indian or foreigner (d) No exemption available
(13) Amount of Daily allowance and constituency allowance shall be exempt if received by:
MLA (b) MP
(a)
(c) Members of any parliamentary or legislative (d) All of the above.
committee.
(14) Mr. Gupta, MLA received a constituency allowance of `40,000 p.a. What amount of income shall be exempt to him?
(a) `4,000 (b) `40,000
(c) `10,000 (d) No exemption available
(15) Income exempt includes:

(a) Interest on notified securities, notified capital (b) Interest received by a non-resident or not-
investment bonds, notified relief bonds, notified ordinarily resident on deposits made in a Offshore
NRI Bonds. Banking Unit.
(c) Interest on Gold Deposit bonds, specified (d) All of the above.
bonds issued by local authority.
(16) Sambhav was a not-ordinarily resident. He received an amount of `32,000 on deposits made in a Offshore Banking Unit.
The amount of exemption available to him for this income is:
(a) Fully exempt (b) Fully taxable

(c) Partly exempt
Page 401
MCQ EXEMPT INCOME
(17) Notified awards and rewards instituted by the Central/State Government for the specified purposes is exempt if received for:
(a) Literary work (b) Artistic work
(c) Scientific work (d) All of the above
(18) Raghu traced a missing girl by spending ` 20,000. For this, he was awarded with a sum of ` 1,20,000. In this case the
award is taxable to the extent of _ (June 2016)
(a) ` 1,00,000 (b) `1,20,000
(c) ` 1,15,000 (d) Nil.
(19) Mr. G received an award from the Central Government for the work done by him which was an approved work of the
Government. Such award shall be:
(a) Exempt (b) Not exempt
(c) Partly exempt, partly taxable (d) None of the above
(20) Family pension received on death of member of armed forces where the death occurred in course of operational duties and in
prescribed conditions shall be exempt if received by:
(a) Widow of the member. (b) Children of the member.
(c) Nominated heirs of the member.
(21) Mrs. Gita received a Family pension of ` 36,000 on the death of her husband being major in army who died during the course of
operational duties and in prescribed conditions. Calculate the amount taxable.
(b) `21,000
(a) `36,000
(d) Nil amount
(c) `24,000
(22) Incomes exempt include:

(a) All incomes of local authority except income (b) Income of Central Electricity Regulatory
from supply of commodities or services (other Commission.
than water or electricity) outside its jurisdiction.
(c) Contributions received from commodity (d) All of the above.
exchanges and members, by any notified
Investor Protection Fund set up by commodity
Exchanges in India. When exempted income of
Fund is shared with commodity exchanges in
any previous year, shared amount shall be
deemed as taxable income.
(23) A Venture Capital Company which was registered under SEBI Act, 1992 received an income of `25 lakhs from investment
Of `300 lakhs made in venture capital undertaking. Calculate the amount of exempted income.
(a) `25lakhs (b) `300 lakhs (d)
(c) `5lakhs Nil
(a) Income of member of Scheduled Tribes residing (b) Subsidy from commodity board, received by
in specified areas or states, which accrue or arise from assessee engaged in business of growing and
manufacturing tea, rubber, coffee, cardamom or
any source in that specified area or state; or by way of
other notified commodity in India, after receiving
interest! dividends on securities.
certificate regarding subsidy paid to it.
Page 402
MCQ EXEMPT INCOME
(c) Any income of Prasar Bharati (Broadcasting (d) All of the above.
Corporation of India) established under Prasar Bharati
(Broadcasting Corporation of India) Act, 1990 is exempt from tax.
(25) Exempt income earned from dividend includes:
(a) Dividend earned as under section 115-0 (b) Dividends received from SEZ units.
(c) Dividend received from foreign company. (d) (a) and (b) but not (c)
(26) Dividend income that is taxable:
(a) Dividend received from foreign company.

(b) Dividend received as under section 2(22)(e).
(c) Both (a) and (b).
(d) Nil
(27) Amit received income of ` 32,500 from units of mutual fund specified in section 10(23D). Taxable income will be:
(a) ` 32,500 (b) ` 3,250
(c) ` 30,000
(d) Income is Exempt
(28) Income amounting to ` 32,000 of a securitisation trust from the activity of securitisation will be ____________
(a) ` 32,000
(b) ` 20,000
(c) ` 3,200
(d) Exempt
(a) Specified income arising from any international (b) Certain grants etc. received by subsidiary co. from its
sporting event held in India. Indian holding co. engaged in business of generation/
transmission/ distribution of power.
(c) Income received In a transaction of reverse (d) All of the above.
mortgage.
(30) Specified income of certain bodies or authorities is exempt. Conditions to be fulfilled for such exemption includes:
(a) Such body or authority should have been (b) Such body or authority is established not for
established or constituted or appointed under a the purposes of profit.
treaty or an agreement entered into by the
Central Government with 2 or more countries
or a convention signed by the Central
Government;
(c) Any of (a) or (b). (d) Both (a) and (b).
(31) Mr. I was a shareholder of XYZ Pvt. Ltd. company. He earned an income of ` 18,000 on account of buy back of shares by the company
as referred to in section 115QA. Calculate the amount of taxable income.
(a) ` 18,000
(b) ` 20,000
(c) ` 19,000
(d) Nil
(32) Mr. Ramesh received an income of ` 52,000 by way of distributed income received from a securitisation trust as being an investor of the
trust. Calculate the amount of taxable income.
(a) ` 50,000
(b) ` 52,000
(c) Amount of investment made
(d) Nil
Page 403
MCQ EXEMPT INCOME

(a) Income received by any person on behalf of (b) Exemption of specified allowances and
New Pension System Trust perquisites paid to Chairman or retired Chairman

or any other member or retired member of the
UPSC.
(c) Income of notified infrastructure debt fund and (d) All of the above.
concessional tax rate on interest received by
non-residents from such fund.
(34) Specified income of notified entities not engaged in commercial activity is exempt. Notified entities include:
(a) National Skill Development Corporation (b) Competition Commission of India (CCI)
(NSDC)
(c) National Financial Holdings Company Limited (d) (a) and (b) above.
(35) Income received by certain foreign companies in India in Indian currency from sale of crude oil or any other goods or renderi ng of
services, as may be notified by the Central Government in this behalf, to any person is exempt. Condition to
be fulfilled to claim such exemption:
(a) The money has been received under an (b) The foreign company, as well as the arrangement
agreement or arrangement entered into, or approved or agreement, are notified by the Central
by, the Central Government. Government having regard to the national interest.
(c) The foreign company is not engaged in any (d) All of the above.
other activity in India, except receipt of income
in India under such arrangement or agreement.
(36) Income received from which of the following shall be unconditionally exempt:
(b) Pradhan Mantri Jan Dhan Yojna

(a) Swachh Bharat Kosh
(c) National Foundation for Communal Harmony; (d) NAREGA
(37) Income received from which of the following shall be unconditionally exempt:
(b) National Sports Fund

(a) The National Children's Fund
(d) National Illness Assistance Fund
(c) Clean Ganga Fund
(38) ABC institution was existing solely for educational purposes and not for purposes of profit. The institution was wholly or
substantially financed by the Government. The annual receipts of the institution was ` 85,00,000. It earned income of ` 2,25,000
during the previous year 2017-18. Calculate the amount of income taxable.
(a) ` 2,25,000 (b) ` 25,000

(c) ` 2,00,000 (d) Nil
(39) RSR hospital was existing solely for philanthropic purposes and not for purposes of profit. The hospital was wholly or substantially
financed by the Government. The annual receipts of the institution was ` 90,00,000. It earned income of ` 3,00,000 during the
previous year 2017-18. Calculate the amount of income taxable.
(a) ` 3,00,000 (b) ` 1,00,000

(c) ` 2,00,000 (d) Nil
Page 404
MCQ EXEMPT INCOME
EXEMPTION IN RESPECT OF UNDER-TAKINGS LOCATED IN SEZ
(40) In case of a unit established by an entrepreneur in SEZ, which begins to manufacture or produce articles or things or pr ovide any
services on or after 1-4-2006, deduction for First 5 years will be allowed as follows-
(a) 100% of profits and gains from export business (b) 75% of profits and gains from export
business
(c) 100% for first two years and 80% for remaining (d) No deduction
three years
(41) Where a deduction under section 10AA is claimed and allowed in respect of profits of any of the specified business,
referred to in section 35AD, for any assessment year, then shall be allowed under the provisions of section 35AD
in relation to such specified business for the same or any other assessment year.
(a) No deduction (b) Full deduction

(c) 75% deduction (d) 50% deduction
(42) In case of a unit established by an entrepreneur in SEZ, which begins to manufacture or produce articles or things or pr ovide any
services on or after 1-4-2007, deduction for next 5 years will be allowed as follows-
(a) 50% of profits and gains from export business (b) 75% of profits and gains from export business
(c) 100% for first two years and 80% for remaining (d) No deduction
three years
(43) In case of a unit established by an entrepreneur in SEZ, which begins to manufacture or produce articles or things or provide any
services on or after 1-4-2006, deduction for another next 5 years (11-15 years) will be allowed as follows-
(a) 50% of Profits from export business. (b) Amount transferred from P&L Alc to "Special
Economic Zone Reinvestment Reserve AI c"
(c) Lower of (a) or (b) (d) Higher of (a) or (b)
(44) While computing the export turnover, the expenses to be deducted are:
(a) Sales tax (b) Excise duty
(c) Expenditure incurred in foreign exchange (like: (d) All of the above.
freight, etc.)
(45) Hans Ltd. is a unit located in SEZ. It has Export turnover of `500 lakhs; Total turnover of `900 lakhs; Business profits of `80
lakhs. The said export turnover includes sales tax amounting to `20 lakhs and excise duty amounting to `30 lakhs. Further, the
assessee incurred freight amounting to `50 lakhs outside India. Compute the deduction available under section 10AA.
(a) `40 lakhs (b) `32lakhs

(c) `44.44lakhs (d) Nil
(46) Export profits of `250 lakhs pertaining to previous year 2017-18. Unabsorbed depreciation of `100 lakhs pertaining to assessment
year 2014-15. Compute the deduction available under section 10AA.
(a) `250 lakhs (c) (b) `100 lakhs (d)

`150 lakhs Nil
(47) Ray Charitable Trust (registered under section 12AA) has total income of Rs. 20 lakhs. It applied Rs. 10 lakhs towards its objects.
How much is chargeable to tax in case the trust does not opt for accumulation of income under section 11(2) of the Act ?
(June 2017)
(A) Rs. 10 lakhs
(B) Rs. 7 lakhs
(C) Rs. 5 lakhs
(D) Rs. 3 lakhs
Page 405
MCQ EXEMPT INCOME
Ans. A
(48) Mr. Chandan (age 70) received Rs. 30,000 every month during the financial year 2016 -17 on reverse mortgage of his property with
State Bank of India. The amount of receipt liable to tax in the hands of Mr. Chandan is :
(June 2017)
(A) Rs. 3,60,000
(B) Rs. 2,52,000
(C) Rs. 40,000
(D) Nil (Ans. D)
1.b 2.b 3.d 4.a 5.b 6.a 7.c 8.d 9.a 10.a
11.a 12.c 13.d 14.b 15.d 16.a 17.d 18.a 19.a 20.d
21.d 22.d 23.a 24.d 25.d 26.c 27.d 28.d 29.d 30.d
31.d 32.d 33.d 34.d 35.d 36.a 37.c 38.d 39.d 40.a
41.a 42.a 43.c 44.d 45.a 46.c
Page 406
INTERNATIONAL TAXATION
Chapter 18
INTERNATIONAL TAXATION & ADVANCE RULING
(1) Computation of income from international transaction having regard to arm's length price [Section 92] :
(a) According to Section 92, Any income/expense or interest arising from an international transaction/ specified
domestic transaction shall be computed having regard to the arm's length price.
(b) Allocation/apportionment of common costs shall be done having regard to the ALP.
(c) Provisions of ALP not to apply if it results in reduction of income/ increase of losses.
(2) Meaning of associated enterprise [Section 92A] :

(a) "Associated enterprise", in relation to another enterprise, means an enterprise-
(i) which participates, directly or indirectly, or through one or more intermediaries, in the management or
control or capital of the other enterprise; or
(ii) in respect of which one or more persons who participate, directly or indirectly, or through one or more
intermediaries, in its management or control or capital, are the same persons who participate, directly or
indirectly, or through one or more intermediaries, in the management or control or capital of the other
enterprise.
(b) Deemed associated enterprise: Two enterprises shall be deemed to be associated enterprises if, at any time during
the previous year,-
(i) At least 26% Share holding of One enterprise is owned by other
enterprise;
(ii) At least 26% Share holding of two enterprises is owned by the same
person;
(iii) Loans not less than 51% of the book value of the total assets of the one enterprise is advanced by other
enterprise;
(iv) Guarantees: not less than 10% of the total borrowings of the other enterprise;
(v) Board appointment: More than half of the BOD/governing board or one or more ED/executive member are
appointed by the other enterprise; or
(vi) More than half of the BOD/governing board or one or more ED/executive member of two enterprise are
appointed by same person;
(vii) Dependence on Intangibles of which the other enterprise is the owner or has exclusive
rights; (viii) 90% or more of the raw materials Purchases from other enterprise;
(ix) Sales to other enterprise, the prices and other conditions relating thereto are influenced by such other
enterprise;
(x) Control through relative of
individuals; (xi) Control through
members of family;
(xii) Control through AOP firm etc.;
(xiii) Mutuality of business interest.
(3) International Transaction [Section 92B] : "International transaction" means a transaction which is a transaction
between two or more associated enterprises, either or both of whom are non-residents.
Deemed associated transaction : A transaction entered into by an enterprise with a person other than an associated
enterprise shall, be "deemed to be an international transaction" entered into between two associated enterprises, if in
relation to that transaction -
(a) there exists a prior agreement in relation to the relevant transaction between such other person and the associated
enterprise, or
Page 407
(b) the terms of the relevant transaction are determined in substance between such other person and the associated
enterprise where the enterprise or the associated enterprise or both of them are non-residents irrespective of
whether such other person is a non-resident or not.
(4) Meaning of specified domestic transaction [Section 92BA] : For the purposes of this section and sections 92, 92C, 92D
and 92E, "specified domestic transaction" in case of an assessee means any of the following transactions, not being an
international transaction, namely -
(i) any expenditure in respect of which payment has been made or is to be made to a related person referred to in
Section 40A(2)(b);
(ii) any transaction referred to in Section 80A; i.e., inter-unit transfer of goods and services by an undertaking or unit
or enterprise or eligible business to other business carried on by the assessee or vice versa, for consideration not
corresponding to the market value on the date of transfer;
(iii) any transfer of goods or services referred in Section 80-IA(8) i.e., inter-unit transfer of goods or services between
eligible business and other business, where the consideration for transfer does not correspond with the market
value of goods and services;
(iv) any business transacted between the assessee and other person as referred to in section 80-IA(1O);
(v) any transaction, referred to in any other section under Chapter VI-A or Section 10AA, to which provisions of
section 80-IA(8)/ (10) are applicable; or
(vi) any other transaction as may be prescribed,
and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of ` 20 crore.
Thus, the above mentioned transactions shall not be treated as specified domestic transaction in case the aggregate of such
transactions entered into by the assessee in the previous year does not exceed a sum of ` 20 crore.
(5) Arm's length price & methods for determining arm's length price [Section 92C] :
(a) Meaning of Arm's length price [Section 92F(ii)] : "Arm's length price" means a price which is applied or proposed to be
applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.
(b) Methods for computation of Arm's length price [Section 92C(1)] : The arm's length price in relation to .1D international
transaction or specified domestic transaction shall be determined by any of the following methods, namely -
(i) Comparable uncontrolled price method [CUPM] ;
(ii) Resale price method [RPM] ;
(iii) Cost plus method [CPM] ;
(iv) Profit split method [PSM] ;
(v) Transactional net margin method [TNMM] ;
(vi) Such other method as may be prescribed by the Board.
(6) Power of Assessing Officer to determine arm's length price and implications of such substitution [Section 92C(3) &
92C(4)] : If the price charged or paid in an international transaction or specified domestic transaction has not been determined in
accordance with most appropriate method; or any information and document relating to an international transaction or specified
domestic transaction have not been kept and maintained by the assessee in accordance with Lie provisions Section 92D; or the
information or data used in computation of the arm's length price is not reliable or correct; or the assessee has failed to furnish,
within the specified time, any information or document which he was required to furnish under section 92D.
Implications of substitution of ALP determined by Assessing Officer:
(a) Computation of total income by AO.
(b) No deduction on excess income under section 10AA or under Chapter VI-A.
(c) No re-computation of income of other associated enterprise.
Page 408
(7) Provisions relating reference to Transfer Pricing Officer:

(a) Meaning of Transfer Pricing Officer: A JC/DC/AC authorised by the CBDT to act as transfer pricing officer.
(b) Reference to Transfer Pricing Officer shall be made by AO with the previous approval of the Principal Commissioner or
CIT for computation of ALP. TPO's is empowered to determine ALP of international transactions even if not referred by
AO. TPO's is empowered to determine ALP of international transactions not reported u/s 92E ..ALP shall be determined
by TPO and such order shall be passed in writing by TPO. Assessment to be as per ALP determined by TPO by the
assessing officer. TPO to pass order at least 60 days before the time-limit fur completion of assessment. Rectification of
orders passed by TPO in case of mistake apparent from record. TPO may exercise the powers under section 131, 133 &
133A .
(8) Section 92CB empowers the CBDT to make to make safe harbour rules. "Safe harbour" means circumstances in which the
income-tax authorities shall accept the transfer price declared by the assessee. The determination of arm's length price under
section 92C or section 92CA shall be subject to safe harbour rules.
(9) Advance pricing agreement [Section 92CC] :

(a) Meaning of Advance Pricing Agreement: An advance pricing agreement (APA) is an agreement between a taxpayer and a
taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in
future. It offer better assurance on transfer pricing methods and provide certainty and unanimity of approach.
(b) Board is empowered to enter into an APA with any person for determination of ALP. ALP to be determined in accordance
with AP A. AP A to be valid upto 5 years. AP A to be binding on such person & income tax authorities. AP A to be void
if the agreement has been obtained by the person by fraud or misrepresentation of facts.
(c) Roll back provision in APA : The agreement referred above, may, subject to such conditions, procedure and manner as may
be prescribed, provide for determining the ALP or specify the manner in which ALP shall be determined in relation to the
international transaction entered into by the person during any period not exceeding 4 previous years preceding the first of
the previous years referred above, and the ALP of such international transaction shall be determined in accordance with the
said agreement.
(10) Effect to advance pricing agreement [Section 92CD] :

(a) Modified return to be furnished within a period of 3 months from the end of the month in which the said APA was entered
into accordance with AP A if the assessee has furnished a return under section 139 for any assessment year to which such
AI" A applies. Assessment/Reassessment is to be made in accordance with modified return.
(b) Time-limit for completion of assessments/reassessment: within a period of 1 year from the end of the financial year in
which the modified return is furnished.
(c) Pending assessment are to be completed in accordance with modified return: Time limit to be extended by 12 months for
completion of assessment.
(11) Documents required to be maintained by persons entering into international transaction [Section 92D] :
(a) Enterprise-wise documents.
(b) Transaction-specific documents.
(c) Computation related documents.
Relief from maintenance of specified records: If total value of international transactions (as per books of account of assessee) is
upto ` 1 crore. Information and documents specified should be contemporaneous and should exist latest by the due date
mentioned u/s 139(1).
Period for which-records to be maintained: 8 years from the end of the relevant A Y. Furnishing of
records to AO within 30 days from date of receipt of notice issued in this regard.
Page 409
(12) Report from an accountant to be furnished by persons entering into international transaction or specified domestic transaction
on or before the due date for furnishing return of income under section 139(1). [Section 92E]
(13) Provisions relating to Dispute Resolution Panel:

(a) Meaning of Dispute Resolution Panel : "Dispute resolution panel" means a collegium comprising of three Principal
Commissioners or Commissioners of Income-tax constituted by the Board for this purpose.
(b) Eligible Assessee: "Eligible assessee" means the following assessees in whose case the Assessing Officer proposes to make
any variation in the income or loss returned which is prejudicial to the interest of such assessee -
(i) any person in whose case such variation arises as a consequence of the order of the Transfer Pricing Officer passed
under section 92CA(3) ; and
(ii) any foreign company.
(c) In above cases the AO shall forward the draft order to eligible assessee by the Assessing Officer. In such case the assessee
may file his acceptance or objections within 30 days of receipt of draft order. The Assessing Officer shall complete the
assessment in cases of acceptance/no objection are received within the period of 30 days specified above. Assessment to be
completed within 1 month from the end of the month in which,- the acceptance is received; or the period of filing of
objections (i.e. 30 days as specified above) expires.
(d) DRP to issue directions to AO if objections received from assessee: After considering the following, namely,-
(i) draft order;
(ii) objections filed by the assessee;
(iii) evidence furnished by the assessee;
(iv) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;
(v) records relating to the draft order;
(vi) evidence collected by, or caused to be collected by, it; and
(vii) result of any enquiry made by, or caused to be made by, it
Further inquiry by DRP : The Dispute Resolution Panel may, before issuing any directions,-
(i) make such further enquiry, as it thinks fit; or
(ii) cause any further enquiry to be made by any income-tax authority and report the result of the same to it.
(e) Time-limit of issuance of direction - 9 months from the end of the month in which the draft order is forwarded to the
eligible assessee.
(f) Assessment to be within 1 month from the end of the month in which such direction is received.
(g) Section 144C not applicable if section 144BA is applicable: The provisions of this section shall not apply to ar,y
assessment or reassessment order passed by the Assessing Officer with the prior approval of the Principal Commissioner or
Commissioner as provided in of section 144BA(12).
Page 410
(14) The penal provisions in context of transfer pricing are as under –
Section Particulars Amount of penalty

270A Failure to report any international transaction or any transaction deemed to be an 200% of tax payable
international transaction or any specified domestic transaction, to which the on such under-
provisions of Chapter X apply reported income
271AA Penalty for failure to keep and maintain information and document, etc., in
respect of certain transactions:
(1) Where any person in respect of an international transaction or specified

2% of value of each
domestic transaction,-
such international
(i) fails to keep and maintain any information and document as required by
transaction or
I Section 92D(1) & 92D(2), or
I (iii)fails
(ii) to report such transaction as he required to do, or
Specified domestic
transaction.
maintains or furnishes an incorrect information and document.
I
I
I
-
(2) If any person fails to furnish the information and the document as required ` 5,00,000.
u/s 92D(4).
271BA Penalty for failure to furnish report from an Chartered Accountant as required `1 Lakh
u/s 92E.
271G Penalty for failure to furnish information or document u/s 92D : Where any 2% of value of
person who has entered into an international transaction or specified domestic interna tional
transaction fails to furnish any such information or document as required by transaction or
Section 92D(3), the Assessing Officer or the Transfer Pricing Officer as referred to in specified domestic
section 92CA or the Commissioner (Appeals) may direct a penalty. transaction.
Note : As per section 273B, the penalties under section 271AA, 271BA and 271G shall not be imposable if the assessee
proves that there was reasonable cause for such failures.
(15.1) Special measures in respect of transactions with persons located in notified jurisdictional area [Section 94A] :
(a) "Notified jurisdictional area" (NJA) to be notified by the Central Government may, having regard to the lack of effective
exchange of information with any country or territory outside India.
(b) "Person located in a notified jurisdictional area" : It shall include,-
(i) a person who is resident of the notified jurisdictional area;
(ii) a person, not being an individual, which is established in the notified jurisdictional area; or (iii) a
permanent establishment of a person (other than above) in notified jurisdictional area;
(c) Transaction between assessee and PLINJA -Deemed Associated Enterprises - Deemed International Transaction - Transfer
Pricing provisions to apply : Second proviso to section 92C(2) provides for acceptance of the actual price if the actual price
varies from the ALP only up to notified percentage (not exceeding 3) of the actual price shall not apply.
(d) No deduction in respect of finance charges paid to financial institution located in NJA, unless authorisation to collect
information furnished. [Section 94A(3)]
(e) No deduction in respect of transaction with PLINJA, if prescribed documents not kept deemed income. [Section 94A(4)]
(f) Receipt from PLINJA - Deemed to be income, if its source not explained satisfactorily.
(g) Payments to PLINJA - Minimum rate of IDS is 30 [Section 94A(5)]
Page 411
15.2) Restriction of interest expenses [Section 94B] :

Interest expenses claimed by an entity to its associated enterprises shall be restricted to 30% of its
earnings before interest, taxes, depreciation and amortization (EBITDA) or interest paid or payable to associated
enterprise,whichever is less.The provision shall be applicable to an Indian company, or a permanent establishment of a
foreign company being the borrower who pays interest in respect of any form of debt issued to a non-resident or to a
permanent establishment of a non-resident and who is an 'associated enterprise' of the borrower. Further, the debt shall be
deemed to be treated as issued by an associated enterprise where it provides an implicit or explicit guarantee to the lender
or deposits a corresponding and matching amount of funds with the lender.
The provisions shall allow for carry forward of disallowed interest expense to eight assessment years immediately
succeeding the assessment year for which the disallowance was first made and deduction against the income computed
under the head "Profits and gains of business or profession to the extent of maximum allowable interest expenditure.
(16) Taxation of E-commerce Transactions: E-commerce or electronic commerce, means consumer and business
transactions conducted over a network, using computers and telecommunications. E-commerce refers to the exchange of
goods or services for value on the internet. It includes, inter alia, on-line shopping, on-line trading of goods and services,
eiectronic fund transfers, electronic data exchanges and on-line trading of financial instruments.
In E-commerce there are three distinct means of doing business: Electronic advertising, electronic sales and electronic
delivery. The presence of anyone or more of these is sufficient to characterise the business as e -commerce.
The existence of permanent establishment in e-commerce situations is as under -
(a) Existence of a website on host country soil would not constitute a permanent establishment.
(b) Server on host country soil. If the enterprise itself owns or leases and operates the server, and the computer
equipment is fixed, and business is carried on through the server, it could be construed to be a permanent
establishment.
(c) Extent of operations: In the extent of operations, as well, there could be a wide range of activiti es. A server could be
simply located on host country soil with skeletal support services, or it could be a server with multiple services, or
it could be a server which carries on the complete set of operations. In the last situation, there would clearly be a
permanent establishment.
(d) Server functioning as agent: the website and the server would not constitute a permanent establishment.
(17) The issues involving e-commerce transactions are as follows: (i) No geographical barriers; (ii) Double taxation; (iii)
Determination of Permanent Establishment; (iv) Legal difficulty; (v) Determination of Taxable Jurisdiction; (vi)
Diminishing revenues; (vii) Contractual disputes.
(18) Permanent establishment: According to Article 5(2), various instances of PE,

include –
(a) a place of management,
(b) a branch,
(c) an office,
(d) a factory,
(e) a
workshop,
(f) a sales
outlet,
(g) a warehouse,
Page 412
(h) a mine, an oil or gas well, a quarry or other place of extraction of natural resources (but not exploration).
(19) Double Taxation Relief:

Meaning of Double Taxation: "Double Taxation" means taxation of the same income in more than one country.
To prevent this hardship of double taxation, relief can be provided mainly in two ways -
(a) Bilateral Relief: The Government of two countries enter into DTAA for avoidance of double taxation by devising
mechanism to grant relief as per mutual agreement. Agreements of bilateral relief may be of two kinds:
(i) Exemption method;
(ii) Tax credit method.
(b) Unilateral Relief: Where there is no DTAA between two countries, the home country provides relief in respect of
income taxed in the source country; it is termed as unilateral relief.
(20) Treaty shopping: If a resident of a third country takes unintended advantage of tax treaty between two countries, it is
known as treaty shopping.
(21) Agreement with foreign countries or specified territories - Bilateral relief [Section 90] : The purposes
are –
(a) granting of relief in respect of doubly taxed income.
(b) the avoidance of double taxation of income.
(c) exchange of information for the prevention of evasion or avoidance of income tax.
(d) recovery of income tax.
In relation to any assessee to whom the said agreement applies, the provisions of the Income-tax Act, 1961 shall apply to
the extent they are more beneficial to that assessee.
According to Section 90(2A), the provisions of Chapter X-A of the Act shall apply to the assessee, even if such
provisions an' not beneficial to him.
According to Explanation 3 if any meaning is assigned in notification, it shall be effective from the date of enforceability
of DTAA,.
Tax Residence Certificate (TRC) a necessary but not sufficient condition for claiming treaty benefits [Section 90(4)] :
An assessee, not being a resident, to whom an above agreement applies, shall not be entitled to claim any relief under such
agreement unless a certificate, containing prescribed particulars, of his being a resident in any country outside India or
specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified
territory.
It has been further provided that tax rate of foreign country which is higher than domestic company sh all not be not
regarded as discriminatory.
(22) Relief where no double taxation avoidance agreement exists [Section 91] [Unilateral relief] : The assessee is a
resident in India during the relevant previous year. The income accrues or arises to him outside India during that previous
year. Such income is not deemed to accrue or arise in India during the previous year. In such case _
Double Taxation Relief (DTR) : Lower of the following sums shall be deductible from Indian income tax
(a) Doubly taxed income x Indian rate of tax
(b) Doubly taxed income x Rate of tax paid in other country
Page 413
ADVANCE RULINGS
(23) Advance Ruling [Section 245N(a)): It means-

(a) determination by the Authority in relation to a transaction which has been undertaken/proposed to be undertaken by
a non-resident applicant; or
(b) determination by the Authority in relation to the tax liability of a non-resident arising out of a transaction which has
been undertaken/ proposed to be undertaken by a resident applicant with such non-resident;
(c) a determination by the Authority in relation to the tax liability of a resident applicant, arising out of a transact ion
which has been undertaken or is proposed to be undertaken by such applicant,
and such determination shall include the determination of any question of law or of fact specified in the application
referred in points (a), (b) & (c) above;
(d) determination/ decision by Authority in respect of an issue relating to computation of total income which is pending
before any income-tax authority/Tribunal;
(e) a determination or decision by the Authority whether an arrangement, which is proposed to be under taken by any
person being a resident or a non-resident, is an impermissible avoidance arrangement as referred to in Chapter X-A
(General Anti-Avoidance Rule) or not;
(24) Applicant [Section 245N(b)) : Applicant' means _

(a) non-resident, in relation to transaction undertaken/ proposed to be undertaken by him;
(b) resident seeking advance ruling in relation to the tax liability of a non-resident arising out of transaction undertaken/
proposed to be undertaken by him with such non-resident;
(c) a resident seeking advance ruling in relation to the tax liability of a resident applicant, arising out of a transaction
which has been undertaken or is proposed to be undertaken by such applicant falling within any such class or
category of persons as the Central Government may specify; or
(d) notified category of residents (Public sector companies);
(e) a person who is referred in section 24SN(a)(iv).
(25) Constitution [Section 245-0] :

(a) The Authority shall consist of a Chairman and such number of Vice-chairmen, revenue Members and law Members
as the Central Government may, by notification, appoint.
(b) A person shall be qualified for appointment as-
(i) Chairman, who has been a Judge of the Supreme Court;
(ii) Vice-chairman, who has been Judge of a High Court;
(iii) a revenue Member from the Indian Revenue Service, who is a Principal Chief Commissioner or Principal
Director General or Chief Commissioner or Director General;
(iv) a law Member from the Indian Legal Service, is qualified to be, an Additional Secretary to Government of India.
(c) The terms and conditions of service and the salaries and allowances payable to the Members shall be such as may
Be prescribed.
(d) The Central Government shall provide to the Authority with such officers and employees, as may be necessary,
for the efficient discharge of the functions of the Authority under this Act.
(e) The powers and functions of the Authority may be discharged by its Benches as may be constituted by the
Chairman from amongst the Members thereof.
(f) A Bench shall consist of the Chairman or the Vice-chairman and one revenue Member and one law Member.
(g) The Authority shall be located in the National Capital Territory of Delhi and its Benches shall be located at such
places as the Central Government may, by notification specify.
Page 414
(26) Procedure for making application for advance ruling [Section 245Q] : The application shall be made in
quadruplicate and be accompanied by a fee of ` 10,000 or such fee as may be prescribed in this behalf, whichever is
higher. An applicant may withdraw an application within 30 days from the date of the application.
(27) Procedure on receipt of application [Section 245R] :

(a) The Authority shall, after examining the application and the records called from the Principal Commissioner or
Commissioner, either allow or reject the application. However, the application shall not be allowed where the
question raised in the application is already pending before any income-tax authority, Appellate Tribunal (except
in case of public sector units), or any court, involves determination of FMV of any property, relates to a
transaction or issue which is designed prima facie for the avoidance of income-tax (except in the case of a notified
residents i.e public sector units or relates to a transaction or issue which is designed prima facie for the avoidance of
income-tax (except in the case of a notified residents i.e. public sector units or in case of a person seeking advance
ruling whether an arrangement proposed to be undertaken by him is an impermissible avoidance arrangement as
per Chapter X-A.) ;
(b) Where an application is allowed, the Authority shall pronounce its advance ruling in writing within 6 months of
the receipt of application.
(28) .Applicability of advance ruling [Section 245-S] : It shall be binding only on applicant who had sought it in respect of
the transaction in relation to which the ruling has been sought and on Principal Commissioner or Commissioner, and
the income tax authorities subordinate to him, in respect of the applicant and the said transaction.
(29) Advance ruling to be void [Section 245T] : Where the Authority finds that an advance ruling has been obtained by the
applicant by fraud or misrepresentation of facts, it may declare such ruling to be void ab initio and thereupon all the
provisions of this Act shall apply as if such advance ruling had never been made.
(30) Powers of the Authority for Advance Ruling [Section

245U] :
(a) Discovery and inspection;
(b) Enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(c) Compelling the production of books of account and other documents; and
(d) Issuing commissions.
Page 415
MCQ INTERNATIONAL TAXATION
TAX PLANNING
(1) Tax planning is:

(b) Unethical
(a) Unlawful
(c) Not within the framework of law
(2) Mr X deposits ` 1,00,000 in PPF a/c to claim deduction under section 80C. It is -
(a) Tax planning (b) Tax evasion
(c) Tax management (d) Tax avoidance
Page 416
MCQ INTERNATIONAL
TAXATION
(3) The basic objectives of tax planning is
(a) Reduction of tax liability (b) Minimization of litigation
(c) Productive investment (d) All of the above
(4) Permissive tax planning is -
(a) Objective of tax planning
(b) Area of tax planning
(c) Type of tax planning
(5) An exercise undertaken to minimize tax liability through the best use of all available allowances, deductions, exclusions,
exemptions, etc. to reduce income-tax liability is known as - (Dec. 2014)
(a) Tax evasion (b) Tax planning

(c) Tax avoidance (d) Tax dodging
(6) Tax planning is honest and right approach to attain the maximum benefit of taxation laws within its framework only.
Objectives of tax planning are:
(1) Productive investment
(2) Un-healthy growth of economy
(3) Minimisation of litigation
(4) Increase in tax liability.
Select the correct answer from the options given below _
(Dec. 2015)
(a) (1), (2) and (3) (c) (b) (1) and (3)
(1), (2) and (4) (d) (1), (2), (3) and (4).
(7) Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, one enterprise
holds shares carrying not less than of the voting power in the other enterprise.
(a) 15% (b) 20%

(c) 26% (d) 10%
(8) Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, a loan advanced by
one enterprise to the other enterprise constitutes not less than of the book value of the total assets of the other
enterprise.
(a) 15%
(b) 51%
(c) 26%
(d) 10%
(9) Acrylic Ltd. sourced its new materials from Breeze Ltd. The relationship of associated enterprises would be established
when Acrylic Ltd. buys raw material from Breeze Ltd. exceeding - (June 2016)
(a) 50% of total raw material purchased (b) 90% of total raw material purchased
(c) 25% of total raw material purchased (d) 35% of total raw material purchased
10) Two enterprises shall be considered as associated enterprises if at anytime during the previous year, following condition
is satisfied - (Dec. 2014)
(a) Holding 25% voting power in another b) Advancing of loan which is at least 51% of the
enterprise book value of the assets of the borrower enterprise
(c) Providing guarantee for at least 5% of the total (d) Tapping at least 50% of raw material from the
borrowings of enterprise enterprise
Page 417
(11) "International transaction" is a transaction between:

Two or more associated enterprises, either or both
(a) Two or more unrelated enterprises either or (b)
of whom are residents in India.
both of whom are residents in India.
(c) Two or more associated enterprises, either or (d) None of the above.
both of whom are non-residents or not in India.
(12) Transactions under section 92BA shall not be treated as specified domestic transaction in case the aggregate of such transactions
entered into by the assessee in the previous year does not exceed a sum of ---
(a) ` 10 crore (c) (b) ` 15 crore

` 20 crore (d) ` 30 crore
(13) The following methods as per section 92C are used in determination of arm's length prices from international
(Dec. 2014)
transactions and specified domestic transaction except ..
(b) Resale price method
(a) Comparable uncontrolled price method
(d) Transactional net margin method.
(c) Cost method
(14) A sold a machine to B (associated enterprise) and in tum B sold the same machinery to C (an independent party) at sale margin of
30 for ` 4,00,000 but B has incurred ` 4,000 in sending the machine toC From the above data, determine arm's length price _ (Dec.
2014)
(b) ` 2,80,000
(a) ` 2,76,000
(d) ` 1,20,000
(c) ` 4,00,000
(15) The provision of transfer pricing are applicable with effect from 1" April, 2015 to specified domestic transactions ente red
into by the assessee in the previous year in aggregate of _ (Dec. 2015)
(a) ` 300 lakh (b) ` 500 lakh
(c) ` 2,000 lakh (d) ` 1,000 lakh.

(16) XYZ has sold a machine to ABC (associate enterprise) for ` 3lakh which was sold by ABC to PQR, an unrelated party, on the sale
margin of 30% for `5,00,000 and has also incurred an amount of ` 10,000 in sending the machine to PQR. The
arm's length price of this transaction will be ….. (Dec. 2015)
(b) `3,50,000
(a) `3,40,000
(c) ` 3,00,000 (d) `5,00,000
(17) ABC Ltd. entered into international transactions with Allen Inc. of USA during the year ended on 31 st March, 2018 totalling
` 1,000 lakh, but failed to keep and maintain the information and documents in respect of such international transactions. The
Assessing Officer can levy a penalty on ABC Ltd. for this default u/s 271AA upto - (Dec. 2015)
(b) `20,00,000
(a) `10,00,000
(d) ` 1,50,000.
(c) `50,00,000
(Dec. 2014)
(18) GAAR stands for -
(b) General anti-avoidance rules
(a) Government anti-avoidance rules (d) Government anti-agreement rules.
(c) General agreement-avoidance rules
(19) Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, one enterprise guarantees
not less than __ of the total borrowings of the other enterprise.
(a) 15% (b) 51%

(d) 10%
(c) 26%
Page 418
(20) "Arm's length price" means a price which is applied or proposed to be applied in a transaction-
(a) between persons other than associated (b) Between persons other than associated
enterprises, in uncontrolled conditions. enterprises, in controlled conditions.
(c) between associated enterprises, in uncontrolled (d) between associated enterprises, in controlled
conditions. conditions.
(21) Where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be-----
(a) Highest of such prices (b) Lowest of such prices
(c) Arithmetical mean of such prices (d) Any price at the option of the assessee
(22) The maximum permissible variation between ALP and transfer price, which is to be notified bv the Central Government
cannot exceed of the transfer price. .
(a) 3% (b) 2%
(c) 10% (d) 5%
(23) is not a method for determining Arms Length price.
(a) Comparable controlled price method (b) Resale price method

(c) Profit split method (d) Transactional net margin method
(24) The transfer pricing provisions shall not apply in a case where the computation of income has the effect of ___________________
computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was
entered into.
(a) Reducing the income chargeable to tax (b) Increasing the income chargeable to tax
(c) Reducing the loss chargeable to tax (d) Converting loss into income.
(25) In case total income is enhanced by the Assessing officer by virtue of application of transfer pricing provisions:
(a) Deduction under Chapter VI A shall not be (b) Deduction under Chapter VI A shall not be
admissible from entire income. admissible from enhanced income.
(c) Deduction under Chapter VI A shall be (d) Deduction under Chapter VI A shall be admissible
admissible from entire income. from enhanced income.
(26) The AP A shall be valid ________ as may be specified in the agreement.

(a) For such period not exceeding 5 consecutive (b) For such period not exceeding 10 consecutive
previous years previous years
(c) For such period not exceeding 2 consecutive (d) For such period not exceeding 3 consecutive
previous years previous years
(27) Revised return can be furnished within ___________ from the end of the month in which the said APA was entered into.
(a) 3 months
(b) 1 month
(c) 6 months
(d) 1 year
(28) A professor earned ` 8,00,000 from a foreign country where no DTAA exists with that country and tax deducted at source is ` 60,000. The
assessee is an Indian citizen and resides in India. His other income in India are ` 2,67,000. Tax relief under section 91 will be - (Dec.
2014)
(a) ` 60,000 (c) ` (b) ` 80,000

1,20,000 (d) Nil.
(29) If total value of international transactions is upto ---------------- the assessee need not to maintain specified information
and documents under section 92D.
(a) ` 1 crore
(b) ` 2 crore
(c) ` 5 crore
(d) ` 10 crore
Page 419
(30) If any person fails to furnish audit report as required under section 92E of the Act, he shall be liable to a penalty of -
(a) ` 1,00,000. (b) 2 of the value of international transaction.
(c) ` 1,50,000. (d) 1 of the value of international transaction.

(June, 2015)
(31) As per transfer pricing provisions, an advance pricing agreement (APA) is valid for -
(a) Such period as specified in the AP A, but not (b) Such period as specified in the AP A, but not
exceeding 3 consecutive years exceeding 5 consecutive years
(c) 2 Years (d) None of the above.
(32) The validity period of advance pricing agreement (AP A) is - (June 2016)

(c) 5 Years (d) 7 Years
(33) The Income-tax Act, 1961 empowers the Central Government to enter into double taxation avoidance agreements with
other countries under section _ (June, 2015)
(b) 88
(a) 87
(c) 90
(Dec. 2015)
(34) Double taxation relief for incomes taxed in the countries with which no agreement exists is governed by -
(b) Section 89
(a) Section 91
(c) Section 93
(35) Relief under Section 91 can be granted to –

(b) Non resident
(a) Resident
(c) Resident and Non Resident
(36) Anand, a resident in India, has a total income of ` 10,00,000 during the previous year 2017-18. This income includes foreign
income of ` 3,00,000 from a country with which India does not have agreement to avoid double taxation. Tax levied by the
foreign country on that foreign income was ` 40,000 and the tax payable as per the Indian rate on the total income amounts to
` 2,50,000. The double taxation relief allowable to Anand shall be - (June 2016)
(a) ` 40,000 (b) `75,000
(c) ` 35,000 (d) ` 25,000
(37) Tax haven is a place where –

(b) There is no tax on income
(a) Tax rates are very high. (d) There is no tax on income or tax rates are very low
(c) Tax rates are very low.
(38) According to the Organization for Economic Co-operation and Development (OECD), the following parameters are
considered to decide whether a jurisdiction is tax haven or not - (Dec. 2014)
(b) Withholding personal financial information

(a) Rate of tax applicable
(c) Lack of transparency
(39) As per Article 5 of DTAA __________ are instances of permanent establishment.
(b) Branch
(a) Place of management
(c) Factory
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MCQ INTERNATIONAL
TAXATION
(40) According to Section 90(2A), the provisions of Chapter X-A of the Act shall apply to the assessee, _______ _
(a) Even if such provisions are not beneficial to (b) Even if such provisions are not applicable to him.
him.
(c) Only if such provisions are not beneficial to (d) For 5 years.
him.
(41) Which of the following double taxation avoidance agreement (DTAA) emphasises on residence principle - (June, 2015)
(b) US Model
(a) UN Model
(d) Andean Model
(c) OECD Model
(42) A legal entity that exists in one jurisdiction but is owned or controlled primarily by taxpayers of different jurisdiction is
called - (Dec. 2015)
(a) Collaborative foreign corporation (b) Controlled foreign corporation

(c) Customised future company (d) Co-operative control society.
(43) OECD has outlined _______ parameters to consider whether jurisdiction is tax haven or not.
(a) One
(b) Two
(c) Four
(d) Three
(44) An application for advance ruling is to be made in ____________ copies.
(a) One (b) Two

(d) Three
(c) Four
(45) Fees for making an application for advance ruling is -

(a) ` 2,500 (b) ` 10,000
(c) ` 1,000 (d) ` 500
(46) Advance ruling application can be withdrawn within days of the date of the application.
(a) 30 days (b) 60 days

(c) 90 days (d) 120 days
(47) Advance ruling shall be pronounced within ____________ of the date of receipt of application.
(a) 6 months (b) One year
(c) 90 days (d) 60 days.
(48) Authority for Advance Rulings shall not allow an application where the question raised - (Dec. 2015)
(a) Is already pending before the Supreme Court (b) Involves determination of fair market value of any
property
(c) Relates to a transaction designed prima facie for (d) All of the above.
the avoidance of income tax
(49) Which of the following person is eligible to seek advance ruling - (June 2016)
(a) Senior citizens

(b) Professionals
(c) Foreign companies
(d) Non-residents
(50) The authority for advance ruling in income-tax is appointed by - (June 2016)
(b) The Central Board of Direct Taxes

(a) The President of India
(d) The Chief Commissioner of Income-tax
(c) The Central Government
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MCQ INTERNATIONAL
TAXATION
(51) The advance ruling pronounced by the Authority for Advance Ruling as per section 245 is binding:
(1), In respect of transaction for which ruling has been sought
(2) On income-tax authorities
(3) On the applicant
(4) On all other persons having similar transaction. Select the
(Dec. 2015)
correct answer from the option given below -
(b) (1) and (3)
(a) (1), (2) and (3)
(c) (2) and (3) (d) (1), (2), (3) and (4).
1.d 2.a 3.d 4.c 5.b 6.b 7.c 8.b 9.b 10.b
11.c 12.c 13.c 14.a 15.c 16.a 17.b 18.b 19. 20.a
21.c 22.a 23.a 24.a 25.b 26.a 27.a 28.a 29.a 30.a
31.b 32.c 33.c 34.a 35.a 36.a 37.d 38.d 39.d 40.a
41.c 42.b 43.d 44.c 45.b 46.a 47.a 48.d 49.d 50.c
51.a
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ASST OF COMPANY
CHAPTER 19
ASSESSMENT OF COMPANIES
(1) In case of domestic company :
Domestic Company Rate of Income-tax

--
(i) Where its total turnover or the gross receipt in the previous year 2014-15 does not 29%
exceed ` 5 crore;
(ii) In any other case. 30%
Surcharge on Income tax, -
» If total income exceeds `1 crore but does not exceed ` 10 crores 7%
» If total Income exceeds `10 crores 12%
(i) Marginal Relief: Marginal relief is available in case total income exceeds `1 crore. The additional amount of income-tax
payable (together with surcharge) on the excess of income over `1 crore should not be more than the amount of income
exceeding `1 crore.
(ii) Marginal Relief: In the case of every company having a total income exceeding `10 crore, the total amount payable as
income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a
total income of `10 crores by more than the amount of income that exceeds `10 crores.
(2) In case of foreign company:
Foreign Company
Rate of income tax 40
Surcharge on Income tax,
» If total income exceeds `1 crore but does not exceed `10 crores 2%
» If total Income exceeds `10 crores 5%
(i) Marginal Relief: Marginal relief is available in case total income exceeds `1 crore. The additional amount of income-tax
payable (together with surcharge) on the excess of income over `1 crore should not be more than the amount of income
exceeding `1 crore.
(ii) Marginal Relief: In the case of every company having a total income exceeding `10 crore, the total amount payable as
income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a
total income of `10 crores by more than the amount of income that exceeds `10 crores.
(2) Tax on income of certain domestic companies [Section 115BA] : Domestic company liable to tax at concessional rate of
25% if the the following conditions are satisfied, namely:
(i) the company has been set-up and registered on or after 01-03-2016.
(ii) the company is not engaged in any business other than the business of manufacture or production of any article or thing
and research in relation to, or distribution of, such article or thing manufactured or produced by it; and (iii) the total in come of
the company has been computed,-
(a) without any deduction under the provisions of section 10AA or section 32(I)(iia) or section 32AC or section 32AD
or section 33AB or section 33ABA or section 35(I)(ii)J(iia)J(iii) or section 35(2AA) or section 35(2AB) or section
35AC or section 35AD or section 35CCC or section 35CCD or under section 80-IA to 80RRB other than section
80JJAA;
(b) without set off of any loss carried forward from any earlier assessment year if such loss is attributable to any of the
deductions referred to in (i) above; and
(c) depreciation u/s 32, other than section 32(I)(iia), is determined in the manner as may be prescribed.
(iv) Losses shall not be allowed to be carried for any subsequent year.
(v) Option to be exercised on or before due date of furnishing first return of income and once the option has been exercised
for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
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ASST OF COMPANY
(3) Special provision for payment of tax by certain companies [Section 115JB] : In case of a company income tax payable shall
be higher of the following two amounts:
(a) Tax on total income computed as per the normal provisions of the Act by charging special rates and norm al rates
applicable.
(b) 18.5% of book profit.
Effective rate of MAT including surcharge (If book profits exceed ` 1 crore but does not exceed ` 10 crores) = 18.5% + 7% SC +
3% EC & SHEC = 20.38885%.
Effective rate of MAT including surcharge (If book profits exceed ` 10 crores) = 18.5 + 12 SC + 3 EC & SHEC = 22.86600.
Effective rate of MAT in case of companies not liable to surcharge = 18.5% + 3% EC & SHEC = 19.055%.
Manner of computation of book profit [Explanation 1] :
Particulars
Net Profit as per Profit and Loss A/C ` `
xxx
Add: If any of the following is debited to Profit and Loss A/C
(1) Amount of income-tax paid or payable, and the provision therefore xxx
[Refer Explanation 2 below the table] or
(2) Amounts carried to any reserves ; or xxx
(3) Amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or xxx
(4) Amount by way of provision for losses of subsidiary companies; or xxx

(5) Amount or amounts of dividends paid or proposed; or xxx
(6) Amounts of expenditure relatable to any income to which Section 10 [other than Section 10(38)] or xxx
Section 11 or Section 12 apply; or
xxx
(7) Amount of expenditure relatable to income, being share of the assessee in the income of an
association of persons or body of individuals, on which no income-tax is payable in accordance
with the provisions of section 86; or
(8) Amount or amounts of expenditure relatable to income accruing or arising to an xxx
assessee, being a foreign company, from,-
(a) Capital gains arising on transactions in securities; or
(b) Interest, royalty or fees for technical services chargeable to tax at the rate or rates
specified in Chapter XII,
if the income-tax payable thereon in accordance with the provisions of this Act, other than the
provisions of this Chapter, is at a rate less than the rate specified in under Section 115JB(1); or
(9) Amount representing - xxx
(a) notional loss on transfer of a capital asset, being share of a special purpose vehicle, to
a business trust in exchange of units allotted by the trust referred u/s 47(xvii); or
(b) Amount representing notional loss resulting from any change in carrying amount of said
units; or
(c) Amount of loss on transfer of units referred to in Section 47(xvii); or
(10) Amount or amounts of expenditure relatable to income by way of royalty in respect of xxx
patent chargeable to tax under section 115BBF; or
(11) Amount of depreciation, xxx
(12) Amount of deferred tax and the provision therefore, xxx
(13) Amount or amounts set aside as provision for diminution in the value of any asset, x x x
Add: Amount standing in revaluation reserve relating to revalued asset on the retirement or xxx
disposal of such asset, if not credited to P & L A/c
Add: Amount of gain on transfer of units referred to in Section 47(xvii) computed by taking into account
the cost of the shares exchanged with units or the carrying amount of the shares at the
time of exchange where such shares are carried at a value other than the cost through profit or loss xxx xxx
account, as the case may be;
xxx
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ASST OF COMPANY
Less:
(1) the amount withdrawn from any reserve or provision if any such amount is credited to the xxx
profit and loss account (See Note (a) & (b) below)
(2) the amount of income exempt u/s 10 [other than section 10(38)] or u/s 11 or u/s 12 apply, xxx
if any such amount is credited to the profit and loss account; or
(3) the amount of depreciation debited to the profit and loss account (excluding the depreciation xxx
on account of revaluation of assets) ; or
(4) the amount withdrawn from revaluation reserve and credited to the profit and loss xxx
account, to the extent it does not exceed the amount of depreciation on account of
revaluation of assets; or
(5) the amount of income, being the share of the assessee in the income of an association of xxx
persons or body of individuals, on which no income-tax is payable in accordance with the
provisions of Section 86, if any, such amount is credited to the profit and loss account; or
(6) the amount of income accruing or arising to an assessee, being a foreign company, from,- xxx
(a) the capital gains arising on transactions in securities; or
(b) the interest, royalty or fees for technical services chargeable to tax at the rate or rates
specified in Chapter XII,
if such income is credited to the profit and loss account and the income-tax payable thereon
in accordance with the provisions of this Act, other than the provisions of this Chapter, is at
a rate less than the rate specified in Section 115JB(1); or
(7) the amount representing, - xxx
(a) notional gain on transfer of a capital asset, being share of a special purpose vehicle to
a business trust in exchange of units allotted by that trust referred to in clause (xvii) of
Section 47; or
(b) notional gain resulting from any change in carrying amount of said units; or
(c) gain on transfer of units referred to in clause (xvii) of Section 47,
if any, credited to the profit and loss account; or
(8) the amount of loss on transfer of units referred to in Section 47(xvii) computed by taking xxx
into account the cost of the shares exchanged with units referred to in the said clause or the
carrying amount of the shares at the time of exchange where such shares are carried at a
value other than the cost through profit or loss account, as the case may be; or
(9) the amount of income by way of royalty in respect of patent chargeable to tax under xxx
section 115BBF; or
(10) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per xxx
books of account.
Explanation: (a) the loss shall not include depreciation; (b) the above provisions shall not
apply if the amount of loss brought forward or unabsorbed depreciation, is nil ; or
(11) the amount of profits of sick company for the assessment year commencing on and from xxx
the assessment year relevant to the previous year in which the said company has become a
sick industrial company u/s 17(1) of the SICA, 1985, and ending with the assessment year
during which the entire net worth of such company becomes equal to or exceeds the
accumulated losses.
(12) the amount of deferred tax, if any such amount is credited to the profit and loss account. xxx xxx
Book Profits of the Company under section U/S-115JB xxx
Notes:
(a) The amount withdrawn from any reserve which was created before 1-4-1997 otherwise than by way of a debit to the
Profit and Loss A/C, shall not be reduced from the book profits.
(b) The amount withdrawn from reserves created on or after 1-4-1997, which are credited to the Profit and Loss A/c, shall
not be reduced from the book profits, unless the book profits were increased by the amount transferred to such reserves
in the year of creation of such reserves (out of which the said amount was withdrawn).
(c) Amount of Income-tax to be added in computing book profits [Explanation 2 to section 115JB] : The amount of
income-tax shall include -
(i) any tax on distributed profits under section 115-0 or on distributed income under section 115R;
(ii) any interest charged under this Act; and
(iii) Surcharge, Education Cess on income-tax and Secondary and Higher Education Cess on income-tax, if any, as levied by
the Central Acts from time to time.
Page 425
ASST OF COMPANY
Profit and loss account to be prepared as per provisions of Companies Act, 1956 [Section 115JB(2)] : Every assessee shall prepare
its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies
Act, 1956.
Electricity company, banking company or insurance company to prepare profit and loss account as per governing Act :
Electricity company, banking company or insurance company shall prepare its profit and loss account for the relevant previous year
in accordance with the provisions of the Act governing such company.
Accounting Policies, Accounting Standards, method and rates of depreciation adopted for annual accounts under Companies Act
to be applied for the purposes of this section for the Relevant previous year.
Carry forward and set-off losses shall not be affected by this section.
Audit report to be furnished along with the return of income.
All other provisions of this Act shall apply to every assessee, being a company. mentioned in this section.
The provisions of this section shall not apply to any income accruing or arising to a company from life insurance business referred to
in section 115B.
Non applicability of MAT provisions to foreign company in certain cases [Explanation 4 to section 115JB] : 1f
(i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in Section 90(1) or
the Central Government has adopted any agreement under Section 90A(1) and the assessee does not have a permanent
establishment in India in accordance with the provisions of such agreement; or
(ii) the assessee is a resident of a country with which India does not have an agreement of the nature referred to (i) above and the
assessee is not required to seek registration under any law for the time being in force relating to companies.
Page 426
ASST OF VARIOUS PERSONS
Chapter 20
ASSESSMENT OF VARIOUS OTHER ENTITIES
(HUF, FIRM/LLP, AOP/BOI,Trust/NR)
(1) Any sum received by a member of a HUF out of the income of the family shall be exempt from tax. However, the said
exemption is subject to the provisions of section 64(2).
(2) Computation of income of firm:

(a) Partners share in the total income of the firm, which is assessed as such, shall be exempt from tax.
(b) Interest and remuneration received by partner is business income and is chargeable to tax under Profits and Gains of
Business and Profession. However, any payment of remuneration to partners, not allowed as deduction to the firm, shall
not be taxed in the hands of partners.
(c) As per section 40(b), in computing the income under the head Profits and Gains of Business and Profession of a firm ass essed
as such, the following amounts shall be disallowed -
o Any salary, bonus, commission or remuneration to any non-working partner;
o Any interest paid to any partner in excess of 12 simple interest p.a. ;
o Remuneration to working partner or interest to any partner, which is not authorised by the partnership deed, or, which
relates to period prior to the date of partnership deed;
o Remuneration paid to working partners during the previous year is disallowed to the extent it exceeds, in aggregate,
the following limits:
Book profits Allowable Remuneration

On first ` 3,00,000 of book profits, or, in case of a ` 1,50,000, or, 90% of book profits, whichever is
loss. more.
On balance of the book profits 60% of the book profits.
(3) Assessment as a firm [Section 184] :

(a) A firm shall be assessed as a firm for the purposes of this Act, if -
- Partnership is evidenced by an instrument; and
- Individual shares of the partners are specified in that instrument.
(b) A certified copy of the partnership deed shall accompany the first return of income of the firm and in case, there is any
change in constitution of the firm or the shares of the partners are revised, then revised deed must be furnished after such
change.
(4) Assessment when Section 184 not complied with [Section 185] : If a firm fails to fulfil aforesaid conditions, then, no deduction
shall be allowed to the firm in respect of interest, salary, bonus, commission or remuneration paid by such firm to any partner
thereof; and such interest, salary, bonus, commission or remuneration shall not be chargeable to tax under section 28(v) in h ands
of partner.
(5) Change in constitution of a firm [Section 187] : the assessment shall be made on the firm as constituted at the time of making
the assessment. There is a change in the constitution of the firm if -
(a) one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or
more of the persons who were partners of the firm before the change continue as partner or partners after the change; or
(b) all the partners continue with a change in their respective shares or in the shares of some of them.
Provided that nothing contained in clause (a) shall apply to a case where the firm is dissolved on the death of any of its pa rtners.
(6) Succession of one firm by another firm [Section 188] : Where a firm carrying on a business or profession is succeeded by
another firm, and the case is not one covered by Section 187, separate assessments shall be made on the predecessor firm and the
successor firm in accordance with the provisions of Section 170.
Page 427
(7) According to Section 188A, Every person who was, during the previous year, a partner of a firm, and the legal representative
of any such person who is deceased, shall be jointly and severally liable along with the firm for th e amount of tax, penalty or
other sum payable by the firm for the assessment year to which such previous year is relevant, and all the provisions of this Act,
so far as may be, shall apply to the assessment of such tax or imposition or levy of such
penalty or other sum.
(8) Distinction Between AOP and BOI :
AOP BOI
(1) It is voluntarily created by 2 or more persons. It is created by operation of law.
(2) Its members may consist of companies, firms, HUFs or Only individuals can be the members of body of
individuals. individuals.
(3) In order to constitute an association, persons must join Body of individuals merely receives the income
in for a common purpose and common action and their jointly and is assessable in the like manner and to the
object must be to produce income. same extent as the beneficiaries.
(4) It is assessed in own capacity and not as a representative It is assessed as a representative assessee.
assessee.
(5) Co-heirs, co-legatees or co-donees are examples of AOP. Co-executors or co-trustees are examples of BOI.
(9) Computation of income of AOP/BOI : As per section 40(ba) in computing the income of an Association of persons or body of
individuals under the head, 'Profits and gains of business or profession', any bonus, commission, salary or interest or
remuneration to its member shall not be allowed as deduction. The income of an AOP /BOI is taxable at MMR
i.e. 35.535% except in the following cases -
(a) If shares of members in such AOP /BOI is indeterminate/unknown and any member is chargeable to tax at rate highe r than
MMR, income of AOP /BOI is taxable at such higher rate;
(b) If shares of members in such AOP /BOI is determinate and known and any member is chargeable to tax at rate higher than
MMR, income of AOP /BOI to the extent of such members' share is taxable at such higher rate, and,
balance income is taxable at MMR ;
(c) If none of the members of such AOP /BOI has other income exceeding maximum amount not chargeable to tax, the total
income of such Association of persons or Body of Individuals shall be taxable at the normal rates applicable in
case of an individual.
In case (c) above, members' share in total income of AOP /BOI will be included in his total income and rebate will be allowed to
the member at average rate of income-tax computed on such share income.
If income of AOP /BOI is not chargeable to tax, members' share in such income will be taxable in the ha nds of the members and
no rebate will be allowed.
Page 428

Chapter 20
ASSESSMENT OF VARIOUS OTHER ENTITIES
(HUF, FIRM/LLP, AOP/BOI,Trust/NR)
(1) The relation of a HUF arises from __________ _
(a) Status (b) Contract
(c) Agreement (d) None ofthese
(2) Lala and sons, a Hindu undivided family, carrying on business of food grain agents has total income of `10,25,000. It has paid
health insurance premium of `25,000 of karta. The tax liability of Hindu undivided family is _
(a) `1,33,390
(b) `1,28,750
(c) `3,13,640
(d) `3,09,000
(3) Subject to the provisions of Section 64(2), any sum received by an individual as a member of a HUF from HUF shall be _
(a) Taxable (b) Exempt

(c) Regarded as personal income (d) Non of these
(4) From tax point of view, a limited liability partnership (LLP) is treated as _ (Dec. 2015)
(a) Sole trader concern (b) General partnership firm

(c) Private limited company (d) Public limited company
(5) A, Band C are the partners in a firm engaged in medical profession. For the year ended on 31 st March, 2018, the book
profit of the firm was calculated as `3,00,000. The maximum amount admissible as remuneration to partners is ________ _
(a) `2,70,000 (b) `1,50,000

(c) `NIL (d) `1 0,00,000
(6) A, Band C are the partners in a firm engaged in medical profession. For the year ended on 31 st March, 2018, the book loss
of the firm was calculated as `3,00,000. The maximum amount admissible as remuneration to partners is _______ _
(a) `2,70,000 (b) `1,50,000

(c) Nil (d) `3,00,000
(7) Under the Income-tax Act, 1961, interest on capital received by a partner from a partnership firm is chargeable under the
head - (June, 2015)
(a) Profits and gains of business or profession (b) Income from other sources
(c) Capital gains (d) None of the above.
(8) The book profit of a partnership firm is `1,20,000. The actual remuneration paid to working partners is `3,54,000. The
allowable deduction under section 40(b) towards remuneration to partners is - (June 2016)
Page 429
(a) ` 1,50,000 (b) ` 3,54,000

(c) `1,08,000 (d) ` 1,20,000
(9) A non-professional firm Mj s. Bright has book profits of ` 9,36,000. The admissible remuneration to working partners for
income-tax purpose shall be - (June, 2015)
(b) ` 6,81,600
(a) `6,51,600
(c) ` 2,70,000
(10) Profit earned during the year by a partnership firm is ` 1,40,000. The maximum amount of remuneration deductible from
profit is - (Dec. 2014)
(a) ` 1,50,000
(b) ` 1,40,000
(c) ` 1,26,000
(d) ` 50,000
(11) A, Band C are the partners in a firm engaged in medical profession. For the year ended on 3 rd March, 2018, the book profits of the firm
was calculated as ` 10,00,000. The maximum amount admissible as remuneration to partners in
accordance of provisions of Section 40(b) is _______
(a) ` 6,90,000
(b) `1,50,000 (d)
(c) Nil
`2,70,000
(12) A, Band C are the partners in a firm engaged in retail trade. For the year ended on 31 st March, 2018, the turnover of the firm was
` 80,00,000 and has opted for presumptive basis taxation under Section 44AD. The maximum amount
admissible as remuneration to partners in accordance of provisions of Section 40(b) is ____________
(a) ` 4,74,000 (b) `1,50,000 (d)

(c) Nil ` 2,70,000
(13) In computing the income under the head Profits and Gains of Business or Profession of a firm which is assessed as such,
any interest paid to any partner in excess of ______________ simple interest p.a. shall be disallowed in accordance with the
provisions of Section 40(b),-
(a) 6% (b) 12%

(c) 15% (d) 18%
(14) In computing the income under the head Profits and Gains of Business or Profession of a firm which is assessed as such, the following
shall be disallowed in accordance with the provisions of Section 40(b),-
(a) Remuneration to working partner. (b) Remuneration to non working partner.

(c) Interest to working partner. (d) Interest to non working partner
(15) In case of book loss the maximum allowable remuneration to working partner will be :
(a) Nil (b) ` 1,50,000
(c) ` 3,00,000 (d) ` 10,00,000
(16) When an LLP has book profit of ` 6 lakh, the maximum amount allowable towards the salary of working partners would
` -
(a) ` 4,50,000 (b) ` 6,00,000
(c) ` 3,00,000 (d) Nil
Page 430
(17) Under the Income-tax Act, 1961, LLP is chargeable to tax @ _
(June, 2015)
(a) 30% +Edu.Cess or AMT@18.5% +Edu Cess (b) 30% +Edu.Cess or AMT @ 18.5%
(c) 30% + Edu.cess or MAT@18.5% + Edu.Cess (d) 30% + Edu cess or MAT@18.5%
(18) Remuneration received by a partner of firm from such firm shall be taxable as _
(a) Salary Income (b) Profits and gains of business

(e) Capital Gains (d) Income from other sources
(19) Salary received by a partner from his partnership firm is considered in his personal assessment as _
(June 2016)
(a) Income from salary
(b) Profit from business or profession
(e) Income from other sources
(d) Exempted income
(20) In computing the income under the head Profits and Gains of Business or Profession of an association of person, any inte rest paid
to any member-
(a) Shall be disallowed
(b) Shall be allowed
(e) Shall be allowed upto 12% p.a.
(d) None of these
(21) When a non-domestic company is a member in an AOP and its share of profit is indeterminate, the tax on total income of
the AOP is charged at the - (June 2016)
(a) Nominal rate (b) Maximum marginal rate

(e) Rate applicable to the company (d) Least of the above three rates.
(22) DP & Co. is a partnership firm with 3 partners. The capital of each partner was `2 lakh. The partnership deed authorised interest
on capital @15% and working partner salary to each partner @ `10,000 per month for all the partners. The total sales amounted
to `70 lakh. The total income of the firm under section 44AD would be - (June 2016)
(a) `5,60,000 (b) `4,32,000

(e) `1,28,000 (d) `3,50,000
(23) AOP or BOI for the purpose of levy of tax as per section 167B does not include _
(a) A company (b) A company or co-operative society

(e) A company or Co-operative society or (d) A company or Co-operative society or a society
unregistered society registered under the Societies Registration Act,
1860 or under any other law computing to that Act
in force in any part of India
(24) A society registered under the Societies Registration Act, 1860 is taxable _
(a) Taxable as AOP /BOI as per section 167B (b) Taxable as BOI but the tax rate shall be same as
is applicable in case of an individual/HUF
(e) At slab rate (d) At special rate of tax
(25) A co-operative society is although a body of indvidual but taxable at :

(a) The same rate as are applicable to individual/ (b) Average rate of tax
HUF
(e) The maximum marginal rate (d) The rates given in Schedule I of Income-tax
Act )
Page 431
(26) In case of AOP / BOI, any interest paid to the member shall :
(a) Be allowed as deduction to the AOP /BOI while (b) Be allowed as deduction to the AOP /BOI while
computing its income computing its income subject to maximum of 12%
p,a,
(c) Not be allowed as deduction (d) Be allowed as deduction to the AOP /BOI while
computing its income subject to maximum of
6% p.a.
(27) In case of AOP whose members are other than foreign company, and their shares are indeterminate, the tax shall be charged:
(a) At rate applicable to individuals (b) At the maximum marginal rate

(c) At the rate of 40% + 2% surcharge + EC @ 2% + (d) At rates given in Schedule I of Income tax Act the
SHEC 1% rate given in the F
(28) In case of AOP whose member include a foreign company, and their shares are indeterminate, the tax shall be charged:
(a) At the rate applicable to indviduals (b) at the maximum marginal rate i.e. 30% + surcharge
@ 12%, if applicable + EC & SHEC @3%
(c) At the rate applicable to the foreign company (d) At the rates given in Schedule I of the Incometax
i.e, 40% + surcharge @ 2% if applicable + Act the rate given in the F
EC @2% SHEC 1%
(29) In case of AOP whose members are other than foreign company, and whose shares are known, but the total income of any of its
member exceeds the maximum exemption limit, tax to the AOP shall be charged:
at the maximum marginal rate.
(a) At rate applicable to individuals (b)
at the rates given in Schedule I of Income-tax Act
At rate applicable to foreign company (d)
(c)
i.e. 40% + surcharge @ 2% if applicable + EC @2%
SHEC 1%
(30) In case of AOP whose members include a foreign company, and their shares are determinate, the tax shall be charged:
(a) at the rate applicable to individuals (b) at the maximum marginal rate i.e. 30% + surcharge
@ 12%, if applicable + EC & SHEC @3%
(c) at the rate applicable to the foreign company (d) on that portion or portions of income of AOP
i.e. 40% + surcharge @ 2% if applicable + EC @2% which is relatable to the share of the member which
SHEC1% is a foreign company and on the balance income at
the maximum marginal rate
(31) In case of AOP /BOI where the share of the members are determinate but none of the members has taxable income exceeding
maximum exemption limit, nor any member is taxable at a rate higher than the maximum marginal rate, the
tax shall be charged :
(a) at the rate applicable to individual/HUF (b) at the maximum marginal rate i.e. 30% +
surcharge @ 12%, if applicable + EC & SHEC
@3%
(c) at the rate of 35% + EC @ 2% SHEC 1% (d) at the rates given in Schedule I of the
Income-tax Act
(32) In case of AOP where the share of the members are determinate but none of the members has taxable income exceeding maxim um
exemption limit, but one or more member is taxable at a rate higher than the maximum marginal rate, the tax shall be charged :
Page 432
(a) at the rate applicable to individual/HUF (b) on that portion of income of AOP which is
relatable to the member taxable at higher rate, at
the rate applicable to such member and the balance
taxable income at the rate applicable to
individual/HUF
(c) on that portion of income of AOP which is (d) at the rates given in Schedule I of the Income-
relatable to the member taxable at higher rate, at tax Act
the rate applicable to such member and the
balance taxable income at the maximum marginal
rate
(33) Where the total income of the AOP/BOI, whose none of the members has income exceeding maximum exemption limit nor any
member is taxable at a rate higher than maximum marginal rate, does not exceed ` 2,50,000 :
(a) Neither the AOP /BOI shall be liable to pay any (b) Although the AOP /BOI shall not be liable to
tax nor the share of the profit of the member from pay any tax but the share of the profit of each
AOP /BOI shall be included in their respective member from AOP /BOI shall be included in his
total income total income
(c) The AOP /BOI will be liable to tax at the (d) The AOP /BOI will be liable to tax at the rate
maximum marginal rate applicable to foreign company
(34) "Charitable purpose" includes:

(a) Relief of the poor, (b) Education,
(c) Medical relief, (d) All of these
(35) The advancement of any other object of general public utility shall be regarded as charitable purpose even if it in volves carrying
on of trade/ commerce/business for a cess or fee or any other consideration, if the gross receipts thereof does
not exceed ______________ of total receipts of such charitable institution.
(a) 15% (b) 20%
(36) Where the total income of the trust or institution, without giving effect to the provisions of Sections 11 and 12, excee ds in any
previous year , the accounts of the trust or institution must be audited by CA and the report of such audit in the prescribed form
duly signed and verified by such accountant containing prescribed particulars, should be furnished along with the return of
income.
(a) ` 2,50,000 (c) (b) ` 10,00,000

` 20,00,000 (d) ` 25,00,000
(37) A public charitable trust registered under section 12A of Income-tax Act, for the previous year ending 31-3-2018, derived
gross income of ` 16lakhs, which consists of the following: (in lakhs)
Income from properties held by trust (Net)

5
Income (net) from business (incidental to main objects)
4
Voluntary contribution from public
7
The trust applied a sum of ` 11.60 lakhs towards charitable purposes during the year. Determine the taxable income of the trust
of the assessment year 2018-19.
(a) ` 2,00,000 (b) Nil
(c) ` 4,40,000 (d) ` 6,00,000
Page 433
(38) Ramji Charitable Trust had sold a capital asset costing ` 70,000 on 13th June, 2017 for ` 1,50,000. It purchased newasset on I" [uly 2017
for ` 1,20,000. The amount taxable as capital gains for Ramji Charitable Trust in A.Y. 2018-19 is - (Dec. 2015)
(a) ` 80,000 (b) Nil, because of charitable trust
(c) ` 30,000
(d) ` 40,000
(39) A charitable trust acquired two air-conditioners for ` 1,40,000 on 10th June, 2017. It claimed the acquisition as application of income. The
amount it can claim by way of depreciation for the said air-conditioners for the AY 2018-19 is- (Dec. 2015)
(a) ` 21,000 (b) ` 1,40,000
(c) ` 35,000
(d) Nil.
(40) A public charitable trust registered under section 12A of Income-tax Act, for the previous year ending 31-3-2018, derived the following:
in lakhs
Income from properties held by trust (Net) 10
Income (net) from business (incidental to main objects) 5
Voluntary contribution from public (including corpus donations of ` 10,00,000) 15
The trust applied a sum of ` 16 lakhs towards charitable purposes during the year. Determine the taxable income of the trust of the
(a) ` 1,00,000 (b) ` 14,00,000
(c) ` NIL
(d) ` 4,00,000
(41) Authority having power to cancel registration of trust subject to certain conditions:
(a) Principal Commissioner (b) Director general

(c) Commissioner
(d) Either A or C
(42) A charitable trust has received anonymous donations of ` 25,00,000. The amount of anonymous donations not taxable will be-
(a) ` 1,00,000 (b) ` 1,25,000

(c) ` 2,00,000
(d) ` 25,00,000
(43) In case of any registered trust or institution for which registration is effective in the previous year, they cannot claim any
exemption under any provision of section 10 [other than that relating to exemption of ].
(a) Agricultural income (b) Dividend Income from shares of Indian

Company
(c) Dividend Income from units of mutual fund (d) LTCG on sale of equity shares listed in
recognised stock exchange.
(44) Anonymous donations received by a charitable trust is chargeable to tax at the rate of -
(a) 30% (b) 15%
(c) 20% (d) 10
(45) The amount of deduction on account of head office expenditure in case of Non-resident cannot exceed--------------of
adjusted total income.
(a) 5% (b) 15%

(c) 20% (d) 10%
Page 434
(46) Where the total income of an assessee, being a non-resident Indian includes income by way of long-term capital gains
arising from transfer of unlisted securities, applicable income-tax rate on such income is - (Dec. 2014)
(a) 10% (b) 20%

(c) 30% (d) 40%
(47) In case of foreign companies having branches in India, maximum deduction (in respect of head office expenditure)
allowed in computing their income under section 44C is - (Dec. 2014)
(a) An amount equal to 5% of the adjusted total (b) An amount equal to 5% of the total income
income
(c) An amount equal to 15% of the adjusted total (d) An amount equal to 15% of the total income
income
(48) In case of Non-resident engaged in providing services or facilities in connection with, or supplying plant and machinery on hire
used, or to be used, in the prospecting for, or extraction or production of, mineral oils (including petroleum and
natural gas) of gross receipts shall be deemed income.
(a) 5% (b) 15%

(c) 20% (d) 10%
(49) X Marine Lines Inc., a Singapore company engaged in shipping business collected ` 150 lakh towards carrying goods
from Chennai Port. Its presumptive income chargeable to tax in India would be - (Dec. 2015)
(a) ` 15lakh (b) ` 11.251akh

(c) ` 12lakh (d) Nil
(50) In case of Non-resident engaged in operation of aircraft ___________ of gross receipts on account of such business shall be
deemed income.
(a) 5%
(b) 15%
(c) 20%
(d) 10%
(51) Where a non-resident/foreign company is liable to tax at special rate of 10% on account of royalty or fee for technical
services, such assessee shall- (June 2016)
(a)
Be eligible for deduction of any expenses from (b) Not be eligible for any deduction under Chapter
such income u/s 28 to 44C or section 57 VI-A on account of such income
(c)
Neither be eligible for deduction of any (d) Not be eligible for deduction of any expense under
expenses u/ s 28 to 44C or section 57 nor be eligible for section 28 to 44C or section 57 but shall be
any deduction under Chapter VI-A eligible for deduction under Chapter VI-A
(52) Where a foreign institutional investor received income in respect of securities other than income by way of dividend ref erred to
in section 115-0 or received in respect of securities other than units referred to in section 115AB, such income is t axable @ -
(Dec. 2015)
(a) 15% (b) 10%

(c) 20% (d) 30%
(53) A Foreign Institutional Investor (FIl) has total income which includes short-term capital gains on sale of listed shares of
` 30 lakh. The rate of tax for charging such income to tax is - (June 2016)
(a) 10% (b) 30%

(c) 15% (d) 40%
Page 435
(54) The income of non-resident from the business of operation of aircraft in respect of carrying of cargo or passenger in India
shall' be taxable as per section 44BBA @ --------- (Dec. 2015)
(b) 10% of the amount received/receivable
(a) 5% of the amount received/receivable
(d) 7.5% of the amount received/receivable
(c) 15% of the amount received/receivable
(55) Under section 115E, the tax rate applicable for long-term capital gains referred to therein, for a resident as envisaged by
section 115C, is-------------- (June, 2015)
(b) 10%
(a) 5%
(d) 20%
(c) 15%
(56) The tax on the income of non-resident can be/may be recovered:

(1) By deduction of tax at source
(2) From his associates
(3) From his agents (Dec. 2015)
Select the correct answer from the options given below -
(b) (1) & (2) only
(a) (1) only AlIs.(c)
(c) (1), (2) & (3)
(57) A non-resident Indian is not required to furnish his return of income under section 139(1) if his total income in respect of
which he is assessable under the Income-tax Act, 1961 during the previous year consists of - (June 2016)
(b) Long-term capital gains only

(a) Investment income only
(d) Investment income & LTCG only Ans.(d)
(c) Short-term capital gains only
.(58) Mr. Vijay is partner in Tools & Co., a partnership firm in Mumbai. He received Rs. 30,000 as share income from the firm for the
year ended 31-3-2017. He also received interest at 12% per annum on the capital invested in the firm and the amount being Rs. 24,000.
His income from the firm includible in individual assessment is :
(June 2017)
(A) Rs. 54,000
(B) Rs. 24,000
(C) Rs. 30,000
(D) Nil Ans b
1.a 2.b 3.b 4.b 5.a 6.b 7.a 8.a 9.a 10.a
11.a 12.c 13.b 14.b 15.b 16.a 17.a 18.b 19.b 20.a
21.c 22.a 23.d 24.d 25.d 26.c 27.b 28.c 29.b 30.d
31.a 32.c 33.b 34.d 35.b 36.a 37.a 38.c 39.d 40.a
41.d 42.b 43.a 44.a 45.a 46.a 47.a 48.d 49.b 50.a
51.d 52.c 53.b 54.a 55.b 56.c
Page 436

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INDEX

S.NO. CHAPTER NAME PAGE NO.

1. BASIC CONCEPTS OF INCOME TAX 1 – 30

3. INCOME UNDER HEAD HOUSE PROPERTY 53 – 81

4. UNDER HEAD SALARY 82 – 140

5. INCOME UNDER HEAD BUSINESS PROFESSION 141 – 206

6. INCOME UNDER HEAD CAPITAL GAIN 207 – 243

7. INCOME UNDER HEAD OTHER SOURCES 244 – 270

8. CLUBBING OF INCOME 271 – 281

9. SET OFF AND SET- OFF OF LOSSES 282 – 298

10. DEDUCTIONS 299 – 330

11. AGRICULTURAL INCOME 331 – 332

13. ASSESSMENT & RETURN 337 – 362

14. ADVANCE TAX 363 – 367

15. TAX DEDUCTED AT SOURCE 368 – 389

16. AMT 390

17. EXEMPT INCOME 391 – 406

18. INTERNATIONAL TAXATION 407 – 422

19. ASSESSMENT OF COMPANY 423 – 426

20. ASSESSMENT OF VARIOUS PERSONS 427v – 436

Sections covered in this chapter

Sec 2 Definitions Sec.174A Associations/ bodies formed for short

INCOME TAX IS A FORM OF DIRECT TAX

OPERATIONAL SYSTEM OF THE INCOME-TAX ACT, 1961

Section 1 : SHORT TITLE, EXTENT AND COMMENCEMENT

 This act may be called Income –tax Act,1961

Section 4 : CHARGE OF INCOME-TAX

 INCOME TAX shall be charged

 For any ASSESSMENT YEAR

 At RATES specified for that Assessment year by FINANCE ACT

 During PREVIOUS YEAR

 Of any PERSON who is an ASSESSEE

Section 2(31) : PERSON INCLUDES

2) A Hindu Undivided Family:

 The term H.U.F is not defined under the Income-tax Act.

Sec 2(17): Company means

 Any Indian company, or

Sec 2(26): Indian company means

 A corporation established by or under a central, state or provincial act

Provided that the Registered office/principal office of the above is in India

5) An Association of Persons or a Body of Individuals, whether incorporated or not

Differences between AOP and BOI

Similarities between AOP and BOI

Section 2(7) : Assessee

(iii) Assessee who is deemed to be an ‘Assessee in default ‘

Section 2(9) : Assessment Year

Section 2 (34) : Previous Year

Previous year means previous year defined under Sec 3

Section 172 : NON RESIDENT SHIPPING BUSINESS

Section 174: Assessment of Persons Leaving India

 When it appears to AO that any individual may leave India

Section 174A : Association/ bodies formed for short duration

 Where it appears to the Assessing Officer

Section 175 : Assessment of Persons Likely to Transfer Property to Avoid Tax

 If it appears to the Assessing Officer

Section 176: Discontinued Business

 Where any business or profession is discontinued in any p/y

P/Y FOR UNDISCLOSED SOURCES OF INCOME

(b) such explanation in the opinion of AO has been found to be satisfactory

(i) Regularity of Income:

(ii) Form of Income:

(iii) Legal Vs. ILLegal Income:

(iv) Disputed Income: