INCOME FROM SALARIES

ENTERTAINMENT ALLOWANCE:
Problem.No.1
Mr. Y a government employee gets Rs.80,000 per annum as basic pay . In addition he
receives Rs.20,000 as EA. Calculate exempted E.A.

Problem.No.2
Mr. A works in Government of Karnataka. He gives the following details.
Basic salary Rs.5,000 p.m
DA [forming part] Rs.1,000 p.m
DA [not forming part] Rs.750 p.m
HRA Rs.600 p.m

EA Rs.250 p.m

He claims that he pays a rent of Rs.200 p.m and he has spent Rs.3,000 p.a towards E.A.
calculate

a. Exempted HRA
b. Exempted EA
Problem.No.3
Shri.Shankar receives the following emoluments during the previous year 2015-16.

Rs.
Basic pay 90,000
Commission 60% of basic pay 54,000
Entertainment allowance (E.A) 12,000
Dearness allowances (D.A) (forming part of salary) 10,000
Determine the deduction of EA from salary if
a. Shri. Shankar is a government employee since 1976.
b. Shri. Shankar is an employee of RBI since April 1955 and receiving Entertainment
allowance since then;
c. He is an employee of Karle Ltd. Since 1954 and receiving Entertainment allowance since
then.

HOUSE RENT ALLOWANCE:

Problem.No.4
Mr Y is employed at Amritsar on a salary of Rs. 3,000 p.m. The employer is paying HRA
of Rs. 350 p.m. but the actual rent paid by him (Employee) is Rs. 500p.m. He is also getting 2%
commission on turnover achieved by him and turnover is Rs. 1,50,000.

Problem.No.5
Mr Z who lives in Dharwad with his family in his own house is employed in a private
company and gets basic salary of Rs. 2,000 p.m, DA – Rs. 500 P.m, (30% is not considered for
retirement benefits), CCA – Rs. 200 p.m, HRA – Rs. 4,500 p.m, From 1.12.2012 he lives in a
rented house paying a rent of Rs. 5000 p.m.

Problem.No.6
Mrs A, a resident individual, residing in mysore is a government employee and gets the
following emoluments in previous year 2012-13; Basic salary – Rs. 50,000 p.a; D.Pay – Rs.
30,000 p.a; Bonus Rs. 10,000 p.a, Medical allowance – Rs. 2,800 p.a; HRA – Rs . 2,500 p.m.
She is residing in a house, for which no rent is paid by her throughout the year.

Problem.No.7
Compute gross salary from information given below for each situation separately:
a) Salary @ Rs.3,500 p.m; (b)D.A@ RS.1,000 p.m; (c) C.C.A @ Rs.200 p.m; (d) House Rent
Allowance @ Rs.1,000 p.m; (e) Commission on turnover achieved by him is Rs.6,000
Situations:
(a) Living in own house
(b)Living in rented house at Delhi as D.A enters into pay for retirement benefits and rent paid is
Rs.1,500 p.m
(c)Living in rented house at Chandigarh as D.A does not enter into pay for retirement benefits
and rent paid is Rs.1,000 p.m
Problem.No.8
Mrs.kalpana chawla (resident) an employee of software company in bangalore submits the
following information compute her gross salary for the P.Y. 2015-16.
Basic salary rs. 40,000 per month.
DA 30% of basic (60% enters)
HRA rs.3,500 per month
Annual bonus rs.30,000
Rent paid by kalpana is rs. 72,000.
Problem.No.9
Mrs. Ranjitha (resident) working in a company and getting a basic pay of rs. 8,000 p.m, D.A at
20% of basic pay , HRA at 12% of basic pay and bonus equal to two months of basic pay. She is
residing in a rented house at rs.1,800 p.m. determine her exempted amount of HRA, for the P.Y
2015-16.

PROVIDENT FUND:

Problem.No.10
a) From the following information given by Mr.Kantilal Jain, Calculate income from salary
if contribution towards provident fund is (a) SPF,(b) RPF,( c) URPF.

Basic salary Rs. 1,00,000

DA (Forming Part) Rs. 30,000

Commission on turn over achieved at 2% Rs. 5,000

The employer contributes Rs.18,000 towards provident fund account. Equal amount is
contributed by the employee Rs.6,000 is credited as interest towards provident fund at 10%.

Problem.No.11

b) From the following information given by Mr.Ganesh. Calculate Income from Salary if
contribution towards provident fund is (a) SPF,(b) RPF,( c) URPF.

Basic salary Rs 1,50,000

DA (Forming Part) Rs. 34,000

Commission on turn over achieved at 2% Rs. 7,500

The employer contributes Rs.24,000 towards provident fund account. Equal amount is
contributed by the employee. Rs.7,500 is credited as interest towards provident fund at 7.5%.

LEAVE ENCASHMENT:
Problem.No.12
a. Shri.Narasimhan retired from service after rendering a period of service of 32 years
and 9 months. At the time of retirement, he received Rs.2,50,000 as leave salary from his
employer. The following information is provided by the employee:
Salary at the time of retirement Rs.10,000
Leave availed while in service 20 months
 Average salary per month from
January to November 2011 Rs.9,800
Leave entitlement is 1 ½ months for every completed year of service. Date of retriment 31 st
Decemeber 2015.
Compute the amount of taxable leave encashment and gross salary if Narasimhan is a
1. Govt. employee.
2. Non-Govt .employee.
Problem.No.13
Mr.Chandran retired on 28-10-2012 after 22 years and 3 months service. He received
Rs.1,46,000 as leave encashment . His employer allows him 2 months leave for every year of
service. 15 months salary has been already encashed by the employee while in service. Calculate
the taxable amount of leave encashment if his salary during the calendar year 2014 is Rs.8,800
p.m and during 2013 is Rs.8,000 p.m and falls due on last day of each month.

Problem.No.14
Mr. suresh (resident) resigned from his service from a public company on 30 th november 2015
after completing 24 years and 10 months of service. During his service he was allowed to get
45 days of earn
ed leave for every completed year of service. During his service he had availed 10 months leave
and had encashed 6 months leave. On resignation he was paid leave salary of rs.2,20,000 for his
credit of 20 months earned leave. His average salary during the 10 months preceeding to the
date of his resignation was rs.11,000.
Compute his taxable leave salary for the AY 2016-17.

Problem.No.15
Mr. mohan is a non-government employee who receives rs.28,000 as earned leave salary at the
time of retirement on 10 th march, 2015 on the basis of the following information. Determine the
amount of taxable earned leave salary.
a)basic pay 4,000 p.m since 1.1.14
b)duration of service is 16 years , 4 months.
c)leave at the credit of employee at the time of retirement is 7 months.
d)entitlement of leave salary 45 days for every completed year of service.
e)leave availed while in service is 17 months.
What benefit he would have got if he were to be government employee?

GRATUITY:
Problem.No.16
Mr Girish Karnad retired on 15.6.2015 from a manufacturing company after putting
service of 30 years and 7 months. He received a gratuity of Rs. 3,60,000. Basic salary of Mr.
Karnad was Rs. 20,000p.m. during 2011 and rs.22,000 p.m during 2012. He was also getting DA
@ Rs. 5,000 p.m which was increased from Rs. 4,000 on 1-4-2014. 50% of DA is presumed to
enter in to salary for computation of service benefits. Compute his taxable gratuity.

Problem.No.17
Mr Dinesh retired on 21st October 2014 (On completion of 60 years of age) after putting
32 years, 7 months and 21 days service. He is a MBA and was promoted to the post of a
marketing manager on 1st March 2014. Other particulars of his salary and allowances etc are as
follows.

a. Basic salary Rs. 40,000 p.m. His salary was Rs. 30,000 p.m upto his promotions as a
marketing manager.
b. Dearness allowance @ 20% of his salary and 50% of it entered in to salary for
computation of retirement benefits.
c. Fixed commission Rs. 2,000 p.m.
d. He is also entitled to get a commission on the turnover achieved by him and total amount
of commission received during the last 10 months (Prior to the month of retirement) is
Rs. 1,02,000.
e. Bonus Rs. 20,000.
f. His salary falls due on 1st Day of each month.
g. He received Rs. 4,50,000 as gratuity.
Find out Mr. Dinesh’s taxable amount of gratuity.

Problem.No.18
Mrs. Bharathi resident, an employee of SRM LTD,. Retires from her service on 16 th January
2015 after serving for 36 years and 7 months. He receives Rs. 97,000 as gratuity under the
gratuity act, 1972. At the time of retirement her basic salary was Rs. 2,300 p.m and dearness
allowance was Rs.2,300 p.m and dearness allowance was Rs.400 pm.
What amount of gratuity will be taxable for the AY 2016-17.

PENSION:

Problem.No.19
Find out the taxability of pension in the following cases.
 a. Mr Shri Kant retires from a public limited company on 31st August 2015 and his pension
was fixed at Rs. 1,500 p.m. He does not commute any part of pension.
b. Mrs R retires from Government service on 30th September 2015 and her pension has
been fixed at Rs. 1,000 p.m. She does not commute any portion of pension.
c. Mr Raju retires from Punjab Government service on 30th June 2015 and his pension has
been fixed at Rs. 1,200 p.m. he gets 1/3rd of his pension commuted for Rs. 60,000.
d. Mr Reddy retires from private service on 30th April, 2010 and his pension has been fixed
at Rs. 1,500 p.m. He gets ½ of his pension commuted and gets Rs. 80,000.
He also received Rs. 75,000 as gratuity. He gets his pension commuted during January
2015.

In all cases pension becomes payable on the 1st Day of each month.

Problem.No.20
Mr. sunder (resident) retired from services on 31 st march 2015. His pension was fixed at rs.
6,000 p.m. he commutes one-half of his pension and received Rs.3,00,000. Find out the taxable
amount of commuted pension if:
a) He is a government employee
b) He is a non-govt employee who also gets gratuity and
c) He is a non-govt employee who does not get any gratuity.

Problem.No.21
Mr. Anand resident is getting a pension of Rs.8,000 p.m from a company. During the PY 2015-
16 he got his 2/3 pension commuted and received of Rs. 4,92,000. Compute the exempted
amount, if he has also received gratuity.

PROBLEMS OF ALLOWANCES
Problem.No.22
Compute the taxable portion of allowances from the information furnished by Mr.Hari Haran for
the A.Y.2016-17.

Rs. (p.m)
a) Traveling allowance(expenditure Rs.750 p.m 1500
b) Helper allowance (expenditure Rs.1350 p.m 1,200
c) Tribal area allowance 2,400
d)Education allowance(per child) (for 3 children) 300
e) Hostel exp. allowance(per child) (for 3 children) 2,500
Actual Exp. Rs.2,500 per child)
f) Transport allowance(Exp.Rs.15,000 p.m) 19,000
g) Conveyance allowance(50% personal) 1,500
h) Dog allowance 1,000

Problem.No.23
Mr.S receives the following allowances during the PY 2015-16.
(i) High cost of living allowance -Rs.20,000
(ii) City allowance -Rs.7,500
(iii) Subsidized lunch allowance -Rs.2,800
(iv) Marriage allowance -Rs.1,200
(v) Helper allowance(Exp.1,200) -Rs.1,280
(vi) Medical allowance(Exp.9,800) -Rs.8,200
(vii) Overtime allowance -Rs.500
(viii) Traveling allowance(Exp.150) -Rs.650
(ix) Children education allowance (Exp.15,000) -Rs.12,000
(x) education allowance to grand child -Rs.5,000
(xi) Entertainment allowance - -Rs.13,800
(xii) Warden ship allowance -Rs.1380
State the tax treatment of the above allowance in the following cases:
a) Mr.S is a High Court Judge.
b) Mr.S is a Govt.Employee in India.
c) Mr.S is a public Company M.D having substantial interest in the company.
d) Mr.S is a Govt.Employee posted outside India.

PERQUISITES: RENT FREE HOUSE

Problem.No.24
Venugopal is a employee of A.P.Govt.. During the previous year ending March
31,2015, he has been allotted a rent-free furnished flat at Hyderabad. Though the license
fee of the flat, as per government rules, is Rs.2,200 per annum, its fair Market rent is not
less than Rs.1,5,000 per annum. Some of the household appliances provided to
Venugopal are owned by the employer (Cost price Rs.20,000 of which is Rs.40,000)
written down value of the same is Rs.5,000. Employer pays Rs.20,000 as hire charges for
Two Air conditioners installed throughout the previous year. Compute the value of the
perquisite.

Problem.No.25
Viswanathan an employee of a Ltd. Company, working at MADURAI (population 18
Lakhs) draws Rs.60,000 as basic salary. Rs.5,000 as dearness allowances(forming part of
salary) and Rs.6,000 as commission. The company provides a rent-free unfurnished
house to him. The house is owned by the company. Fair rent of the accommodation is
Rs.5,000 per annum. Income tax, Gas, Water and Electricity bills paid by employer
Rs.4,000 and Rs.6,000 respectively. Determine the taxable value of the perquisite.
Problem.No.26
Pandian, an employee of a company at Delhi (population above 25 lakhs) is in receipt of
a monthly salary of Rs.3,00 during the P.Y.2015-16. he is entitled or Bonus equal to 2
months salary and entertainment allowance of Rs.300 p.m (W.E.F 1-4-65). He is
 provided with a rent free unfurnished accommodation owned by the company. Annual
rental value of the same type of accommodation in the same locality is Rs.10,000.
Find out: 1) Perquisite value of the rent free accommodation.
2) What will be the perquisite value if Pandian is an employee of SBI?

Problem.No.27
Mr. suman is employed in Bangalore. His particulars of income for the PY 2015-16 are
basic salary Rs.8,000 p.m., D.A , Rs.2,000 p.m(40% enters). Bonus Rs. 4,000 P.A.
commission Rs.4,500 p.m. fair rental value of furniture provided Rs.20,000. Redemption
of stock appreciation rights Rs.4,000. Compute income from salary of Mr. suman for the
AY 2016-17.

Problem.No.28

Shri.Ranganatha is an employee of Sony Ltd. He has been provided with the following
facilities during 2015-16

Rs.
Domestic servant, gardener, cook, watchman and sweeper engaged by 20,000
employee , salary paid by employer at the rate of Rs.4000 p.a each
4000x5
Gas water and electricity bills in the name of the employee paid by 4,000
employer
School fees of employees’ children paid by employer 10,000
Credit card facility reimbursed by employer 5,000
Club bills paid by employer 6,000
Professional tax paid by employer 7,000
Income tax paid by emploey 9,000
Free meals provided by employer at a cost of Rs.60 for 20 days every 14,400
month
LIC premium paid by employer 10,000
Insurance premium paid by employer under ESI 2,000
Compute the amount of taxable perquisites in the hands of Shri.Ranganathan for the A.Y 2013-1

Problem.No.29

From the following particulars find out the taxable salary of Mrs Asha working at Davangere
(population 11 Lakhs)

a. Salary Rs. 12,000 p.m

b. DA Rs. 1,500 p.m
c. Employer contribution to employees RPF – 14% of basic salary
d. Rent free accommodation (Unfurnished) – Fair rental value is Rs. 80,000 p.a. Expenses
on maintenance of garden met by employer Rs. 3,000
e. Interest on provident fund balance @ 13% p.a – Rs. 3,900.
 f. A car (1.4 Lt capacity) is provided by the employer. All expenses are borne by employer.
It is used both for performance of duties and private purposes. Car was used by employee
for only 11 months during the year.
g. She paid professional tax of Rs. 200.
h. She received Rs. 500 p.m as fixed medical allowance.
Problem.No.30

Mr.M is a production manager of an industrial unit at Chennai. The particulars of his salary
income are as under:

 Basic salary Rs.15,000 p.m.

 Dearness allowance (given under the term of employment) Rs.5,000 p.m.
 Entertainment allowance Rs.1,000 p.m.
 Medical allowance Rs.500 p.m.
 House rent allowance Rs.4,000 p.m.
 Rent paid for the house Rs.5,000 p.m.
 Car of 1.2 lt. capacity provided by employer for private and official use. Employer meets
expenses of car.
 He and his employer (each) contribute 15% of salary to R.P.F.
Mr. M had taken interest free loan of Rs.15,000 to purchase refrigerator.

Compute income under the head salary for the assessment year 2015-16.

Problem.No.31

1. From the following particulars given below, compute salary income of Mr.R.
2. Salary @ Rs.40,000 p.m Rs.4,80,000
3. Bonus equal to one month’ salary Rs.40,000
4. Entertainment allowance @ Rs.5,000 p.m Rs.60,000
5. Free Gas and water supply Rs.5,000
6. He is provided with a rent free accommodation in Delhi owned by the employer the
F.R.V of which is Rs.10,000 p.m(population of Delhi is above 25 Lakhs)
7. He is provided with the facility of a 18 cubic capacity car which he uses both for
private and official purposes.
8. He has engaged a domestic servant @ Rs.1,000 p.m and his salary being paid by his
employer.
9. He is provided the facility of a free lunch in the office during lunch break valued at
Rs.100 per day for 250 days in the previous year.
10. The is maintaining a holiday home at Shimla and employee stayed there for 10 days
free of cost. Its cost to the employer shall be Rs.10,000.
11. During the year employee and his wife traveled by Air to Bombay to attend a family
function and air tickets worth Rs.24,000 were purchased by him through credit card
provided to him by the employer. Employer and employee both are contributing @
14% in employee’s recognized provident fund.
Problem.No.32
Miss. Radha who is an officer in XYZ ltd, gives you the following particulars:
 1. Basic salary rs.16,000 p.m
2. D.A rs.1,000 p.m(60% enters into retirement benefits)
3. HRA rs. 5,000 p.m. (rent paid rs.7,000 at Bangalore)
4. Conveyance allowance rs.800 p.m (rs. 600 p.m used for official purpose)
5. CCA Rs. 150 p.m.
6. Motor car of exceeding 1600 cc with driver provided used partly for official and partly
personal.
7. Payment of her LIC premium Rs. 8000 by the company.
8. Children education allowance of Rs. 200 p.m each for her 3 children
9. Services of sweeper (salary Rs. 200 p.m)
10. She contributes 14% of her salary RPF and the company makes a matching contribution
to RPF, interest credited to RPF is Rs.6,875 at 12.5% p.m on 2/6/2011.
Compute her income from salary for A.Y 2016-17.

***************

INCOME FROM HOUSE PROPERTY

PROBLEM NO 1

Mr X has constructed a multistory building at Delhi consisting of 40 flats. Each flat is

letout @ 1000 p.m. The municipal authorities have fixed the rental value of this property as Rs.
4,50,000 p.a. the owner bears the following expenses.

i. Lift maintenance Rs. 12,000 p.a

ii. Pump maintenance Rs. 8,000 p.a
iii. Salary of Gardener and watchman Rs. 3,600 p.a
iv. Swimming pool expenses Rs. 9,000 p.a
Compute the annual rental value for the property.

PROBLEM NO 2

a. Calculate Expected rent value from the following

Rental value Case A ( Rs.) Case B (Rs.) Case C (Rs.)

MRV 60,000 60,000 60,000
FRV 72,000 72,000 72,000
 Standard rent Not applicable 66,000 84,000
b. Calculate ARV from the particulars given below.
MRV Rs. 60,000 p.a; FRV Rs. 66,000 p.a

A. If Actual rent is Rs. 72,000 p.a and standard rent is Rs. 69,000 p.a or
B. If Actual rent is Rs. 63,000 p.a and standard rent is Rs. 69,000 p.a or
PROBLEM NO 3

Calculate Gross annual value from the following

House A Rs. House B Rs.

MRV 80,000 80,000
FRV 1,00,000 1,00,000
Standard Rent 70,000 1,20,000
Actual Rent 1,20,000 90,000
Municipal taxes 8,000 8,000 ( Only 50% paid)
PROBLEM NO 4

Find out the Gross annual value in respect of the following properties for the assessment year
2013-14

Particulars C Rs. D Rs.

Municipal valuation 3,60,000 2,80,000
Fair rent 3,70,000 2,90,000
Standard rent 3,50,000 2,84,000
Actual rent 3,90,000 3,36,000
Unrealized rent 24,000 1,40,000
Period of vacancy ( In months) 1 3
Loss due to vacancy 32,500 84,000
PROBLEM NO 5

From the following particulars, compute the taxable income from house property of mr.x:

Municipal value rs.1,20,000.

Actual rent received rs. 1,50,000

Date of borrowing the loan 1.7.2005

Date of completion of construction 31.5.2009

Amount of loan borrowed rs.50,000

Rate of interest on loan 15% p.a.

PROBLEM NO 6
 X owns a house property. It is used by him throughout the previous year 2012-13 for his
residence. Municipal value of the house is Rs. 40,000, whereas fair rent is Rs. 50,000. Municipal
tax paid by him was Rs. 4,000. X borrowed Rs. 10,00,000 on 1-1-2004 at 10% p.a. for
construction of the house. The construction was completed on 1-10-2006. Compute the IFHP for
the AY 2013-2014.

PROBLEM NO 7

Calculate income from house property from the following information.

FRV Rs. 75,000; Let out value Rs. 7,000 p.m

Municipal tax

For 2010-2011 Rs. 8,000; For 2009-2010 Rs. 7,000

1. Unrealized rent recovered during the current previous year Rs. 25,000, which was allowed
as deduction in the assessment year 2012-13.
2. Arrear of rent received during the current previous year Rs. 15,000.

PROBLEM NO 8

Mr Srivatsan owns a house, which consist of two equal independent units. One is let out and the
other unit is self occupies. The let out portion is also self occupied for two months. The other
particulars are as follows.

FRV Rs. 24,000; MRV Rs. 12,500 Actual rent for the let out portion – Rs. 1,000 p.m

Local tax Rs. 2,500; Ground rent Rs. 300

Interest on loan taken for construction Rs. 2,500. Determine income from house property.

PROBLEM NO 9

Sri kishore resident is the owner of 3 houses. The following are the properties for the year ended
31.3.2013.

Particulars House 1 House 2 House 3

Year of construction 2004 2006 2008
Purpose of use Let out to bank Self occupied leT out as residence
Actual rent 30,000 - 24,000
Municipal valuation 32,000 28,000 30,000
Municipal tax paid by kishore 1,200 1,000 3,000
Municipal tax paid by tenant 2,000 1,800 -
Total municipal tax 3,200 2,800 3,000
Fire insurance premium 2% 20% 2%
Interest on loan taken for - 7,000 5,000
renewal of house

PROBLEM NO 10

MRS.SHANTHA (RESIDENT) OWNS two houses in Bangalore. She has let out both the
houses throughout the year for residential purpose.

Particulars House I House II

Muncipal value 4,00,000 12,00,000
Fair rental value 7,20,000 7,20,000
Rent received 4,80,000 8,00,000
Standard rent 6,00,000 6,00,000
Repairs 72,000 1,00,000
Municipal tax paid 40,000 1,20,000
Insurance premium paid 48,000 70,000
ON APRIL 1 ST 2012, she bought residential houses for self occupation for rs. 10,00,000 by
taking a housing loan in canara bank. Loan amount was Rs.7,00,000 and rate of interest 12%
p.a.

Compute taxable income from house property for the AY 2013-2014.

PROBLEM NO 11

Mr. Praveen is the owner of three houses. The particulars are as follows:

Particulars House A House B House C

Annual fair rent 40,000 35,000 50,000
Municipal valuation 50,000 40,000 50,000
Standard rent 45,000 42,000 55,000
Let out(per month) 3,000 2,500
Purpose of use Let out Let out Self occupied
(residence) (commercial)

Repairs 2,000 - 5,000

Collection charges 3,000 1,000 -
Interest on loan 15,000 5,000 2,000
Municipal tax is 10% of municipal value. Municipal tax of house A was paid by tenant, but
municipal tax of house B, was not paid till 31.03.2011 muncipal tax of house C was paid by
owner. House A remained vacant for 4 months. Compute income from house property for A.y.
2012-2013.

PROBLEM NO 12

Mr. Lamba owns following four house properties. Other particulars are as follows.
 Particulars House 1 House 2 House 3 House 4
Self occupied Self occupied Let out to a Being used in
Business own business
house
Municipal valuation 20,000 50,000 70,000 45,000
Standard rent - - 72,000 48,000
Fair rental value 26,000 60,000 80,000 50,000
Actual rent received - - 96,000 -
Vacancy NIL NIL 1 Month NIL
Unrealized rent - - 16,000 -
Municipal taxes 5,000 2,000 6,000 4,000
Repairs 4,000 2,000 8,000 5,000
Interest on borrowed money 8,000 10,000 - -

Mr. Lamba borrowed Rs. 2,00,000 @ 12% for the construction of House No III on 1 st
October, 2007 and the houses was completed on in October 2009 and since then it is let out. A
part of the loan of Rs. 50,000 was repayed on 15th Oct 2010. Determine the house property
income of Mr. Lamba.

**********************

INCOME FROM SALARIES

BASIC SALARY:
Problem.No.1
Mr. A joined his job on 1st September 2009 in the grade of 12,000-500-20,000. Find out his
salary for the previous year 2014-15.

Problem.No.2
Dr.Patil was appointed as manager of a private Ltd. Co on 1-7-2010 in the grade of Rs.20,000 -
500-22,000-1,000-25,000 with 2 increments. Compute his salary income for the previous year
2014-15 if (a) Salary is due on 1st of every month, (b) Salary is due on last date of every month.

Problem.No.3
Raman joined the services of ABC ltd on 1.11.2008 in the following pay scale: 8,000-500-
10,000-1,000-13,000-1,500-17,500. Calculate the basic pay for the PY 2014-15, If the salary
falls due on a) last date of each month b)first of next month.
ENTERTAINMENT ALLOWANCE:
Problem.No.4
Mr. Y a government employee gets Rs.80,000 per annum as basic pay . In addition he
receives Rs.20,000 as EA. Calculate exempted E.A.

Problem.No.5
Mr. A works in Government of Karnataka. He gives the following details.
Basic salary Rs.5,000 p.m
DA [forming part] Rs.1,000 p.m
DA [not forming part] Rs.750 p.m
HRA Rs.600 p.m

EA Rs.250 p.m

He claims that he pays a rent of Rs.200 p.m and he has spent Rs.3,000 p.a towards E.A.
calculate

c. Exempted HRA
d. Exempted EA

Problem.No.6
Shri.Shankar receives the following emoluments during the previous year 2014-15.

Rs.
Basic pay 90,000
Commission 60% of basic pay 54,000
Entertainment allowance (E.A) 12,000
Dearness allowances (D.A) (forming part of salary) 10,000
Determine the deduction of EA from salary if
d. Shri. Shankar is a government employee since 1975.
e. Shri. Shankar is an employee of RBI since April 1954 and receiving Entertainment
allowance since then;
f. He is an employee of Karle Ltd. Since 1953 and receiving Entertainment allowance since
then.

HOUSE RENT ALLOWANCE:

Problem.No.7
 Mr Y is employed at Amritsar on a salary of Rs. 3,000 p.m. The employer is paying HRA
of Rs. 350 p.m. but the actual rent paid by him (Employee) is Rs. 500p.m. He is also getting 2%
commission on turnover achieved by him and turnover is Rs. 1,50,000.

Problem.No.8
Mr Z who lives in Dharwad with his family in his own house is employed in a private
company and gets basic salary of Rs. 2,000 p.m, DA – Rs. 500 P.m, (30% is not considered for
retirement benefits), CCA – Rs. 200 p.m, HRA – Rs. 4,500 p.m, From 1.12.2012 he lives in a
rented house paying a rent of Rs. 5000 p.m.

Problem.No.9
Mrs A, a resident individual, residing in mysore is a government employee and gets the
following emoluments in previous year 2014-15; Basic salary – Rs. 50,000 p.a; D.Pay – Rs.
30,000 p.a; Bonus Rs. 10,000 p.a, Medical allowance – Rs. 2,800 p.a; HRA – Rs . 2,500 p.m.
She is residing in a house, for which no rent is paid by her throughout the year.

Problem.No.10
Compute gross salary from information given below for each situation separately:
a) Salary @ Rs.3,500 p.m; (b)D.A@ RS.1,000 p.m; (c) C.C.A @ Rs.200 p.m; (d) House Rent
Allowance @ Rs.1,000 p.m; (e) Commission on turnover achieved by him is Rs.6,000
Situations:
(a) Living in own house
(b)Living in rented house at Delhi as D.A enters into pay for retirement benefits and rent paid is
Rs.1,500 p.m
(c)Living in rented house at Chandigarh as D.A does not enter into pay for retirement benefits
and rent paid is Rs.1,000 p.m

Problem.No.11
Mrs.kalpana chawla (resident) an employee of software company in bangalore submits the
following information compute her gross salary for the P.Y. 2014-15.
Basic salary rs. 40,000 per month.
DA 30% of basic (60% enters)
HRA rs.3,500 per month
Annual bonus rs.30,000
Rent paid by kalpana is rs. 72,000.
Problem.No.12
Mrs. Ranjitha (resident) working in a company and getting a basic pay of rs. 8,000 p.m, D.A at
20% of basic pay , HRA at 12% of basic pay and bonus equal to two months of basic pay. She is
residing in a rented house at rs.1,800 p.m. determine her exempted amount of HRA, for the P.Y
2014-15.

PROVIDENT FUND:

Problem.No.13
a) From the following information given by Mr.Kantilal Jain, Calculate income from salary
if contribution towards provident fund is (a) SPF,(b) RPF,( c) URPF.

Basic salary Rs. 1,00,000

DA (Forming Part) Rs. 30,000

Commission on turn over achieved at 2% Rs. 5,000

The employer contributes Rs.18,000 towards provident fund account. Equal amount is
contributed by the employee Rs.6,000 is credited as interest towards provident fund at 10%.

Problem.No.14
From the following information given by Mr.Ganesh. Calculate Income from Salary if
contribution towards provident fund is (a) SPF,(b) RPF,( c) URPF.

Basic salary Rs 1,50,000

DA (Forming Part) Rs. 34,000

Commission on turn over achieved at 2% Rs. 7,500

The employer contributes Rs.24,000 towards provident fund account. Equal amount is
contributed by the employee. Rs.7,500 is credited as interest towards provident fund at 7.5%.

LEAVE ENCASHMENT:
Problem.No.15
a. Shri.Narasimhan retired from service after rendering a period of service of 32 years
and 9 months. At the time of retirement, he received Rs.2,50,000 as leave salary from his
employer. The following information is provided by the employee:
Salary at the time of retirement Rs.10,000
Leave availed while in service 20 months
Average salary per month from
 January to November 2012 Rs.9,800
Leave entitlement is 1 ½ months for every completed year of service. Date of retriment 31 st
Decemeber 2014. Compute the amount of taxable leave encashment and gross salary if
Narasimhan is a 1. Govt. employee 2. Non-Govt .employee.

Problem.No.16
Mr.Chandran retired on 28-10-2014 after 22 years and 3 months service. He received
Rs.1,46,000 as leave encashment . His employer allows him 2 months leave for every year of
service. 15 months salary has been already encashed by the employee while in service. Calculate
the taxable amount of leave encashment if his salary during the calendar year 2013 is Rs.8,800
p.m and during 2012 is Rs.8,000 p.m and falls due on last day of each month.

Problem.No.17
Mr. suresh (resident) resigned from his service from a public company on 30 th november 2014
after completing 24 years and 10 months of service. During his service he was allowed to get
45 days of earned leave for every completed year of service. During his service he had availed
10 months leave and had encashed 6 months leave. On resignation he was paid leave salary of
rs.2,20,000 for his credit of 20 months earned leave. His average salary during the 10 months
preceeding to the date of his resignation was rs.11,000.
Compute his taxable leave salary for the PY 2014-15.

Problem.No.18
Mr. mohan is a non-government employee who receives rs.28,000 as earned leave salary at the
time of retirement on 10 th march, 2015 on the basis of the following information. Determine the
amount of taxable earned leave salary.
a)basic pay 4,000 p.m since 1.1.14
b)duration of service is 16 years , 4 months.
c)leave at the credit of employee at the time of retirement is 7 months.
d)entitlement of leave salary 45 days for every completed year of service.
e)leave availed while in service is 17 months.
What benefit he would have got if he were to be government employee?

GRATUITY:
Problem.No.19
 Mr Girish Karnad retired on 15.6.2014 from a manufacturing company after putting
service of 30 years and 7 months. He received a gratuity of Rs. 3,60,000. Basic salary of Mr.
Karnad was Rs. 20,000p.m. during 2012 and rs.22,000 p.m during 2014. He was also getting DA
@ Rs. 5,000 p.m which was increased from Rs. 4,000 on 1-4-2014. 50% of DA is presumed to
enter in to salary for computation of service benefits. Compute his taxable gratuity.

Problem.No.20
Mr Dinesh retired on 21st October 2014 (On completion of 60 years of age) after putting
32 years, 7 months and 21 days service. He is a MBA and was promoted to the post of a
marketing manager on 1st March 2014. Other particulars of his salary and allowances etc are as
follows.

h. Basic salary Rs. 40,000 p.m. His salary was Rs. 30,000 p.m upto his promotions as a
marketing manager.
i. Dearness allowance @ 20% of his salary and 50% of it entered in to salary for
computation of retirement benefits.
j. Fixed commission Rs. 2,000 p.m.
k. He is also entitled to get a commission on the turnover achieved by him and total amount
of commission received during the last 10 months (Prior to the month of retirement) is
Rs. 1,02,000.
l. Bonus Rs. 20,000.
m. His salary falls due on 1st Day of each month.
n. He received Rs. 4,50,000 as gratuity.
Find out Mr. Dinesh’s taxable amount of gratuity.

Problem.No.21
Mrs. Bharathi resident, an employee of SRM LTD,. Retires from her service on 16 th January
2014 after serving for 36 years and 7 months. He receives Rs. 97,000 as gratuity under the
gratuity act, 1972. At the time of retirement her basic salary was Rs. 2,300 p.m and dearness
allowance was Rs.2,300 p.m and dearness allowance was Rs.400 pm.
What amount of gratuity will be taxable for the AY 2015-16.

PENSION:

Problem.No.22
Find out the taxability of pension in the following cases.

e. Mr Shri Kant retires from a public limited company on 31st August 2014 and his pension
was fixed at Rs. 1,500 p.m. He does not commute any part of pension.
 f. Mrs R retires from Government service on 30th September 2014 and her pension has
been fixed at Rs. 1,000 p.m. She does not commute any portion of pension.
g. Mr Raju retires from Punjab Government service on 30th June 2014 and his pension has
been fixed at Rs. 1,200 p.m. he gets 1/3rd of his pension commuted for Rs. 60,000.
h. Mr Reddy retires from private service on 30th April, 2012 and his pension has been fixed
at Rs. 1,500 p.m. He gets ½ of his pension commuted and gets Rs. 80,000.
He also received Rs. 75,000 as gratuity. He gets his pension commuted during January
2015.

In all cases pension becomes payable on the 1st Day of each month.

Problem.No.23
Mr. sunder (resident) retired from services on 31 st march 2014. His pension was fixed at rs.
6,000 p.m. he commutes one-half of his pension and received Rs.3,00,000. Find out the taxable
amount of commuted pension if:
d) He is a government employee
e) He is a non-govt employee who also gets gratuity and
f) He is a non-govt employee who does not get any gratuity.

Problem.No.24
Mr. Anand resident is getting a pension of Rs.8,000 p.m from a company. During the PY 2014-
15 he got his 2/3 pension commuted and received of Rs. 4,92,000. Compute the exempted
amount, if he has also received gratuity.

PROBLEMS OF ALLOWANCES
Problem.No.25
Compute the taxable portion of allowances from the information furnished by Mr.Hari Haran for
the A.Y.2015-16.

Rs. (p.m)
a) Traveling allowance(expenditure Rs.750 p.m 1500
b) Helper allowance (expenditure Rs.1350 p.m 1,200
c) Tribal area allowance 2,400
d)Education allowance(per child) (for 3 children) 300
e) Hostel exp. allowance(per child) (for 3 children) 2,500
Actual Exp. Rs.2,500 per child)
f) Transport allowance(Exp.Rs.15,000 p.m) 19,000
g) Conveyance allowance(50% personal) 1,500
h) Dog allowance 1,000
Problem.No.26
Mr.S receives the following allowances during the PY 2014-15.
(xiii) High cost of living allowance -Rs.20,000
(xiv) City allowance -Rs.7,500
(xv) Subsidized lunch allowance -Rs.2,800
(xvi) Marriage allowance -Rs.1,200
(xvii) Helper allowance(Exp.1,200) -Rs.1,280
(xviii) Medical allowance(Exp.9,800) -Rs.8,200
(xix) Overtime allowance -Rs.500
(xx) Traveling allowance(Exp.150) -Rs.650
(xxi) Children education allowance (Exp.15,000) -Rs.12,000
(xxii) education allowance to grand child -Rs.5,000
(xxiii) Entertainment allowance - -Rs.13,800
(xxiv) Warden ship allowance -Rs.1380
State the tax treatment of the above allowance in the following cases:
e) Mr.S is a High Court Judge.
f) Mr.S is a Govt.Employee in India.
g) Mr.S is a public Company M.D having substantial interest in the company.
h) Mr.S is a Govt.Employee posted outside India.

PERQUISITES: RENT FREE HOUSE

Problem.No.27
Venugopal is a employee of A.P.Govt.. During the previous year ending March
31,2015, he has been allotted a rent-free furnished flat at Hyderabad. Though the license
fee of the flat, as per government rules, is Rs.2,200 per annum, its fair Market rent is not
less than Rs.1,5,000 per annum. Some of the household appliances provided to
Venugopal are owned by the employer (Cost price Rs.20,000 of which is Rs.40,000)
written down value of the same is Rs.5,000. Employer pays Rs.20,000 as hire charges for
Two Air conditioners installed throughout the previous year. Compute the value of the
perquisite.

Problem.No.28
Viswanathan an employee of a Ltd. Company, working at MADURAI (population 18
Lakhs) draws Rs.60,000 as basic salary. Rs.5,000 as dearness allowances(forming part of
salary) and Rs.6,000 as commission. The company provides a rent-free unfurnished
house to him. The house is owned by the company. Fair rent of the accommodation is
Rs.5,000 per annum. Income tax, Gas, Water and Electricity bills paid by employer
Rs.4,000 and Rs.6,000 respectively. Determine the taxable value of the perquisite.
Problem.No.29
Pandian, an employee of a company at Delhi (population above 25 lakhs) is in receipt of
a monthly salary of Rs.3,00 during the P.Y.2014-15. he is entitled or Bonus equal to 2
 months salary and entertainment allowance of Rs.300 p.m (W.E.F 1-4-65). He is
provided with a rent free unfurnished accommodation owned by the company. Annual
rental value of the same type of accommodation in the same locality is Rs.10,000.
Find out: 1) Perquisite value of the rent free accommodation.
2) What will be the perquisite value if Pandian is an employee of SBI?

Problem.No.30
Mr. suman is employed in Bangalore. His particulars of income for the PY 2013-14 are
basic salary Rs.8,000 p.m., D.A , Rs.2,000 p.m(40% enters). Bonus Rs. 4,000 P.A.
commission Rs.4,500 p.m. fair rental value of furniture provided Rs.20,000. Redemption
of stock appreciation rights Rs.4,000. Compute income from salary of Mr. suman for the
AY 2015-16.

Problem.No.31

Shri.Ranganatha is an employee of Sony Ltd. He has been provided Rs.

with the following
Domestic servant, gardener, cook, watchman and sweeper engaged by 20,000
employee , salary paid by employer at the rate of Rs.4000 p.a each
4000x5
Gas water and electricity bills in the name of the employee paid by 4,000
employer
School fees of employees’ children paid by employer 10,000
Credit card facility reimbursed by employer 5,000
Club bills paid by employer 6,000
Professional tax paid by employer 7,000
Income tax paid by emploey 9,000
Free meals provided by employer at a cost of Rs.60 for 20 days every 14,400
month
LIC premium paid by employer 10,000
Insurance premium paid by employer under ESI 2,000
Compute the amount of taxable perquisites in the hands of Shri.Rangan for the A.Y 2015-16.

Problem.No.32

From the following particulars find out the taxable salary of Mrs Asha working at Davangere
(population 11 Lakhs)

i. Salary Rs. 12,000 p.m

j. DA Rs. 1,500 p.m
k. Employer contribution to employees RPF – 14% of basic salary
l. Rent free accommodation (Unfurnished) – Fair rental value is Rs. 80,000 p.a. Expenses
on maintenance of garden met by employer Rs. 3,000
m. Interest on provident fund balance @ 13% p.a – Rs. 3,900.
 n. A car (1.4 Lt capacity) is provided by the employer. All expenses are borne by employer.
It is used both for performance of duties and private purposes. Car was used by employee
for only 11 months during the year.
o. She paid professional tax of Rs. 200.
p. She received Rs. 500 p.m as fixed medical allowance.

Problem.No.33

Mr.M is a production manager of an industrial unit at Chennai. The particulars of his salary
income are as under:

 Basic salary Rs.15,000 p.m.

 Dearness allowance (given under the term of employment) Rs.5,000 p.m.
 Entertainment allowance Rs.1,000 p.m.
 Medical allowance Rs.500 p.m.
 House rent allowance Rs.4,000 p.m.
 Rent paid for the house Rs.5,000 p.m.
 Car of 1.2 lt. capacity provided by employer for private and official use. Employer meets
expenses of car.
 He and his employer (each) contribute 15% of salary to R.P.F.
Mr. M had taken interest free loan of Rs.15,000 to purchase refrigerator.

Compute income under the head salary for the assessment year 2015-16.

Problem.No.34

From the following particulars given below, compute salary income of Mr.R.
 Salary @ Rs.40,000 p.m Rs.4,80,000
 Bonus equal to one month’ salary Rs.40,000
 Entertainment allowance @ Rs.5,000 p.m Rs.60,000
 Free Gas and water supply Rs.5,000
 He is provided with a rent free accommodation in Delhi owned by the employer the
F.R.V of which is Rs.10,000 p.m(population of Delhi is above 25 Lakhs)
 He is provided with the facility of a 18 cubic capacity car which he uses both for private
and official purposes.
 He has engaged a domestic servant @ Rs.1,000 p.m and his salary being paid by his
employer.
 He is provided the facility of a free lunch in the office during lunch break valued at
Rs.100 per day for 250 days in the previous year.
 The is maintaining a holiday home at Shimla and employee stayed there for 10 days free
of cost. Its cost to the employer shall be Rs.10,000.
 During the year employee and his wife traveled by Air to Bombay to attend a family
function and air tickets worth Rs.24,000 were purchased by him through credit card
provided to him by the employer. Employer and employee both are contributing @ 14%
in employee’s recognized provident fund.
Problem.No.35
Miss. Radha who is an officer in XYZ ltd, gives you the following particulars:

 Basic salary rs.16,000 p.m

 D.A rs.1,000 p.m(60% enters into retirement benefits)
 HRA rs. 5,000 p.m. (rent paid rs.7,000 at Bangalore)
 Conveyance allowance rs.800 p.m (rs. 600 p.m used for official purpose)
 CCA Rs. 150 p.m.
 Motor car of exceeding 1600 cc with driver provided used partly for official and partly
personal.
 Payment of her LIC premium Rs. 8000 by the company.
 Children education allowance of Rs. 200 p.m each for her 3 children
 Services of sweeper (salary Rs. 200 p.m)
 She contributes 14% of her salary RPF and the company makes a matching contribution
to RPF, interest credited to RPF is Rs.6,875 at 12.5% p.m on 2/6/2013.
Compute her income from salary for A.Y 2015-16.

INCOME FROM HOUSE PROPERTY

PROBLEM NO 1

Mr X has constructed a multistory building at Delhi consisting of 40 flats. Each flat is

letout @ 1000 p.m. The municipal authorities have fixed the rental value of this property as Rs.
4,50,000 p.a. the owner bears the following expenses.

v. Lift maintenance Rs. 12,000 p.a

vi. Pump maintenance Rs. 8,000 p.a
vii. Salary of Gardener and watchman Rs. 3,600 p.a
viii. Swimming pool expenses Rs. 9,000 p.a
Compute the annual rental value for the property.

PROBLEM NO 2

c. Calculate Expected rent value from the following

 Rental value Case A ( Rs.) Case B (Rs.) Case C (Rs.)
MRV 60,000 60,000 60,000
FRV 72,000 72,000 72,000
Standard rent Not applicable 66,000 84,000
d. Calculate ARV from the particulars given below.
MRV Rs. 60,000 p.a; FRV Rs. 66,000 p.a

C. If Actual rent is Rs. 72,000 p.a and standard rent is Rs. 69,000 p.a or
D. If Actual rent is Rs. 63,000 p.a and standard rent is Rs. 69,000 p.a or
PROBLEM NO 3

Calculate Gross annual value from the following

House A Rs. House B Rs.

MRV 80,000 80,000
FRV 1,00,000 1,00,000
Standard Rent 70,000 1,20,000
Actual Rent 1,20,000 90,000
Municipal taxes 8,000 8,000 ( Only 50% paid)
PROBLEM NO 4

Find out the Gross annual value in respect of the following properties for the assessment year
2015-16

Particulars C Rs. D Rs.

Municipal valuation 3,60,000 2,80,000
Fair rent 3,70,000 2,90,000
Standard rent 3,50,000 2,84,000
Actual rent 3,90,000 3,36,000
Unrealized rent 24,000 1,40,000
Period of vacancy ( In months) 1 3
Loss due to vacancy 32,500 84,000
PROBLEM NO 5

From the following particulars, compute the taxable income from house property of mr.x:

Municipal value rs.1,20,000.

Actual rent received rs. 1,50,000

Date of borrowing the loan 1.7.2005

Date of completion of construction 31.5.2009

Amount of loan borrowed rs.50,000

Rate of interest on loan 15% p.a.

PROBLEM NO 6

X owns a house property. It is used by him throughout the previous year 2014-15 for his
residence. Municipal value of the house is Rs. 40,000, whereas fair rent is Rs. 50,000. Municipal
tax paid by him was Rs. 4,000. X borrowed Rs. 10,00,000 on 1-1-2004 at 10% p.a. for
construction of the house. The construction was completed on 1-10-2007. Compute the IFHP for
the AY 2015-2016.

PROBLEM NO 7

Calculate income from house property from the following information.

FRV Rs. 75,000; Let out value Rs. 7,000 p.m

Municipal tax

For 2010-2011 Rs. 8,000; For 2009-2010 Rs. 7,000

3. Unrealized rent recovered during the current previous year Rs. 25,000, which was allowed
as deduction in the assessment year 2015-16.
4. Arrear of rent received during the current previous year Rs. 15,000.

PROBLEM NO 8

Mr Srivatsan owns a house, which consist of two equal independent units. One is let out and the
other unit is self occupies. The let out portion is also self occupied for two months. The other
particulars are as follows.

FRV Rs. 24,000; MRV Rs. 12,500 Actual rent for the let out portion – Rs. 1,000 p.m

Local tax Rs. 2,500; Ground rent Rs. 300

Interest on loan taken for construction Rs. 2,500. Determine income from house property.

PROBLEM NO 9

Sri kishore resident is the owner of 3 houses. The following are the properties for the year ended
31.3.2015.

Particulars House 1 House 2 House 3

Year of construction 2006 2008 2010
Purpose of use Let out to bank Self occupied leT out as residence
Actual rent 30,000 - 24,000
Municipal valuation 32,000 28,000 30,000
Municipal tax paid by kishore 1,200 1,000 3,000
Municipal tax paid by tenant 2,000 1,800 -
Total municipal tax 3,200 2,800 3,000
Fire insurance premium 2% 20% 2%
Interest on loan taken for - 7,000 5,000
renewal of house

PROBLEM NO 10

MRS.SHANTHA (RESIDENT) OWNS two houses in Bangalore. She has let out both the
houses throughout the year for residential purpose.

Particulars House I House II

Muncipal value 4,00,000 12,00,000
Fair rental value 7,20,000 7,20,000
Rent received 4,80,000 8,00,000
Standard rent 6,00,000 6,00,000
Repairs 72,000 1,00,000
Municipal tax paid 40,000 1,20,000
Insurance premium paid 48,000 70,000
ON APRIL 1 ST 2013, she bought residential houses for self occupation for rs. 10,00,000 by
taking a housing loan in canara bank. Loan amount was Rs.7,00,000 and rate of interest 12%
p.a.Compute taxable income from house property for the AY 2015-2016.

PROBLEM NO 11

Mr. Praveen is the owner of three houses. The particulars are as follows:

Particulars House A House B House C

Annual fair rent 40,000 35,000 50,000
Municipal valuation 50,000 40,000 50,000
Standard rent 45,000 42,000 55,000
Let out(per month) 3,000 2,500
Purpose of use Let out Let out Self occupied
(residence) (commercial)

Repairs 2,000 - 5,000

Collection charges 3,000 1,000 -
Interest on loan 15,000 5,000 2,000
Municipal tax is 10% of municipal value. Municipal tax of house A was paid by tenant, but
municipal tax of house B, was not paid till 31.03.2013 muncipal tax of house C was paid by
owner. House A remained vacant for 4 months. Compute income from house property for A.y.
2015-2016.

PROBLEM NO 12

Mr. Lamba owns following four house properties. Other particulars are as follows.
 Particulars House 1 House 2 House 3 House 4
Self occupied Self occupied Let out to a Being used in
Business own business
house
Municipal valuation 20,000 50,000 70,000 45,000
Standard rent - - 72,000 48,000
Fair rental value 26,000 60,000 80,000 50,000
Actual rent received - - 96,000 -
Vacancy NIL NIL 1 Month NIL
Unrealized rent - - 16,000 -
Municipal taxes 5,000 2,000 6,000 4,000
Repairs 4,000 2,000 8,000 5,000
Interest on borrowed money 8,000 10,000 - -

Mr. Lamba borrowed Rs. 2,00,000 @ 12% for the construction of House No III on 1 st
October, 2009 and the houses was completed on in October 2011 and since then it is let out. A
part of the loan of Rs. 50,000 was repayed on 15th Oct 2012. Determine the house property
income of Mr. Lamba.

**********************

INCOME FROM BUSINESS OR PROFESSION

SECTION 28 TO 44

Q. WHAT IS MEANT BY BUSINESS?

Business simply means any economic activity carried on for earning profits. Section
2(13) has defined the term as “any trade, commerce, manufacture or any adventure or concern in
the nature of trade, commerce and manufacture”. In the words of Justice S.R.Dass, “The word
“business” connotes some real, substantive and systematic or organized course, activity or
conduct with a set purpose”.
 In this connection it is not necessary that there should be a series of transaction in a
business and also it should be carried on permanently. The Business should be carried on in the
previous year and it is not necessary that it should continue throughout the year. The owner of
the business is to be charged under this section, whether he may carry business personally or
through a manager, agent or servant.

Q. DEFINE THE FOLLOWING TERMS A) BUSINESS, B) PROFESSION, C)

VOCATION

BUSINESS [Sec. 2(13)]

It simply means any economic activity carried on for earning profits. Sec 2(3) has defined
the term as “any trade, commerce, manufacture or any adventure or concern in the nature of
trade, commerce and manufacture.”

PROFESSION

A profession is an occupation requiring purely intellectual skills or manual skill

controlled by the intellectual skill of the operator. E.g Lawyers, Accountant, Engineer, surgeon,
Author etc. So profession refers to those activities where the livelihood is earned by the persons
through their intellectual or manual skill.

Sec 2(36) defines ‘Profession’ to include Vocation. The word ‘Profession’ implies
professed attainments and special knowledge as distinguished from mere skill.

VOCATION

It implies natural ability of a person some particular work. The term “Vocation” is
expressed differently in different case laws, but all falling under the ordinary and accepted use of
the word profession. Tax experts, journalists, architects, cost accountants and management
accountants comes under this category.

Q. EXPLAIN THE DIFFERENT METHODS OF ACCOUNTING.

The income tax authorities accept the following methods of accounting.

Cash method

Entries in the books are made when money is actually received or actually paid. No
account is maintained for outstanding, prepaid, accrued or unearned incomes.

Mercantile system

Under this system any income which relates to the current year whether it is received or
not, and any expenses whether actually paid or not is taken in to consideration for computing the
profits and losses of the business.
EXPLAIN THE TAX TREATMENT OF VALUATION OF STOCK.
Stock is valued according to the general principles of accounting. Generally the valuation
of stock in hand is done on the basis of cost or market price WEL. The assessee is free to adopt
any method, but once a method is adopted it has to be adhered to from year to year.

Under or over valuation of stock

The stocks may be either under valued or over valued. In such cases the profits of the
year if affected. To eliminate effect of such valuation correct value of the stock should be found
by the following procedures.

100

Correct value in case of under valuation = Value of stock x ---------------------------------------

(100- Rate of under valuation)

100

Correct value in case of Over valuation = Value of stock x ---------------------------------------

(100 + rate of under valuation)

Value of stock under different systems of accounting

While computing income of a doctor, the treatment of stock is as under

a. When cash system of accounting is adopted opening and closing stock is Ignored. Only
cash purchases are deducted.
b. When mercantile style is adopted, value of stock = Opening stock + Purchase –
closing stock and this amount is deducted from professional income.

Q. EXPLAIN THE INCOMES WHICH ARE CHARGEABLE TO INCOME TAX

UNDER THE HEAD ‘PROFITS AND GAINS OF BUSINESS OR PROFESSION’
UNDER SEC 28

The scope of income chargeable to tax under the head “Profits and gains of business or
profession” is covered by Sec 28 of the act which lays down that the following income must be
charged to tax under this head.

a. Profits and gains Sec 28(i)

 b. Compensation or other payment due to or received by persons in connection with
business or profession Sec 28(ii)
c. Income of any trade or professional or similar association Sec 28(iii)
d. Profit on sale of license [Sec 28(iii)a]
e. Cash assistance [Sec 28(iii)b]
f. Duty drawback of customs or excise [Sec 28(iii)c]
g. Value of any benefit or perquisite Sec 28(iv)
h. Salary, bonus, commission or remuneration and interest received by a partner from a
firm. Sec 28(v)
i. Amount received under Keyman Insurance policy Sec 28(vi)
j. Receipts in nature of ‘non compete fees’ and ‘exclusively rights’
k. Speculation business
l. Profit earned from an illegal business.

Q. WHAT ARE ALL THE ADMISSIBLE DEDUCTIONS U/S 30 TO 37?

COMMON DEDUCTIONS – U/S (30 – 35)

1. Rent, Rates, Taxes, Repairs and Insurance in the case of Building premises: (Sec.30)
Deduction is allowed regarding rent, rates, taxes, repairs and insurance premium paid for
the building premises where the assessee is carrying on his own business or profession.

2. Repairs and Insurance of Machinery, Plant and furniture (Sec. 31):

The following deductions shall be allowed in respect of repairs and insurance of
machinery, plant and furniture used for the purposes of the business or profession.
i. The amount paid on account of current repairs thereto.
ii. The amount of any premium paid in respect of insurance against the risk of damage or
destruction thereto.
3. Depreciation on Fixed Assets (Sec.32):
Depreciation on the fixed assets is very important item of deduction of any business.

4. Expenditure incurred in the field of scientific research Sec 35

Particulars Amount
allowed as
deduction

1. Revenue expenditure for assessee himself Full

2. Contribution to approved scientific research association, payment to an

 approved university, college or institution for scientific research 125% is
3. Contribution to “National laboratory” allowed

4. Capital expenditure
i) On plant, machinery, equipment, building
ii) On land (acquisition)
125% is
allowed
5. In case any capital expenditure (not being expenditure on land and
building) is incurred by company engaged in the manufacture or
production of drugs, pharmaceuticals, electronic equipments, computers,
telecommunication equipments, chemicals or any other article or thing
notified by the Board, on scientific research and development facility as
is approved by the prescribed authority,
Full

Not allowed

150% is
allowed

5. Expenditure on acquisition or purchase of patents or copy rights sec 35A

i) If expenditure is incurred up to 31/3/98 - 1/14th total expenditure is allowed as

deduction.

ii) If expenditure is incurred after 31/3/98 – 25% is allowed as depreciation..

6. Expenditure on Know how sec 35 (AB)

i) If expenditure is incurred up to 31/3/98.

 Know how (generally) - 1/6th is allowed as deduction

 If know how developed in Indian laboratory, university or institution-
1/3rd is allowed as deduction
ii) If expenditure is incurred after 31/3/98 (From 1st April 1998)

 Know how (generally) - – 25% is allowed as depreciation.

 If know how developed in Indian laboratory, university or institution –
25% is allowed as depreciation.
7. Amortization of telecom license fees Sec 35(ABB).(Capital expenditure)

Amount allowed as deduction = Actual payment made x ------------------------------------------

------------

No of previous years for which the

fees is paid

8. Expenditure on eligible projects or schemes (Sec 35AC)- Full amount allowed as deduction

9. Payment to associations and institutions for carrying out rural development programmes
(Sec 35CCA) – Full amount allowed as deduction.

10. Payment for carrying out programmes of conservation of natural resources

(Afforestation)

(Sec 35CCB)- Full amount allowed as deduction

11. Amortization of certain preliminary Expenses: (Sec.35D):

U/s 350, the deduction is allowed only in case of an Indian Company or a person resident
in India. The deduction is in respect of the expenditure incurred after 31st March 1970 and
Expenditure may be of the type which was incurred
i. before the commencement of the business, or
ii. After the commencement of the business, or in connection with the extension of its
industrial undertaking or in connection with its setting up a new industrial unit.
Deduction = 1/5th of expenditure is allowed as deduction.

12. Expenditure on demerger or amalgamation Sec 35DD – 1/5th is allowed as deduction

13. Amortization of expenses on prospecting etc for development of certain minerals (Sec
35E)-

1/10th is allowed as deduction

14. OTHER DEDUCTIONS (SEC.36)

Following expenses are fully allowed as deductions

 Employees insurance
 Bonus
 Commission
 Employer contribution to RPF.
  ESI(Employees state insurance)
 Gratuity fund (Approved)
 Super annuation fund (Approved)
 Interest on borrowed capital.
 Loss of animals (Otherwise than as stock in trade).
 Bad debts
15. Family planning expenditure sec 36(1)(ix)

1. Revenue expenditure - Fully allowed as deduction

2. Capital expenditure - 1/5th is allowed as deduction
16. Expenditure incurred by a corporation or body corporate (w.e.f 1/4/02) [Sec 36(1)(Xii)]-
Full amount allowed as deduction.

17. GENERAL DEDUCTIONS (SEC 37)

General Deductions (Sec 37):
Sec. 37 (i )says that any expenditure (not being expenditure of the nature described in
Sec.30 to 36) and not being in the nature of capital expenditure or personal expenses of the
assessee), laid out or expended wholly and exclusively for the purposes of the business or
profession shall be allowed in computing the income chargeable under the head, “Profits and
Gains of Business or profession”.

Note
1. The expenditure should not be of the type of expenses already covered under Sec.30 to
36 of this Act.
2. Expenses should have been incurred in the relevant accounting year.
3. Expenses should be in respect of the business carried on by the assessee and the profits
of which are to be computed and assessed, and should be incurred after the business is
set up.
4. Expenses should not be in the nature of personal expenses of the assessee.
5. The expenses should have been incurred totally and exclusively for the purposes of the
business of the assessee.
6. Expenses are not of capital nature.
7. The expenses are incidental to the business of the assessee and directly spring from the
carrying on of it.
8. The reasonable expenditure towards payment of compensation to the employees whose
services have been terminated would ordinarily come under the provisions of Sec. 37(1)
9. Deposit made under own your Telephone (OYT).

Entertainment Expenditure:
With effect from AY 1998 – 99 (Sec. 37 (2) has been deleted and as such all expenses
incurred on entertainment shall be fully allowed but these shall be subject to provisions of
section 37(1).
Advertisement Expenditure:
All restrictions imposed u/s 37 (2A) have been removed by deleting sec. 37 (2A) with
effect from AY 1998 – 99. As such all expenses on advertisement shall be fully allowed.
Any expenditure incurred on advertisement in souvenir or magazine of a political party is
not allowed to be debited.
But with effect from 1.4.1998 the cost of signboard, being capital expenditure, shall
quality for depreciation @ 10% and cost of neon sign board @ 15% (being electric installation)

Q. EXPLAIN THE ALLOWABLE DEDUCTIONS U/S SEC. 37.

1. All expenses and payments made for purchasing of raw materials, manufacture
and sale of goods
2. All expenses in the nature of advertisement to pushup sales and not covered u/s 37
(3)
3. Sales – tax and expenses to carry on business.
4. Day – to – day expense’s carry on business.
5. Some subscription to be compulsorily and to protect the business interests.
6. Reasonable expenses incurred and Diwali / pooja or other Festivals etc.
7. Reasonable expenses incurred at the time mahurt and Diwali. But no monetary
ceiling has been fixed by Board.
8. Royalty paid in connection with the use of trademarks, patents, copy rights, etc.
9. Commission paid to procure orders.
10. Compensation paid to an agent in connection with the termination or modification
in the terms and conditions of his agency.
11. Installation expense’s of new telephone and payment made under ‘ own your
Telephone (O.Y.T) scheme.
12. Expenses incurred to oppose the threatened nationalization of the business.
13. Legal expenses incurred to claim damages or compensation in case of non –
fulfillment of a contract.
14. Pension, gratuity and other voluntary payment given to the employees.
15. Gifts given t the employees but such gifts should not fall in the category of
perquisites.
16. Bonus paid on the basis of an industrial award.
17. Expenses incurred on employees welfare activities.
18. Embezzlement by an employee during the normal course of the business.
19. Amt spent or payable on delayed payment of cash.

Q. EXPLAIN THE EXPENSES “SPECIFIC ALLOWANCES” EXPRESSLY

DISALLOWED U/S 40.
A. In the case of any Assessee u/s 40(a)
i. Reduction of tax at source: u/s 40 (a) (i):
 With effect from 1.4.2004 deduction of interest, royalty, fees for technical services or
other sums chargeable under this Act shall be allowed to be debited only if tax is deducted at
source and is paid before the expiry of time prescribed u/s 200 (1).

ii. Any other tax:

Any firm paid on account of any rate of tax levied on the profits or gains of any business
or profession or assessed at a proportion of, or otherwise on the business of any such profits or
gains is not allowed.

iii. Weather tax levied on Business Assets:

Wealth tax which is levied on the assets of the business according to the wealth – tax Act,
1957, will be allowed.

iv. Salary payable out side India: It is related with under the head salary.

B. In the case of any firm [Sec. 40(b)].

a. Any payment of salary, bonus, commission or remuneration by what so ever name called, to
any partner who is not a working partner shall be disallowed.
b. Any payment or remuneration to working partner shall also be disallowed if is not authorized
of deed.
c. Any payment of interest any partner which is authorized by and is in a accordance with the
terms of partnership deed does not exceed 12% p.a.

C. General (disallowed)
1. Drawings private or personal expenses of the proprietors partners etc.
2. Any expenditure in the nature of capital expenditure.
3. The amount paid as charity and presents. However, subscription is allowed.
4. Any provision or reserve except the special reserve of the approved financial corporations.
5. Past losses charged to P & L a/c
6. Any other expenditure which was incurred not necessarily, wholly and exclusively for the
purpose of the business or profession of the assessee.
7. Income tax, wealth tax and any other tax which is imposed on income.
8. Any provision for bad debts, taxation etc.
9. Depreciation in excess of the admissible amount under the provisions of the IT Act,
10. Payments to relatives u/s 40A (2)
11. Payments exceeding Rs. 20,000 u/s Sec. 40A (3).

Q. EXPLAIN THE TERM DEEMED PROFITS

The following profits are also chargeable to tax under the head ‘profits and Gains
of business or Profession’:

1. Recovery of any loss or expenditure allowed as deduction in an earlier year [Sec.4 (i)]
If any sum allowed as deduction as expenditure or loss in earlier years, is recovered in a
subsequent year, the amount so recovered shall be treated as deemed profit and shall be assessed
to income tax in the year of recovery.
If any loss or expenditure has been allowed as deduction in an earlier year and thereafter
if the business has changed hands and subsequently the successor in business has realized any
amount in respect of such loss or expenditure, the amount shall be deemed to be profit
chargeable to tax in the hands of the successor.

2. Sale of assets used for scientific research [Sec.41 (3)]:

If a capital asset used for scientific research is sold without having been used for other
purposes and the sale proceeds together with the deductions allowed u/s 35 exceeds the amount
of capital expenditure incurred on it, such surplus or the amount of deduction allowed, whichever
is less, is chargeable to tax as business income of the previous year in which the sale took place.
I the deduction allowed is less than the aforesaid surplus, the excess allowed is chargeable to tax
as capital gain.

3. Bad debts recovered [Sec.41 (4):

If the bad debt allowed as deduction in an earlier year is recovered in a subsequent year,
it is taxable as deemed business profit in the year of recovery.

4. Recovery after discontinuance of business or profession:

If any business or profession is discontinued in any year and any sum is recovered
afterwards it will be deemed to be income of the recipient and charged to tax in the year of
receipt.

5. Withdrawal from special reserve [Sec.41 (4A)}:

If any amount is withdrawn from any special reserve created and maintained by a
financial corporation[under section 36(i)(viii)] it will be deemed to be the income of the previous
year in which such amount is withdrawn from the Reserve account.
Value of goods draw by proprietor for personal use:
Goods drawn by proprietor are to be value at cost price. No one can make profits from
himself. In case goods withdrawn are charged at market price, the price must be reduced by the
amount of profit.

Q. EXPLAIN WHICH LOSSES ARE TREATED AS BUSINESS LOSSES.

Following losses are treated as business losses.
1. Loss by theft and embezzlement by employee.
2. Loss of cash due to robbery while being carried by cashier for disbursement;
3. Loss of cash by dacoit in case of a banking company;
4. Brokerage, commission and stamp duty incurred on rent deed for hiring office premises.
5. Loss due to accident fire in stock – in – trade.
6. Loss caused by white ants.
7. Loss caused due to theft of pledged goods.
8. Loss on sale of securities held by assessee as a trading asset.
9. Loss due to fire of hired machinery.
10. Loss of stock – in – trade due to entry action.
11. Loss of stock due to natural calamities.
12. Loss due to fluctuations in the rate of foreign currency.
13. Loss due to failure or insolvency of assessee bank.
14. Loss due to forfeiture of security deposit.
15. Loss due to non – acceptance of delivery of goods.

Q. EXPLAIN THE PROCEDURE FOR COMPUTATION OF BUSINESS INCOME AND

PROFESSIONAL INCOME:
Computation of Business Income

Particulars Amount Amount

 Net profit as per P & L account xxx

Add

1. Inadmissible expenses but included in P&L account xxx

2. Incomes relating to business but not included in P&L account.
3. Under valuation of closing stock xxx
4. Over valuation of opening stock.
xxx

Less xxx xxx

1. Income not relating to business but included in P&L account.

2. Admissible expenses but not included in P&L account
3. Over valuation of closing stock.
4. Under valuation of opening stock
xxx

xxx

xxx

xxx xxx

Income from business xxx

Computation of Professional income:

Profession Income:

 Fees (For all professionals) xxx

 Operation fees, visiting fees (Doctor) xxx

 Institute fees (for accountants) xxx

  Gift from clients (for all professionals) xxx

 Legal fees, practicing fees (for lawyer) xxx

 Examiner Fees (For all professionals) xxx

 All other professional receipts xxx xxx

Less : Professional expenses

 Office and Administrative expenses xxx

 Clinic & expense’s and dispensary expenses xxx

 Cost of books xxx

 Subscription of journals xxx

 Depreciation xxx

 Any membership fees xxx

 Cost of medicine xxx

(Op. stock + Purchases – closing stock) xxx

 All other professional payments xxx xxx

Income from profession xxx

DEPRECIATION
Q. WHAT DO YOU MEAN BY DEPRECIATION?

Assets are needed for running a business. These are meant either for immediate or for
prolonged use. Assets acquired for immediate use are known as current assets and those acquired
for prolonged use are called fixed assets. Constant use of such assets leads to decrease in their
value. This loss in the value and utility of fixed assets due to their constant use and expiry of
time is termed as depreciation.

Q. ENUMERATE THE OBJECTIVES OF DEPRECIATION

The primary objects of and necessity for providing depreciation on fixed assets are given below.
  Ascertainment of true profits: When a particular asset is used for earning income of the
business, the reduction in the value of the asset should be provided from the income in
order to calculate the correct and real income of the business.
 Presentation of true financial position: If depreciation is not provided for, the balance
sheet will not disclose a true and fair view of the firms, since the assets will be shown at
figures which are in excess of their true value.
 Replacement: The amounts debited in the profit & loss account are retained in the
business. These are available for replacement of the asset when its life is over. So by
making an annual charge for depreciation, a concern would be accumulating enough
resources to enable it to replace an asset when necessary.
 No distortion of divisible profits: If depreciation is not charged to profits, trading results
are vitiated and divisible profits are distorted.

Q. LIST DOWN THE CONDITIONS FOR CHARGING DEPRECIATION

1. Asset must be owned by the assesses

2. It should be used during the relevant previous year.
3. It must be used for the purpose of business or profession.
4. Depreciation is available on tangible as well as intangible assets
5. Block of assets.
6. No depreciation is allowed in respect of a depreciable asset if the concerned asset is sold,
destroyed, discarded or demolished in the same year in which it was acquired.
7. Full particulars of the asset, on which depreciation is to be charged, must be furnished to
the A.O.
8. Depreciation is allowed on the basis of Written down Value of the Asset.
9. Amount of depreciation not to exceed maximum limit.

Q. EXPLAIN THE DIFFERENT METHODS OF DEPRECIATION

The depreciation is charged on a “Block of assets “system. The rates of depreciation have
been provided on block of asset basis. This scheme was introduced with effect from 1-4-1987.

1. BLOCK OF ASSETS- Block of assets means group of assets falling within a class of
assets comprising tangible and intangible assets in respect of which the same percentage of
depreciation is described.

Depreciation is charged on

 Tangible assets( Building, Machinery, Plant, Furniture)

 Intangible assets(Know how, Patents, Copy rights, Trademarks, Licenses, Franchises,
Any other business or commercial rights.

2. ACTUAL COST BASIS

3. WRITTEN DOWN VALUE BASIS

Rate of depreciation

Particulars Rate

Building

1. Residential purpose 5%
2. Commercial purpose.
3. Providing infrastructure facilities. 10%
4. Temporary erections.
5. Hotel purpose 100%

100%

20%

Furniture and fittings 10%

Plant machinery

1. Used in normal business 15%

2. Used in air pollution factories and water supply project etc.
3. Used in flour mills Iron & steel industries, Sugar works etc 100%

80%

Motor car

1. Used for general purpose 15%

2. Used for business of hiring
30%

Motor bus and motor lorries 30%

Computer 60%

Books used for business or profession

1. Annual publications 100%

2. Long term publications
60%

Intangible asset of technical Know how, patents, copy rights, trade marks 25%
etc.
 PROBLEMS ON BUSINESS OR PROFESSION

Problem No. 1

State whether the following items are deductable or not and why.

1. Sale tax and Wealth tax.

2. Donations to a political party.
3. Cost of installing a new telephone.
4. Fees paid to the lawyer for drafting partnership deed.
5. Loss due to embezzlement by an employee.
6. Panalty paid to custom authorities for violating custom rules.
7. Commission paid while purchasing raw materials
8. Some amount paid to a labour leader to call off the strikes.
9. Bad debts.
10. In the course of money lending business, the assessee acquired certain properties in lieu of
debts and held them as stock in trade. The properties so acquired were destroyed by enemy
action and the assessee claims the loss a deduction
11. Brokerage paid for raising a loan.
12. Rs 1,000 were snatched from the cashier while he was going to the bank to deposit the
amount.
13. Legal expenses paid to protect the building of the business.
14. Rs 5,000 paid as a commission to purchase machinery and Rs 500 were also spent as
traveling expenses on the person who went to purchase the machinery.
15. Subsidy received under export promotion scheme from Governemnt.

Problem No. 2

The following is the profit & loss account of Mr. Roy for the year:

Particulars Amount Particulars Amount (Rs)

(Rs)

To rates and Taxes 450 By gross profit 14,623

To Establishment(Staff) 1,750 By Bank interest on 577

personal deposits
To Rent 600

To Household expenses 1,450

To Discount 250

To Advertisement 200
To Income tax 480

To Postage, stationery 810

To Fire insurance 150

To Gifts and presents 160

To Charity and donations(to approved

institutions)
1,140
To Purchase of plant and machinery(not
yet installed)

To Repairs of furniture 1,500

To Interest Loan 50

To Life insurance premium 1,000

To Reserve for doubtful debts 600

To Interest on capital 700

To Net profit 250

3,660

15,200 15,200

You are required to ascertain the business income of Mr.Roy.

Problem No. 3

Mr. Rangan the proprietor of a flour mill has prepared the following profit and loss
account for the year ending 31st March 2010. You are required to calculate his income from
business for the assessment year 2015-2016.

Profit and loss account

Particulars Amount (Rs) Particulars Amount (Rs)

To trade expenses 450 By gross profit 35,900

By dividends from a
To establishment charges 2,200 cooperative society

To rent, rates & taxes 1,400 By rent from property 2,600

To discount 200 By bad debts 500

recovered
To income tax 700 2,000

To Advt Exp

Paid 1,000

Due 450 1,450

To postage & Telegrams 100

To publicity 125

To fire insurance premium 250

To charities 375

To donation 400

To repairs and renewals 250

To audit fees 250

To net profit 32,850

41,000 41,000

Problem No. 4

From the following profit and loss account calculate income from business.

Particulars Amount (Rs) Particulars Amount (Rs)

To rent 50,000 By gross profit 3,00,000

To salary to employees 45,000 By house property income 1,50,000

To depreciation 8,000 By income from other sources 2,50,000

 To donation 8,000

To net profit 5,89,000

7,00,000 7,00,000

 Depreciation is to be allowed as per income tax provision Rs 8,000

 Business income of Rs 10,000 is not shown in P & L account
 Rs 5,000 rent includes personal nature.

Problem No. 5

Calculate income from business from the following P&Laccount

Particulars Amount (Rs) Particulars Amount (Rs)

To rent and rates 3,000 By gross profit 2,00,000

To income tax 8,000 By other business income 1,00,000

To donation 15,000 By IFOS 2,00,000

To gift 10,000 By IFHP 2,00,000

To advertisement (Cash) 35,000 By IFCG 1,50,000

To motor car expenses 10,000

To depreciation on car 8,000

To depreciation on furniture 10,000

To salary to employee 28,000

To misc. expenditure relating to

business
12,000
To net profit
7,11,000

8,50,000 8,50,000

1. Depreciation on car to be allowed at Rs 12,000 and on furniture at Rs 6,000

2. Misc Expenditure includes 2,000 not relating to business.
3. Rs 10,000 worth of business income is not shown in the P&L A/C
Problem No. 6

From the following P&L account calculate income from business

 Particulars Amount (Rs) Particulars Amount (Rs)

To salary 5,00,000 By gross profit 15,00,000

To repairs 25,000 By sundry receipts 3,00,000

To bad debts 8,000 By rent from L/O house 1,00,000

To provision for bad debts 10,000 By sale of machine( Profit) 25,000

To donation 25,000 By bad debts recovered

disallowed earlier
To entertainment expenses 5,000 4,000
By bad debts recovered
To provision for gratuity 20,000 allowed earlier

To income tax 15,000 3,000

To provision for IT 20,000

To wealth tax 25,000

To car purchased 50,000

To municipal tax for let out 6,000

property
15,000
To general expenses
56,000
To patents (Before 1.4.98)
11,52,000
To net profit

19,32,000 19,32,000

Additional information

1. Business income Rs 42,700 is not shown in the profit and Loss account
2. Depreciation worth Rs 5,000 approved by the authority is not shown in the P&L account
3. Rs 4,000 relating to other sources is included in general expenses.
4. Rs 50,000 worth of income not relating to business is included in sundry receipts.

PROBLEMS ON INCOME FROM PROFESSION

Problem No. 7
 Following is the income and expenditure account of Ramana &Co, chartered accountants
for the year ending 31-03-2015. Calculate income from profession from the details given

Expenditure Amount (Rs) Income Amount (Rs)

To charity and donations 1,00,000 By audit fee 3,00,000

To subscription to journals 2,000 By examiner fee 25,000

To institute fee 4,000 By fee for other accounts work 40,000

To office rent 5,000 By dividend from UTI 35,000

To drawings 50,000

To electricity bill 9,000

To salary to trainee 20,000

To net income 2,10,000

4,00,000 4,00,000

Rs 5,000 can be claimed as depreciation for office assets as per income tax provision.

Problem No. 8

Calculate income from profession from the following receipts and payments given by Mr
Anbalagan for the year ending 31.3.15

Receipts Amount(Rs) Payments Amount(Rs)

Balance 1,20,000 Car expenses 24,000

Fees from client Office expenses 6,000

2008-2009 25,000 Salary to staff 7,000

2009-2010 30,000 Interest on loan 1,000

2010-2011 32,000 Income tax 1,500

Presents from clients 20,000 Income tax penalty 600

Winnings from lottery 24,000 Wealth tax 250

 Purchase cost 5,000

Balance c/d 2,05,650

2,51,000 2,51,000

1. Depreciation of Rs 2.500 is to be provided

2. Consider Rs 1,500 as opening stock and Rs 1,000 as closing stock
3. Car is 60% used for official purposes
4. Income from other sources 30,000

Problem No. 9

Dr BalaKrishnan is a renowned medical practitioner who gives the following receipts and
payments account for the year ending 31-3-2015.

Additional information

a. For official purposes 2/3rd portion of the car is used

b. Depreciation is to be charged as follows
On Books 100%, On car 15%, On surgical equipments 15%

c. Closing stock of medicine is Rs 4,000

Receipts Amount(Rs) Payments Amount(Rs)

To balance 75,000 By rent to Clinic

Consulting fees 2009-2010 8,000

2009-2010 25,000 2008-2009 7,000 15,000

2008-2009 20,000 45,000 Purchase of professional book 20,000

Visiting fees 20,000 Purchase of medicine 15,000

Sale of medicines 90,000 Purchase of motor car 75,000

Gifts and presents from clients 10,000 Income tax 3,000

Interest from post office savings Purchase of surgical equipments 15,000

Winnings from lottery 12,000 Gift to wife 5,000

Dividends 1,50,000 By balance 2,64,000

 10,000

4,12,000 4,12,000

Problem No. 10

Mr Kedambi an advocate, furnishes the following receipts and payments for the previous
year 2014-2015. Compute his income from profession

Particulars Amount(Rs) Particulars Amount(Rs)

To balance b/d 6,540 By rent 2,400

To legal fees 84,400 By telephone 3,000

To salary (as a part time law lecturer) 3,600 By salaries 2,400

To interest on debentures ( not listed) 2,700 By subscription to law journal 240

To gift from clients 10,000 By traveling 560

To rent 6,000 By office expenses 600

To interest on foreign security 8,000 By purchase of stamp paper 1,600

and court fee stamps
To refund from compulsory deposit 2,000
By interest on loan
870
By donation to a school
5,000
By income tax paid
8,420
By municipal tax
600
By LIC premium
6,000
By wealth tax
1,600
By balance c/d
89,950

1,23,240 1,23,240

a. The loan was borrowed for constructing his residential house. Its rental value is Rs
300 p.m
b. School is recognized for IT purposes.
c. Gift from patients include Rs 2,000 received from his father
 Problem No. 11

Mr D.D Dewan & com are chartered accountants in Delhi. They have submitted the
following income expenditure account for the year and compute his professional income

Expenses Amount(Rs) Income Amount(Rs)

To drawings 48,000 By audit fees 2,24,000

To office rent 42,000 By financial consultancy service 98,000

To telephone installation By dividends from an Indian company (Gross) 6,000

expenses under OYT scheme
15,000 By dividend on units of UTI 4,000
To electricity bill
4,200 By accountancy works 24,000
To salary of staff
66,000
To charities
1,200
To gifts given to relatives
9,600
To car expenses
21,000
To subscription for journals
2,500
To institute fee
1,200
To stipends given to trainees
12,000
To net income
1,33,300

3,56,000 3,56,000

1. Depreciation of the car during the year amounts to Rs 5,000

2. 30% of the time car is used for personal purpose

Problem No. 12

Dr Nagendra is a medical practitioner, who maintains books of account on cash basis,

furnishes receipts and payment account for the year 2009-2010
 Particulars Amount(Rs) Particulars Amount(Rs)

To balance b/d 14,000 By rent of clinic

To consultation fees 2008-09 600

2008-09 3,000 2009-10 4,800

2009-10 15,000 2010-11 600 6,000

2010-11 2,000 20,000 By electricity and water bills 2,000

To visiting fees 30,000 By purchase of professional books 4,000

To loan from bank 25,000 By house hold expenses 7,800

To sale of medicines 60,000 By collection charges on dividend 100

To gifts and presents 5,000 By motor car purchased 30,000

To remuneration from journals 6,000 By surgical equipment purchased 4,800

To dividends (Gross) 10,000 By income tax 10,000

To interest on post office saving 7,000 By salary to staff 15,000

bank a/c By life insurance premium 15,000

By gift to wife 5,000

By interest on loan (for profession) 2,000

By car expenses 15,000

By purchase of medicine 40,000

By balance c/d 20,300

1,77,000 1,77,000

Compute his taxable professional income for the assessment year 2015-16 after considering the
following:

1. 1/3 of the use of car relates to his personal use

2. Depreciation on car is to be allowed @ 15% and on books @ 60%
3. Gifts include Rs 3000 from patients and Rs 2,000 from relatives
4. Closing stock of medicine is Rs 5,500
Problem No. 13

Dr. Sathish is a medical practitioner. He gives you the following summary of cash book
for the year ending 31.3.2015.

Particulars Amount(Rs) Particulars Amount(Rs)

To balance 10,000 By rent of clinic 18,000

To consultation fees 60,000 By purchase of medicine 38,000

To visiting fees 45,000 By staff salaries 24,000

To gifts and presents 8,000 By surgical equipment 40,000

To same of medicines 42,000 By motor car expenses 8,000

To dividend from UTI 6,000 By purchase of motor car 1,40,000

To life insurance maturity 1,00,000 By house hold expenses 7,000

To dividend from NDS 6,000 By closing balance 2,000

2,77,000 2,77,000

1. 50% of the motor car expenses incurred in connection with profession. Car was purchased
on Dec 2009.
2. House expenses include Rs. 6,800 insurance premium
3. Gifts and presents include Rs. 3,000 from relatives.
4. Closing stock for medicine Rs. 12,000 and opening stock on 1-4-2015 was Rs. 4,000