A Finance Assignment on

“ BUSINESS TAXATION”

Submitted by:

SHINDE VAISHNAVI SANTOSH

for the partial fulfillment of

Second Year Bachelor Business Administration (BBA) Course

Under the guidance of

CMA Maithili S Malpure

KRT Arts, BH Commerce and AM Science (KTHM)

College, Nashik – 422002

2020-2021 Batch
 Q1) What is Income? What are heads of Income as per Income Tax
Act, 1961? Explain all heads in brief.
money received, especially on a regular basis, for work or through
investments. The heads of Income as per Income Tax Act, 1961 are as follows:

1. Income from Salary

2. Income from House Property
3. Income from Profit and Gains or Business Profession
4. Income from Capital Gains
5. Income from other sources Income from Salary :

Any amount paid by an employer to an employee for contribution of service

after a specific interval is known as ‘salary’. The term salary is defined under
the income tax act using an ‘inclusive’ nomenclature. What this means is that
the act has defined what salary include which means that other then the items
specially state to be salary there could be other payment with a different
nomenclature that may also be considered to be salary.

Income from salary includes wages, pension, annuity, gratuity, fees.

Commission, profits, leave encashment, annual accretion and transferred
balance in recognised Provident Fund (PF) and contribution to employees
pension account. If property is vacant then a notional income is included under
this head.

Income from House Property :

The income arising out of a house property either in the form of a rental
income or on its transfer is referred to as income from house property. In
essence any property such as house, building, office, warehouse is treated as
house property under the income tax act.

Income from Profit and Gains or Business Profession :

Income earned through your profession or business is charged under the head
profits and gains of business or profession. The income chargeable to tax is the
difference between the credits received on running the business and expenses
incurred.
 Income from Capital Gains :

Types , calculation and tax exemption on Capital Gains.gainCapital

is
denoted as the net profit that an investor makes after selling
al asset
a capit
exceeding the price of purchase. The entire value earned from selling a capital
asset is considered as taxable income.

Income from Other Sources

Income from other sources which is the last among the five heads of income
sketched out in the income
tax act is essentially a head of income that includes
all receipts that cannot otherwise be classified
under any of the other heads of
income.

Q2) Under head Income from Salary, which is the charging section?
Explain it.
Under section 15, the following incomes are taxable under the head salaries

Salary Due: Salary becomes due when the right to demand salary arises to
the assessed. The employe
e is liable to pay the tax, even through he may not
have received salary at all. If salary becomes due on the first day of the
subsequent month then the salary of March will become stdue April
on and
1
hence in the next financial year.

Salary paid: Anysalary paid in the previous year by an employer through

not due to him is taxable, e.g. Advance salary and benefit allowed.

Arrears of Salary Paid: Any arrears of salary paid or allowed to him in

the previous year by the employer. Arrears of salarycluded
are inin the year
in which these are received.
 Q3) What are allowances? Give example of allowances. Allowances
may be classified in three groups

1. Fully taxable allowances

2. Partly taxable allowances
3. Fully exempted allowances

Taxable and Non-Taxable Allowances for salaried individual. The financial

benefits given to employees by their employer over and above their regular
salary are called allowances. Some allowances that come under the head
salaries are fully taxable while other are partly taxable or fully exempt from tax
liability.

Fully Taxable Allowances :

City Compensatory Allowances (CCA)

Medical Allowances (Private Hospital)

Tiffin allowances

D.A. (Dearness Allowances)

Bonus

Partly Taxable Allowances

Children education allowances

Children hostel allowances

H.R.A

Fully exempted allowances us 10(14) Rule 2

Travelling allowances

Conveyance allowances

Daily allowances

Helper allowances

Academic allowances

Uniform allowances
 Q4) What are perquisites? Give its example and show calculation of
any 2
Perquisite may be defined as any casual amolument or benefit
attached to an office or position in addition to salary or wages.
Perquisites may be in cash or kind. Perquisites are included in
salary income only if they are received by an employee from his
employer.
Example

Telephone bill paid by employer

Snacks or Lunch provided

Cook, Gardner, Watchman, Servant provided by employer and salary paid by

employer.

Medical facility by employer

Educational facility to children of employee Gas,

Electricity, Water provide by employer

Calculation of examples :

Children education allowances Rs 6000pm (3 children)

ANS : children education allowances 6000

Less : Exempted (100*12*2) 2400 3600

A medical expenditure of Rs 15,500 in reimbursed by the employer.

(Treatment under taken govt hospital)

ANS : medical bill reimbursed 15500

Less : fully exempted 15500 Nil

Q5) What are deduction under head salary?

Section 16 Income Tax act 1961 provides deduction from income

under the head of salaries.

Standard deduction

Entertainment allowances

Professional tax

Standard deduction :

[Section 16(1)] Not Applicable

Entertainment Allowances
[section 16(2)] :

If entertainment allowances received to government employee then

only exemption is allowed least of following. 20% of basic salary ,
5000, actual entertainment allowances received.

Professional Tax
:

Tax for professional or service is professional tax.

Q6) What is the basic

of charge for House Property income?

Annual value of any building owned by assessee is chargeable to tax under

the head income from House Property. Under the head income from house
property the basis of charge is the annual value
roperty.
of p
 Q7) Explain the concepts :

1. Gross annual value

2. Net annual value
3. Municipal rent
4. Fair rent
5. Standard rent
6. Expected rent

Gross annual value

Gross annual value (GAV) refers to the income that can be earned from immovable
property. GAV shall be applicable irrespective of whether the property is let-out or not for
commercial or residential purposes.

Net annual value

Net annual value is the rent at which the property might reasonably be expected to let on a
year to year basis on the assumption that the tenant is responsible for repair and insurance and
any other expenses necessary to maintain the property in a state to command the rent.

Municipal rent

If a property is covered under rent control act then the reasonable expected rent cannot
exceed standard rent. Such value determined by the municipal authorities in respect of a
property is called as municipal value of property.

Fair rent

Fair rent is the similar property in the same or similar locality can fetch. Municipal value is
the rental value as determined by the relevant municipal authority.

Standard rent

Standard rent is determined under the rent control act. If the standard rent has been fixed for
any property under the rent control act. If the owner cannot charge a rent higher than the
standard fixed rent.

Expected rent

Expected rent or deemed rent is the rent which the owner is expected to receive calculated
on notional basis from the higher of the municipal value or fair rental value subject to
maximum of the standard rent in case property is covered under the rent control act.
 Q8) What are deduction under head House Property?
Deductions from Income of House Property it is included in section 24.
There are two different deduction from House Property
Standard deduction
Interest on Borrowed capital [section 24(2)]

Q9) What is Income under head Profits & Gains from Business & Profession?

Any gains arises from business actively hold by assessee chargeable to tax under the head
profit and gains of business and profession.

Business [section 2(B)] :

Business means the purchase and sale or manufacturer of a commodity with a view to make
profit.

Profession [section 2(36)] :

Profession means the activities for earning live hood which require intellectual skill or
manual skill.

e.g. The work of a lawyer, doctor, auditor, engineer

Q10) What is Income under head Capital gains?

Section 45 of Income Tax act 1961 provides that any profits or gains arising from the
transfer of a capital asset effected in the previous year will be chargeable to income tax under
the head capital gain. Such capital gain will be deemed to be the income of the previous year
in which the transfer took place.
Q11) What is Income under head Other Sources

Income from other sources which is the last among the five heads of income sketched
out in the income Tax act, is essentially a head of income that includes all receipt that cannot
otherwise be classified under any of the other heads of income.
 PART B : PRACTICAL ASPECT

Q1. Mr Beta is employed in Texman Ltd. Pune as an Accountant. During the

previous year 2020-2021 he has received the following emolument.

Basic salary 12,500 p.m

D.A. 30% of basic salary (Application for retirement benefit) City

Compensatory Allowances 850 p.m.

Children Education Allowances 300 p.m

(Mr beta has two son and one daughter studying in the school)

H.R.A. 1500 p.m

He contributed 2000 p.m towards his Recognized Provident Fund and an equal
amount is contributed by employer. 14400

During the year, the interest credited to hid recognised Provident Fund A/c @
12% p.a amounted to

He received18000 by way of reimbursement of the hospital bill in respect of his

wife.

He paid 3,300 as a Professional Tax.

He has taken a L.I.P of 1,00,000 in r4espect of his wife by paying an annual

premium of 14,800

He stays in a rental house at Pune by paying rent 3000p.m

You are required to compute taxable income from the salary of Mr Beta for the
A.Y. 2021-2022
SOLUTION :

Computation of net taxable salary

Assesse : Mr. Beta
AY : 2021-2022

PARTICULARS RS RS
Basic salary (12,500*12) 1,50,000

DA (30%*1,50,000) 45,000

City Compensatory Allowances (850*12) 10,200

Children education allowances (300*12) 3600 1200

Less : exempted 100 Rs/child/month (100*2*12)
Max 2 children 2400

HRA (WN 1) 1500

Employer contribution to RPF (WN 1) (2000*12) 24000

Less : exempted 12% salary (12% of 1,95,000) 23,400 600

12% Interest credited to RPF 14,400

Less : exempted 9.5% interest rate (9.5*14,400/12)
11,400 300
0
Reimbursement of hospital bill (perks) 18000

GROSS SALARY 2,29,50

0
Less : deduction under section 16

Standard deduction 16(i) 50,000

Entertainment allowances 16(ii) NA

Professional tax 16(iii) 33000

NET TAXABLE SALARY 1,76,200

Working Notes : H.R.A.

Mr. Beta working at pune. So other than BCDM criteria is applicable So,

exemption is least of following three.

40% salary

Actual rent paid – 10% of salary

Actual H.R.A. Received

Here, Salary= Basic +DA. (forming part)+ % commission

= 1,50,000 + 45000
= 1,95,000
So exemption is,
40% of salary (40% of 1,50,000) = 60,000
Actual rent paid = 36000
Less : 10% of salary (10% of 1,95,000) (-) (19,500) = 16,500
Actual HRA received = 18000
Least amount is 16,500 , so exempted from tax.
It is assumed that D.A is 100% forming part.
Q2 Mrs Asha owns three houses for her residential purpose. The following
are the details of these houses.
Particulars House I House II House III
Municipal valuation 82000 50000 70000
Fair rent 75000 60000 65000
Standard rent under rent control Act 70000 70000 65000
Muncipal Taxes 8,200 6000 7000 Repairs
8000 6000 _

Ground rent is paid @ 10% of Net Annual Value in respect of each house.
Interest paid on capital borrowed for renewal of house property no 1. And 3
amounting to 38,000 and 32,000 respectively the loan was taken on 1 st june
2000.
You are required to determine taxable income from house property of mrs.
Asha for the A.Y. 2020-21
 SOLUTION :
Net Taxable Income from House Property
Assessee : Asha
AY : 2021-2022
Particulars H2 (DLO) Rs H1 and
H3(SOHP) Rs
Gross annual value 60,000 Nil
6000 NA
60,000

Nil
Less : Muncipal tax paid

6000

NA

Net annual value 54,000 Nil

54,000
16,200 Nil
Nil
_ 30,000
Less : deduction u/s 24
Standard deduction (30% of NAV)

Interest on Loan

Profit / Loss from HP 37800 (30,000)

Income from House Property = Income from House + Income from House1 & 3

= 37,800 + (30,000)

= 7800

Profit from House Property 7800

Working Note :

1 . Hence Asha use all 3 hours for residence purpose.

Under section 23 (4) two big house will be treated as SOHP and remaining
will be treated as DLO.

2. Hence property Not actually let out so RER = GAV

3. In this problem, type of house is not given.

So, we consider House 2 DLO and House 1 and 3 SOHP.

1. House 1 and 3 : House 1 and 3 is considered as SOHP. So Net annual

value is Nil.
2. House no2 : House no 1 and 3 is considered as DLO. So we calculate
GAV.

Gross Annual Value :

I. First find out Expected Rent : S.R. is applicable, so expected rent is least
of following two:

House 1 House 2 House 3

M.V. or F.R. which is higher 82,000 60,000 70,000

Standard Rent 70,000 70,000 65,000

Expected Rent is least amount 70,000 60,000 65,000

In case of deemed let out property

G.A.V. = Expected Rent 70,000 60,000 65,000