TAX MANAGEMENT

Answer questions each in 50 words. - DEC 2020_RMBF3

1. Define Income Tax Law: It refers to the legal framework that governs the taxation of
individuals and entities on their income. It includes rules, regulations, and provisions for
assessing and collecting income tax.
2. Define Due Dates: These are specific deadlines set by tax authorities for filing tax returns,
making tax payments, or complying with other tax-related obligations.
3. Define Assessment Year: It's the year following the financial year for which income is assessed
and taxed. It's the year in which taxpayers file their tax returns and calculate their tax liability.
4. Define Capital Gain Tax: It's a tax levied on the profit earned from the sale of capital assets like
property or investments. Capital gains can be either short-term or long-term, with different tax
rates.
5. What is Chargeable Incomes: These are the incomes that are subject to taxation,
encompassing various sources such as salary, business profits, interest, and dividends.
6. Define Perquisites: These are additional benefits or privileges provided to employees by their
employers in addition to their regular salary. Perquisites are taxable under income tax laws.
7. What is Total Income: It represents the aggregate income earned by an individual or entity
from various sources during a financial year, serving as the basis for calculating income tax.
8. What is Resale of Income Tax: This term is not standard in tax terminology. It might refer to
the resale of tax benefits or credits, which can sometimes be transferred or sold to other parties.
9. Define Capital Budgeting: It's a financial planning process used by businesses to evaluate and
select investment projects or assets with long-term implications, considering factors like returns
and risks.
10. Define Learning: In a general sense, learning is the process of acquiring knowledge, skills, or
information through study, experience, or teaching.
11. Define Wealth Tax: It's a tax on the net wealth or assets owned by an individual or entity. Many
countries have abolished wealth tax in recent years.
12. Define Mutual Fund: It's a financial vehicle that pools money from multiple investors to invest
in a diversified portfolio of stocks, bonds, or other securities. Investors own shares in the mutual
fund, representing a portion of the fund's holdings.
Answer questions each in 250 words.

13.What are the various Provisions and Forms in Tax Management: Tax
management involves compliance with various provisions and the use of specific forms to
ensure accurate reporting and payment of taxes. In the context of income tax in India, several
provisions and forms are used:

Provisions:

 Income Tax Act: The Income Tax Act, 1961, is the primary legislation governing income tax in
India. It contains provisions related to tax rates, exemptions, deductions, and assessment
procedures.
 Assessment Year and Financial Year: The Act defines these crucial periods for tax assessment,
with the assessment year following the financial year in which income is earned.
 Tax Deductions: Provisions in the Act allow taxpayers to claim deductions under various
sections, such as Section 80C for investments, Section 10 for exemptions, and Section 24 for
home loan interest deductions.
 Tax Slabs: The Act prescribes income tax rates applicable to different income slabs. Taxpayers
use these rates to calculate their tax liability.

Forms:

 Income Tax Return (ITR) Forms: Taxpayers use different ITR forms to file their income tax
returns based on their income sources, such as ITR-1 for salaried individuals, ITR-2 for those with
income from capital gains, and others.
 Form 16: Employers issue this form to salaried employees, summarizing their salary, deductions,
and TDS (Tax Deducted at Source) details.
 Form 26AS: This form provides taxpayers with a consolidated view of all tax-related
information, including TDS and tax credits.
 Form 15G/15H: These forms are submitted by individuals to banks and financial institutions to
declare that their income is below the taxable limit, exempting them from TDS.
 Form 10E: Taxpayers use this form to claim relief under Section 89(1) when they receive arrears
or delayed salary payments.
 Form 12BB: Employers use this form to collect information from employees regarding their tax-
saving investments and deductions.

These provisions and forms ensure the accurate calculation, reporting, and payment of income
tax, helping taxpayers fulfill their tax obligations and enabling tax authorities to assess and
collect taxes effectively.

14. how is the residence of assesses Determining Residence for Income Tax:
The residence status of an individual or entity is a crucial determinant for income tax purposes
as it impacts their tax liability. In India, residence is determined based on the number of days
spent by an individual in the country during a financial year. Here's how it works:

 Resident: An individual is considered a resident if they meet any of the following criteria:
 They are in India for 182 days or more during the financial year.
 They are in India for 60 days or more during the financial year and have been in India for
365 days or more in the preceding four financial years.
 Non-Resident: An individual is considered a non-resident if they do not meet any of the above
criteria.
 Resident but Not Ordinary Resident: If an individual qualifies as a resident but does not meet
the "ordinary resident" criteria, they are classified as a resident but not ordinary resident. This
status offers some tax benefits.
 Resident and Ordinary Resident: An individual is considered a resident and ordinary resident if
they meet both the residence criteria mentioned earlier. This status entails worldwide income
taxation in India.

For entities like companies, their residential status depends on the location of their control and
management.
Determining residence status is vital because it affects the scope of taxable income and the
applicable tax rates. Residents are taxed on their global income, while non-residents are typically
taxed only on income earned in India. The determination ensures fair taxation and prevents tax
evasion.

15. Explain the term ‘Perquisites’. How are they valued?

Perquisites and Their Valuation:
Perquisites, often referred to as "perks" or "fringe benefits," are additional benefits or privileges
provided by an employer to employees in addition to their regular salary or wages. These
benefits have a monetary value and are subject to taxation under income tax laws. Common
examples of perquisites include:

 Company-provided housing or accommodation: The value of the perquisite is calculated

based on factors like the type of accommodation and the rent paid by the employer.
 Free or concessional education: The value is determined based on the cost of education that
the employer bears.
 Car provided for personal use: The valuation depends on factors like the car's cubic capacity,
fuel type, and whether a chauffeur is provided.
 Interest-free or low-interest loans: The perquisite value is calculated based on the difference
between the interest rate charged and the applicable prescribed rate.
 Free or subsidized club memberships: The value is typically determined by the actual annual
membership fees.
 Medical facilities: The value is calculated based on the expenses incurred by the employer on
the employee's medical treatment.

The valuation of perquisites follows specific rules and guidelines set by tax authorities.
Employers are required to calculate the taxable value of perquisites and withhold tax at the
source, which is included in the employee's Form.

16. What are the Expressly Disallowed Expenses:

Expressly disallowed expenses are costs or expenditures that businesses or individuals incur but
are not eligible for tax deductions or exemptions. In other words, these expenses cannot be
claimed as deductible from the total income for tax purposes. The disallowance can be due to
various reasons, including tax laws or regulations. Common examples include:
 Personal Expenses: Expenses related to personal activities or non-business purposes are not
allowed as deductions. For example, expenses for personal vacations, hobbies, or gifts are not
deductible.
 Penalties and Fines: Fines or penalties imposed by regulatory authorities or government
agencies are generally not tax-deductible. This includes traffic fines, late payment penalties, and
similar charges.
 Political Contributions: In many jurisdictions, political contributions or donations to political
parties are not tax-deductible.
 Capital Expenditures: Costs incurred for acquiring or improving capital assets are not fully
deductible in the year they are incurred. Instead, they are typically depreciated or amortized
over time.
 Entertainment Expenses: In some cases, entertainment expenses may be disallowed or subject
to limitations, especially if they are not directly related to business activities.

It's essential for businesses and individuals to be aware of expressly disallowed expenses to
accurately calculate their taxable income and comply with tax laws. Proper record-keeping and
consultation with tax professionals can help ensure compliance and minimize tax liabilities.
17. What do you understand by Income Deemed to Accrue or Arise in India:

Income deemed to accrue or arise in India is a significant concept in income tax laws. It pertains
to income earned by non-residents or foreign entities but is taxable in India due to specific
criteria. The Income Tax Act, 1961, includes provisions for determining when income is
considered to accrue or arise in India. The key factors include:

 Business Connection: If a non-resident has a business connection or a source of income in

India, income arising from that source is deemed to accrue in India. This includes activities like
having an office, agent, or dependent agent in India.
 Income from Assets: If income arises from assets located in India, such as property or
investments, it's deemed to accrue in India.
 Income from Services: Income earned by a non-resident for services rendered in India is
considered to arise in India.
 Royalties and Fees for Technical Services: Royalties and fees for technical services earned by
non-residents are deemed to arise in India if they are related to activities or assets in India.

Understanding these provisions is crucial for determining the tax liability of non-residents doing
business or earning income in India.

18. What are the Tax Provisions for Venture Capital Funds:

In India, Venture Capital Funds (VCFs) enjoy certain tax benefits and provisions to promote
investments in startups and early-stage companies. Key provisions include:
 Tax Exemption: VCFs are exempt from income tax on income earned from investments in
specified startups.
 Pass-Through Status: VCFs are treated as pass-through entities, meaning income is taxed at
the investor level, not at the VCF level.
 Long-Term Capital Gains: Investments held for more than two years qualify for long-term
capital gains tax treatment, resulting in lower tax rates.
 Dividend Distribution Tax (DDT): VCFs are exempt from DDT on dividends received from their
portfolio companies.

These provisions aim to incentivize investments in startups and provide tax efficiency for VCFs
and their investors.

19. What are Private Trusts and Assessment and how are they assessed? Explain.
Private Trusts and Assessment: Private trusts
are legal entities created by individuals (settlor) to manage and distribute assets for the benefit
of specific beneficiaries. They can include family trusts, charitable trusts, or discretionary trusts.
Private trusts in India are assessed for income tax purposes following these principles:

 Taxable Entity: A private trust is a separate taxable entity, and its income is taxed separately
from the income of its beneficiaries.
 Tax Rates: Private trusts are subject to tax at applicable rates, similar to individuals, and can
avail deductions and exemptions.
 Settlement Tax: A one-time settlement tax may apply when assets are transferred to a private
trust. This tax is calculated based on the fair market value of the assets.
 Beneficiary Taxation: Income distributed to beneficiaries is taxed in their hands, not at the trust
level.
 Beneficiary's Share: The income distributed to beneficiaries is determined based on the terms
of the trust deed and is usually a portion of the trust's total income.

Private trusts must maintain proper records, file annual tax returns, and comply with tax
regulations. They are often used for wealth preservation, estate planning, and charitable
purposes.
Answer the questions each in 500 Words :-

20. Classification of Assesses Based on Residence and Tax Liabilities:

Assesses in the context of income tax are individuals or entities subject to tax. They are classified
based on their residence status, which impacts their tax liabilities. The primary classifications are:

 Resident: An individual is considered a resident for tax purposes if they meet either of two
criteria:
 They are in India for 182 days or more during the financial year.
  They are in India for 60 days or more during the financial year and have been in India for
365 days or more in the preceding four financial years. A resident's worldwide income is
subject to tax in India.
 Non-Resident: An individual is considered a non-resident if they do not meet the above criteria.
Non-residents are typically taxed only on income earned in India.
 Resident but Not Ordinary Resident: An individual is considered a resident but not ordinary
resident if they qualify as a resident but do not meet the criteria for "ordinary residence." This
status provides some tax benefits, and income earned outside India is not taxable in India.
 Resident and Ordinary Resident: An individual is considered a resident and ordinary resident if
they meet both the residence criteria. Such individuals are subject to tax on their global income.

Entities such as companies are also classified based on the location of their control and
management.

Tax liabilities vary based on these classifications. Residents are subject to tax on their worldwide
income, while non-residents are generally taxed only on income earned in India. Resident but
not ordinary residents enjoy some tax benefits on foreign income, while residents and ordinary
residents are taxed on global income.

21. What are the rules regarding the valuation of the rent-free house provided to the
employee by the employer? Explain.
Valuation of Rent-Free House Provided to Employees:

When an employer provides a rent-free house or accommodation to an employee, it is

considered a perquisite, and its value is added to the employee's taxable income. The valuation
of such perquisites follows specific rules:

 Government Employees: For government employees, the perquisite value of rent-free

accommodation is generally determined as a percentage of the employee's salary, which can
vary based on the city's population where the employee resides.
 Other Employees: For non-government employees, the perquisite value is typically calculated
based on factors like the city's population, the accommodation's type (unfurnished, furnished, or
partly furnished), and the employee's salary.
 Furniture and Maintenance: If the accommodation includes furniture or the employer covers
maintenance expenses, additional values are added to the perquisite.
 House Owned by Employer: If the house is owned by the employer, the perquisite value is
typically the amount of rent the employer would charge for a similar property in the same
locality.

This perquisite value is included in the employee's Form 16 and is subject to income tax as part
of the employee's total income. It's important for employers and employees to accurately
calculate and report this value to comply with tax regulations.
 Answer the question in short note:- 22. In what manner are the profits of non-residents from
occasional shipping business brought to tax? Explain. 23. Explain the provisions of Income-tax
Act relating to set-off and carry forward of losses for companies. 24. Explain the conditions that
must be satisfied in order to claim exemption in respect of income form property held for
charitable purpose U/S 11 of the Income-Tax Act.

22. Taxation of Profits from Non-Resident's Occasional Shipping Business:

The Income Tax Act in India has provisions for taxing the profits of non-residents from
occasional shipping business carried out in Indian waters. When non-resident shipping
companies or individuals engage in shipping operations within Indian territory, the income
derived from these activities is subject to taxation in India. Key points include:

 Definition: The term "occasional shipping business" refers to shipping activities that are not
regularly carried out in Indian waters but are conducted periodically or on an ad-hoc basis.
 Tax Calculation: The profits attributable to such occasional shipping business are calculated
based on a deemed percentage of the turnover from such activities. The percentage may vary,
but it is typically determined by the Central Government.
 Tax Liability: The tax liability on these profits is typically subject to the provisions of Double
Taxation Avoidance Agreements (DTAA) between India and the country of residence of the non-
resident entity. If a DTAA exists, it may provide relief or specify tax rates applicable to such
income.
 Withholding Tax: Tax is generally deducted at source (TDS) by the payer (if an Indian entity) at
the time of payment to the non-resident. The non-resident can claim a refund or adjustment
based on the applicable DTAA provisions while filing an income tax return in India.

23. Set-off and Carry Forward of Losses for Companies:

Under the Income Tax Act, companies can set off and carry forward losses to reduce their tax
liability in subsequent years. The provisions for this include:

 Set-off: Companies can set off current year losses against current year profits from the same
business. This can be done under various heads of income.
 Carry Forward: If a company cannot fully set off its losses in the current year, the unabsorbed
losses can be carried forward for up to eight years. These losses can be set off against future
profits of the same business.
 Inter-head Set-off: Companies can set off losses incurred under one head of income against
profits earned under another head of income, subject to certain conditions.
 Change in Shareholding: There are restrictions on the carry forward and set-off of losses if
there is a change in the company's shareholding beyond a specified threshold.

Proper documentation and compliance with these provisions are essential for companies to
maximize the utilization of their losses and optimize their tax position.
 24. Exemption for Income from Property Held for Charitable Purpose (Section 11):

To claim exemption under Section 11 of the Income Tax Act, which pertains to income from
property held for charitable or religious purposes, certain conditions must be satisfied:

 Existence of Trust or Institution: The property must be held by a trust, institution, or fund
created for charitable or religious purposes.
 Application of Income: The income generated from the property must be wholly and
exclusively applied for charitable or religious purposes within India.
 Registration: The trust or institution must be registered under Section 12A of the Act for
availing tax benefits.
 Accumulation of Income: In some cases, income can be accumulated for specific purposes, but
it must be applied within the prescribed timeframes.
 Maintaining Accounts: Proper books of accounts must be maintained to demonstrate
compliance with these conditions.

If these conditions are met, income from property held for charitable purposes is exempt from
income tax. However, any deviation from these conditions may result in the loss of the
exemption.

Answer questions each in 50 words. - MAY 2021_RMBF3

1. Define Income Tax: Income tax is a direct tax levied on an individual's or entity's income by the
government, typically based on a progressive rate system. It is a significant source of
government revenue.
2. What is Tax Planning: Tax planning is the process of organizing financial affairs in a way that
minimizes tax liabilities legally and efficiently. It involves making strategic financial decisions to
optimize tax benefits.
3. Define Tax-Free Income: Tax-free income refers to earnings or sources of income that are not
subject to income tax. Examples include certain government bonds or income from agricultural
activities meeting specified criteria.
4. Define Perquisites: Perquisites, or perks, are non-monetary benefits provided by employers to
employees as part of their compensation package. These benefits have a monetary value and
are considered taxable as perquisite income.
5. What is Capital Gain: Capital gain is the profit earned from the sale of a capital asset, such as
real estate or stocks. It is categorized as short-term or long-term, depending on the holding
period, and may be subject to capital gains tax.
6. Define Other Sources of Income: This term refers to income not classified under specific heads
like salary, house property, business or profession, capital gains, or income from other sources. It
includes various miscellaneous income items.
7. What is Reliefs of Income Tax: Tax reliefs are provisions in tax laws that reduce the tax liability
of individuals or entities. Examples include deductions, exemptions, and rebates.
8. Who is called as a Non-Resident: A non-resident is an individual or entity that does not meet
the criteria for being a tax resident in a particular country. In the context of income tax, non-
residents are typically subject to tax only on income earned within the country's jurisdiction.
9. Define Set-off of Losses: Set-off of losses refers to the practice of offsetting losses incurred in
one source of income against profits earned in another. It helps reduce taxable income, thus
lowering the overall tax liability.
10. Define Minimum Alternative Tax (MAT): MAT is a tax levied on companies that report
accounting profits but have little or no taxable income due to various tax deductions and
incentives. It ensures that profitable companies pay a minimum amount of tax.
11. Define Venture Capital Company: A venture capital company is an entity that provides
funding to startups and early-stage businesses in exchange for equity or ownership stakes. It
plays a vital role in fostering entrepreneurship and innovation.
12. What is Deemed Income: Deemed income is income that is imputed or assumed by tax
authorities for tax calculation purposes. It may be applied when actual income is difficult to
ascertain or under certain tax provisions.

Answer questions in 250 words each.

13. What are the various documents which have to be studied while studying the law - of
income - tax?
Documents to Study in Income Tax Law:
To understand and study income tax law comprehensively, various documents need to be
examined:

1. Income Tax Act, 1961: The primary document is the Income Tax Act itself. It outlines the legal
framework, provisions, and rules governing income taxation in India.
2. Finance Act: Every year, the Finance Act amends the Income Tax Act to incorporate budgetary
changes, tax rates, and amendments. It is essential to stay updated with the latest Finance Acts.
3. Income Tax Rules: These rules provide detailed procedures and regulations for implementing
the provisions of the Income Tax Act.
4. Circulars and Notifications: The Central Board of Direct Taxes (CBDT) issues circulars and
notifications interpreting and clarifying various tax provisions. These provide guidance on
specific issues.
5. Case Laws: Court judgments, including those of the Supreme Court and High Courts, play a
crucial role in interpreting tax laws. They set precedents for future cases and help understand
the legal implications.
6. Tax Return Forms: Different forms are used to file tax returns, and understanding their
requirements is essential for compliance.
7. Finance Ministry Publications: Reports, documents, and publications released by the Ministry
of Finance can provide insights into the government's tax policies and strategies.
8. Tax Literature: Reference books, journals, and online resources provide in-depth analysis,
commentary, and practical guidance on tax laws.
9. Accounting Standards: Understanding accounting standards is vital because the calculation of
taxable income often relies on financial statements prepared as per these standards.
10. Amendment Bills: Bills introduced in Parliament for amending tax laws should be closely
monitored to anticipate changes in tax provisions.

14. Discuss briefly Precautions in the Study of Income Tax Law:

Studying income tax law requires attention to detail and accuracy due to its complex nature.
Precautions include:
1. Stay Updated: Tax laws change frequently, so staying current with amendments and Finance
Acts is crucial.
2. Use Reliable Sources: Rely on authentic sources like the government's official website, legal
databases, and recognized tax publications.
3. Interpretation: Understand the interpretation and implications of specific tax provisions, which
can vary depending on legal precedents.
4. Professional Advice: Seek advice from tax professionals or experts when dealing with complex
tax issues or planning.
5. Compliance: Adhere to tax compliance deadlines and filing requirements to avoid penalties.
6. Record-Keeping: Maintain accurate records of financial transactions, deductions, and
exemptions for tax purposes.
7. Anti-Avoidance Rules: Be aware of anti-avoidance provisions to ensure that tax planning does
not violate legal principles.
8. Consult Case Law: Review relevant court decisions and case law to understand the judicial
perspective on tax matters.
9. Documentation: Maintain proper documentation to substantiate claims and deductions, as tax
authorities may scrutinize records.
10. Ethical Considerations: Ensure ethical tax planning and compliance, adhering to the principles
of legality and fairness in tax matters.

15. How is the rent-free house allotted to an employee of the state-bank of India is
valued? Explain.
Valuation of Rent-Free House for SBI Employee:
The valuation of a rent-free house provided to an employee of the State Bank of India (SBI) is
determined as per the provisions of the Income Tax Act. The taxable value is calculated based on
certain factors:

Non-Metro and Metro Cities: The valuation differs between non-metro and metro cities. The
Income Tax Act specifies the non-metro and metro cities.

House Type: The value depends on whether the house is owned by the employer, taken on
lease, or leased with furniture.
 Salary and Period of Occupancy: The taxable value considers the salary of the employee and
the period of occupation of the house during the financial year.

Official Position: The official position of the employee also affects the valuation. For higher-
ranking officials, the taxable value may be higher.

Furniture and Maintenance: If the house is furnished and maintenance is provided by the
employer, the taxable value includes these amenities.

The Income Tax Act provides specific rules and rates for calculating the taxable value based on
these factors. It is essential for the employee to report the perquisite value of the rent-free
house accurately while filing income tax returns.

16.Describe briefly about the incomes that are chargeable to the under the head “Profits
and gains from business properties”.

Incomes Chargeable under "Profits and Gains from Business or Profession":

Under the Income Tax Act, "Profits and Gains from Business or Profession" is one of the heads of
income, and it includes various sources of income related to business activities. Here are some
incomes chargeable under this head:

1. Business Income: The primary income source under this head is the profit earned from regular
business activities, including manufacturing, trading, or services.
2. Profits from Speculative Transactions: Income from speculative business transactions in
commodities, shares, or other specified assets is chargeable here.
3. Profits from Profession: Professionals such as doctors, lawyers, architects, and consultants
report income earned from their professional practice.
4. Income from Agency Business: Commissions, brokerage, or fees earned as an agent, broker, or
intermediary fall under this category.
5. Income from Contract Business: Income generated from contract work, construction contracts,
or sub-contracts is chargeable here.
6. Income from Capital Gains: If an asset used in business is transferred, any resulting capital
gains are considered business income.
7. Other Business-Related Income: Income from incidental or auxiliary business activities,
insurance commission, and any other income connected to business or profession.

It's important for individuals and businesses to accurately calculate and report their income
under this head, taking into account deductions, expenses, and allowances permitted under the
Income Tax Act. Proper documentation and adherence to tax regulations are essential to ensure
compliance.
 17. What are the Regular Assessment Procedure:
The regular assessment procedure refers to the process by which the income tax department
determines an individual or entity's tax liability. It involves various steps:

1. Filing of Return: The taxpayer, whether an individual or a business, is required to file an income
tax return disclosing their income, deductions, exemptions, and other financial details. This
return is filed within the specified due date.
2. Processing of Returns: Once the returns are filed, they are processed by the income tax
department. The department verifies the calculations and information provided in the return.
3. Assessment Notice: If discrepancies are identified or additional information is required, the
taxpayer may receive an assessment notice. This notice asks for clarification or submission of
relevant documents.
4. Response to Notice: The taxpayer responds to the assessment notice by providing the
necessary information, clarifications, or supporting documents as requested.
5. Assessment by Tax Authorities: After receiving the taxpayer's response, the tax authorities
assess the taxpayer's income and calculate the tax liability. They may accept the taxpayer's
calculations or make adjustments based on their findings.
6. Tax Demand: If there is an additional tax liability, the tax department issues a demand notice
specifying the amount to be paid.
7. Appeal Mechanism: If the taxpayer disagrees with the assessment, they can appeal to higher
tax authorities or tribunals. The appeals process provides a forum for resolving disputes.

The regular assessment procedure aims to ensure that taxpayers accurately report their income
and comply with tax laws. It also allows for transparency and accountability in the taxation
process.

18. Short Notes on Carry Forward of Capital Losses and Set-Off of Gambling Losses:

(a) Carry Forward of Capital Losses: Capital losses incurred from the sale of capital assets (e.g.,
stocks, real estate) can be carried forward to offset future capital gains. This means that if an
individual or business has capital losses in a particular year, they can deduct these losses from
capital gains in subsequent years. However, there are limits and conditions for carrying forward
capital losses, and they can generally be carried forward for a specified number of years.

(b) Set-Off of Gambling Losses: Gambling losses, incurred in activities like lottery, betting, or
gambling in a racecourse, can be set off against gambling winnings in the same financial year. If
there are no winnings in the same year, these losses cannot be carried forward to offset income
from other sources. This provision prevents taxpayers from claiming losses from gambling as a
tax deduction unless there are corresponding winnings in the same year.

19. Write a note on the assessment of private discretionary trusts.

 Assessment of Private Discretionary Trusts:
Private discretionary trusts are a common form of trust arrangement used for estate planning,
asset protection, and wealth distribution. In the context of income tax, assessing the tax liability
of a private discretionary trust involves several key considerations:

1. Identification of the Trust: The first step is to identify the existence of a private discretionary
trust. This includes understanding the terms of the trust deed, its beneficiaries, and the assets
held within the trust.
2. Taxation of Income: The income generated by the trust, including dividends, interest, rental
income, and capital gains, is assessed for tax purposes. This income is generally taxed at the
applicable trust tax rates, which can differ from individual tax rates.
3. Distribution of Income: One of the unique features of discretionary trusts is the trustee's
discretion to distribute income among beneficiaries. The trustee has the flexibility to decide who
receives income and in what proportions. The income distributed to beneficiaries is then taxed
in their hands at their individual tax rates.
4. Undistributed Income: If the trust income is not distributed to beneficiaries, it is taxed in the
hands of the trust at higher trust tax rates. This is an anti-avoidance measure to prevent income
hoarding within trusts.
5. Capital Gains Tax: Capital gains realized by the trust from the sale of assets are assessed
separately. The taxation of capital gains can depend on factors like the type of asset, the holding
period, and applicable exemptions.
6. Compliance and Reporting: Trustees of private discretionary trusts are required to maintain
proper accounting records, file income tax returns, and provide details of income distribution to
beneficiaries. Compliance with tax laws and regulations is essential.
7. Tax Planning: Trustees often engage in tax planning to optimize the distribution of income to
beneficiaries in a tax-efficient manner while complying with legal requirements.
8. Beneficiary Taxation: Beneficiaries of the trust are responsible for reporting income received
from the trust in their individual tax returns. They are taxed at their respective income tax rates.
9. Anti-Avoidance Measures: Tax authorities closely monitor private discretionary trusts to
prevent abuse and tax avoidance. Various anti-avoidance provisions are in place to discourage
aggressive tax planning.

In summary, the assessment of private discretionary trusts involves a detailed examination of

trust deeds, income sources, income distribution, and compliance with tax laws. Properly
managed and utilized, these trusts can offer valuable tax planning and asset protection benefits
for individuals and families. However, it is crucial to engage professional advice to navigate the
complexities of trust taxation and ensure compliance with tax regulations.

Answer questions in 500 words each.

20. Describe the Basis of Levying Income Tax in India:
The basis for levying income tax in India is primarily governed by the Income Tax Act, 1961. The
act provides a comprehensive framework for assessing and taxing various types of income
 earned by individuals, businesses, and other entities. Here are the key principles and basis for
levying income tax in India:

1. Residential Status: Income tax liability is determined based on an individual's residential status
in India. Residents are subject to tax on their global income, while non-residents are taxed only
on income earned in India.
2. Income Categories: Income is categorized into five heads: Salary, House Property, Business or
Profession, Capital Gains, and Other Sources. Each head has its own rules and methods for
calculating taxable income.
3. Tax Slabs: Individuals are taxed at different rates based on their total income. The government
periodically revises tax slabs and rates through Finance Acts. There may be exemptions,
deductions, and rebates available under certain conditions.
4. Assessment Year: Income tax is levied for a specific financial year (April 1 to March 31), and the
assessment is done for the following assessment year.
5. Deductions and Exemptions: The Income Tax Act allows for various deductions and
exemptions to reduce taxable income. These include deductions under Section 80C (for
investments like PPF and ELSS), Section 80D (for health insurance premiums), and exemptions
for agricultural income, among others.
6. Corporate Taxation: Businesses, including corporations and partnerships, are subject to
corporate tax on their profits. The rates and rules differ based on the type of business entity and
turnover.
7. Capital Gains Tax: Profits arising from the sale of capital assets such as stocks, real estate, and
securities are subject to capital gains tax. The duration of holding assets can impact the tax rate.
8. Tax Deducted at Source (TDS): In many cases, tax is deducted at the source by employers,
financial institutions, or other payers. This ensures that taxes are collected in a timely manner.
9. Filing of Returns: Taxpayers are required to file income tax returns annually. This includes
providing details of income, deductions, and exemptions claimed.
10. Tax Authorities: The assessment and collection of income tax are carried out by the Central
Board of Direct Taxes (CBDT) and its subordinate authorities.

The basis for levying income tax in India aims to ensure equitable distribution of the tax burden,
promote compliance, and provide mechanisms for taxpayers to optimize their tax liability within
the bounds of the law.

21. Discuss the provisions of section 10 in respect of the following (a) House rent
allowance (b) Commuted value of pension (c) Casual income (d) Gratuity

Provisions of Section 10 of the Income Tax Act:

Section 10 of the Income Tax Act, 1961, contains provisions related to various exemptions
available to taxpayers. Here are some key provisions under Section 10:
 (a) House Rent Allowance (HRA): Section 10(13A) provides an exemption for HRA received by
an employee if they are living in a rented house. The exemption is the least of actual HRA
received, 50% of salary (in metro cities), or excess of rent paid over 10% of salary.

(b) Commuted Value of Pension: Under Section 10(10A), commuted pension received by a
government employee or an employee of a statutory corporation is exempt from tax.

(c) Casual Income: Section 10(19A) exempts income received by an individual or Hindu
Undivided Family (HUF) by way of casual income, such as gifts received during a marriage or
under a will.

(d) Gratuity: Gratuity received by an employee is exempt from tax under Section 10(10). The
exemption limit is determined based on the provisions of the Payment of Gratuity Act, 1972.

These exemptions under Section 10 are subject to certain conditions and limits, and taxpayers
must ensure that they meet the prescribed criteria to avail of these benefits. Additionally, the
Finance Act may introduce changes to the provisions of Section 10 in each financial year.

22. Who may be regarded as an “Agent” in relation to a non-resident? What is the extent
of his liability under the income - tax act?
"Agent" in Relation to a Non-Resident and Their Liability under the Income Tax Act:
In the context of income tax, an "agent" refers to a person or entity that represents a non-
resident taxpayer in India. This agent could be an individual, a business, or any other legal entity.
The agent's primary role is to act on behalf of the non-resident taxpayer in matters related to tax
compliance, filing of returns, and payment of taxes. The extent of the agent's liability under the
Income Tax Act is as follows:

1. Representative Assessee: As per Section 160 of the Income Tax Act, an agent who is
responsible for the income of a non-resident is treated as a "representative assessee." In other
words, the agent becomes responsible for complying with the tax obligations of the non-
resident.
2. Tax Collection and Deduction at Source (TDS): Agents of non-residents may be required to
collect and deduct tax at source on payments made to the non-resident. For example, if a non-
resident earns income in India, the agent may have to deduct TDS before remitting the income
to the non-resident. The agent is responsible for depositing the TDS with the tax authorities and
filing related returns.
3. Filing of Returns: The agent may also be required to file income tax returns on behalf of the
non-resident. These returns should accurately reflect the non-resident's income and tax liability
in India.
4. Communication: The agent serves as a point of communication between the non-resident and
the Indian tax authorities. Any notices, assessments, or inquiries from the tax department may
be addressed to the agent.
5. Liability for Non-Payment: If the non-resident fails to pay the required tax, the agent can be
held personally liable for the tax liability of the non-resident up to the extent of assets that have
come into their possession in connection with their agency.
6. Refund Claims: Agents can also file refund claims on behalf of non-resident taxpayers in case of
excess tax payments.

It's essential for agents to fulfill their obligations diligently and in compliance with the Income
Tax Act. Failure to do so can result in penalties and legal consequences for the agent.

23. State the provisions regarding set-off and carry forward of losses relating to short –
term and ‘longterm’capital assets.
Set-Off and Carry Forward of Losses for Capital Assets:
The Income Tax Act provides provisions for the set-off and carry forward of losses relating to
capital assets. These provisions apply to both short-term and long-term capital assets:

Short-Term Capital Losses:

 Short-term capital losses can be set off against short-term capital gains or long-term capital
gains in the same assessment year.
 If there are no gains available for set-off, the remaining losses can be carried forward for up to
eight assessment years.
 The carry-forward losses must be set off against gains of the same nature in subsequent years.

Long-Term Capital Losses:

 Long-term capital losses can be set off against long-term capital gains only.
 If there are no long-term capital gains available for set-off, the losses can be carried forward
indefinitely until they can be set off against long-term capital gains in future years.It's important
to note that capital losses can only be set off against capital gains, and there is no provision for
setting off capital losses against income from other sources.

24. Charitable Trusts and Their Assessment:

Charitable trusts are organizations established for charitable purposes, such as education,
medical relief, poverty alleviation, and more. They enjoy certain tax benefits under the Income
Tax Act. Here's how they are assessed:

1. Exemption: Charitable trusts can enjoy exemptions under Section 11 and Section 12 of the
Income Tax Act. Section 11 provides exemptions for income applied for charitable purposes,
while Section 12 defines the conditions for such exemptions.
2. Registration: To avail of these exemptions, charitable trusts must apply for and obtain
registration under Section 12A of the Income Tax Act.
3. Taxable Income: Income generated by charitable trusts that is not applied for charitable
purposes is taxable. However, certain specific types of income, such as donations and grants,
may still be exempt.
4. Accumulation and Set-Off: Charitable trusts are allowed to accumulate income for up to five
years for specific purposes like construction or acquisition of capital assets. They can also set off
such accumulated income in subsequent years.
5. Return Filing: Charitable trusts must file annual income tax returns and provide details of their
income, expenses, and utilization of funds for charitable purposes.
6. Audit: Charitable trusts with a certain level of income are subject to mandatory audit under
Section 12A(b) and Section 12A(c) of the Income Tax Act.Regarding the necessity of assessing
charitable trusts differently, the current provisions of the Income Tax Act strike a balance
between providing tax benefits for genuine charitable activities and preventing misuse of such
exemptions. While there have been discussions about revising and tightening these provisions
to ensure compliance and transparency, the existing framework allows for effective assessment
and monitoring of charitable trusts' activities.
Answer questions each in 50 words. - JUN 2022_RMBF3
1. Define Residential Status: Residential status in income tax refers to an individual's or entity's
classification as a resident or non-resident taxpayer based on the duration and nature of their
stay in a particular country or jurisdiction.
2. Define Assessment: Assessment is the process of determining and evaluating a taxpayer's
taxable income, tax liability, and other relevant financial details for a specific tax year.
3. What is Transfer: Transfer refers to the act of conveying or moving assets, properties, or rights
from one party to another. In the context of income tax, it can have tax implications.
4. What do you meant by Wealth Escaping Assessment: This term refers to situations where
wealth or assets that should have been assessed for taxation are not reported or assessed,
resulting in potential tax evasion.
5. What is Clubbing of Income: Clubbing of income involves treating certain income earned by
one person as the income of another person for tax purposes. It is done to prevent income
splitting or tax evasion.
6. What is Deemed Income: Deemed income is income that is imputed or attributed by tax
authorities to a taxpayer even if it has not been actually received or earned. It is treated as
taxable income.
7. What is Set-off of Losses: Set-off of losses allows taxpayers to reduce their taxable income by
offsetting losses from one source of income against gains from another source, thereby
reducing the overall tax liability.
8. What do you meant by What is Carry Forward: Carry forward refers to the ability to transfer
certain losses or deductions from one tax year to future years to reduce tax liability in those
years.
9. What is Exemption: Exemption in taxation refers to specific income or transactions that are
excluded from tax liability. It provides relief from taxation for certain categories of income or
entities.
10. What is Deduction: Deduction refers to allowable expenses or amounts that can be subtracted
from a taxpayer's gross income to arrive at taxable income, thereby reducing the tax liability.
11. What is MAT (Minimum Alternative Tax): MAT is a provision in the Income Tax Act that
ensures that companies, particularly those with substantial book profits but low taxable income,
pay a minimum amount of tax.
12. What do you mean by Venture Capital Funds: Venture capital funds are pooled investment
funds that provide capital to startups and early-stage companies in exchange for equity or
ownership stakes. They play a crucial role in supporting entrepreneurial ventures.
These definitions provide a basic understanding of key concepts in income tax and taxation in
general.
Answer questions in 250 words each.
13. Explain the Different Types of Taxes:
Taxes are financial charges imposed by governments on individuals, businesses, or other entities
to fund public expenditures. Here are some common types of taxes:
1. Income Tax: This tax is levied on an individual's or entity's income, and it can be progressive
(tax rates increase with income) or flat (a constant rate). Examples include personal income tax
and corporate income tax.
2. Property Tax: Property tax is assessed on the value of real estate or tangible assets owned by
individuals or entities. It is usually collected by local governments to fund public services like
schools and infrastructure.
3. Sales Tax: Sales tax is applied to the sale of goods and services and is typically a percentage of
the purchase price. It can be collected at the federal, state, or local level.
4. Value Added Tax (VAT): VAT is a consumption tax applied at each stage of production or
distribution. It's common in many countries and is similar to a sales tax.
5. Excise Tax: Excise taxes are levied on specific goods or activities, such as alcohol, tobacco,
gasoline, and luxury items. They are often used to discourage certain behaviors or raise revenue.
6. Customs Duties: These taxes are imposed on imported or exported goods. They protect
domestic industries and generate revenue for the government.
7. Capital Gains Tax: Capital gains tax is applied to the profit made from the sale of investments
like stocks, real estate, or businesses. Rates may vary depending on the holding period.
8. Payroll Tax: Payroll taxes are deducted from employees' wages to fund social programs like
Social Security and Medicare. Employers also contribute.
9. Estate Tax: Estate taxes, also known as inheritance taxes, are applied to the wealth transferred
from a deceased person to their heirs or beneficiaries.
10. Excise Duty: Excise duty is a tax on the production or sale of certain goods, often related to
their quantity or capacity, such as alcoholic beverages or automobiles.

14. How will you compute the taxable income from other sources?
Computing Taxable Income from Other Sources:
In computing taxable income from other sources, one must follow these steps:

1. Identify Income Sources: Determine all sources of income that fall under the category of
"other sources." This can include interest income, rental income, lottery winnings, or any income
not covered by specific income heads like salary or business income.
2. Calculate Gross Income: Calculate the total income received from these other sources before
any deductions or exemptions.
3. Deductions: Subtract any allowable deductions under the Income Tax Act. These deductions
may include expenses related to earning the income or certain exemptions provided by the tax
laws.
4. Arrive at Taxable Income: After deducting allowable expenses and exemptions, the resulting
amount is the taxable income from other sources.
5. Tax Calculation: Apply the applicable tax rate to the taxable income to determine the tax
liability.
6. File Tax Returns: Report the taxable income from other sources on the tax return and pay the
calculated tax liability by the due date.

It's essential to comply with the specific tax laws and regulations of your jurisdiction, as tax rules
can vary significantly from one place to another.

15. What are the Deductions in Computing Total Income:

In computing total income for taxation purposes, individuals and businesses can claim various
deductions to reduce their taxable income. These deductions help taxpayers lower their tax
liability. Common deductions include:
1. Standard Deduction: Many tax systems offer a standard deduction, which is a fixed amount
subtracted from the gross income before calculating taxes. It's available to most individuals and
serves as a simplification measure.
2. Itemized Deductions: Taxpayers can choose to itemize deductions, listing specific expenses
such as mortgage interest, medical expenses, charitable contributions, and state and local taxes.
These deductions are beneficial when they exceed the standard deduction.
3. Business Expenses: Businesses can deduct ordinary and necessary expenses related to their
operations. This includes employee salaries, rent, utilities, depreciation, and costs associated
with producing goods or services.
4. Capital Losses: Capital losses from the sale of investments like stocks or real estate can be
deducted against capital gains. If capital losses exceed gains, they can offset other income, up to
a certain limit.
5. Education Expenses: Certain education-related expenses, such as tuition fees and student loan
interest, may be deductible. Education tax credits can also provide tax benefits.
6. Retirement Contributions: Contributions to retirement accounts like 401(k)s or IRAs are often
deductible, reducing taxable income. These deductions encourage retirement savings.
7. Health Savings Account (HSA) Contributions: Contributions to HSAs can be deducted and
used for qualified medical expenses, providing tax advantages for healthcare costs.
8. Charitable Contributions: Donations to qualified charitable organizations may be deductible,
subject to specific rules and limits.
9. State and Local Taxes: In some jurisdictions, individuals can deduct state and local income
taxes or sales taxes paid during the tax year.
10. Home Mortgage Interest: Interest paid on home mortgages can be deductible, typically up to
a certain limit.
 These deductions can vary significantly depending on the tax laws of a particular country or
region. Taxpayers should keep detailed records of their expenses and consult with tax
professionals to maximize their deductions while remaining compliant with tax regulations.

16. Give the Impact of Transfer Pricing:

Transfer pricing refers to the pricing of goods, services, or intangibles transferred within a
multinational company, especially when those transactions involve related entities in different
tax jurisdictions. Its impact is significant for several reasons:

1. Tax Avoidance and Evasion: Multinational corporations may manipulate transfer prices to shift
profits to low-tax jurisdictions and reduce tax liabilities in high-tax jurisdictions. This can lead to
tax avoidance and potential evasion issues.
2. Revenue Loss for Governments: When transfer pricing results in underreporting of profits in
high-tax countries, governments lose tax revenue that could have been used for public services
and infrastructure development.
3. Economic Distortion: Distorted transfer pricing can lead to an inaccurate representation of a
company's economic activities and financial performance, affecting investment decisions,
financial analysis, and economic statistics.
4. Increased Scrutiny: Tax authorities worldwide closely scrutinize transfer pricing practices to
ensure compliance with arm's length principles, which require related entities to price
transactions as if they were unrelated parties. Non-compliance can result in penalties, interest,
and legal challenges.
5. Double Taxation or Double Non-Taxation: Misalignment of transfer prices can lead to double
taxation, where the same income is taxed in multiple jurisdictions. Conversely, it can result in
double non-taxation, where income escapes taxation altogether.

To address these challenges, countries have adopted transfer pricing regulations and guidelines
aligned with international standards set by organizations like the Organisation for Economic Co-
operation and Development (OECD). These regulations aim to ensure fair taxation and prevent
tax abuses in the context of multinational business operations.

17. Explain the Importance and Provisions in Wealth Tax Act:

The Wealth Tax Act is a tax legislation that imposes a tax on the net wealth of individuals, Hindu
Undivided Families (HUFs), and companies. Here's the importance and key provisions of the
Wealth Tax Act:

Importance:

1. Resource Mobilization: Wealth tax serves as a means for the government to mobilize resources
by taxing accumulated wealth, primarily in the form of non-productive assets like real estate,
jewelry, and art.
2. Reducing Wealth Inequality: Wealth tax aims to reduce wealth inequality by taxing the assets
of the wealthy. It promotes a more equitable distribution of resources.
 Provisions:

1. Applicability: The Wealth Tax Act applies to individuals, HUFs, and companies. It covers
specified assets like real estate, motor cars, jewelry, bullion, and urban land.
2. Exemptions: Certain assets are exempt from wealth tax, including productive assets used for
business purposes, residential properties of specific sizes, and specified financial assets.
3. Valuation: The Act prescribes rules for the valuation of assets, which can be complex, especially
for assets like real estate and jewelry. Assets are valued at fair market value as of the relevant
valuation date.
4. Rate of Tax: Wealth tax is levied at a flat rate on the net wealth exceeding a specified threshold.
The rate may vary from year to year.
5. Filing of Returns: Taxpayers subject to wealth tax are required to file wealth tax returns
disclosing their assets, liabilities, and net wealth.
6. Assessment: The tax authorities assess the wealth tax liability based on the information
provided in the returns. They have the power to conduct audits and inspections.
7. Payment of Tax: Wealth tax is payable annually and is typically due by a specified date after the
assessment.
8. Penalties: Penalties are imposed for non-compliance, including incorrect or non-filing of wealth
tax returns and understatement of wealth.
9. Abolition: In India, the Wealth Tax Act was abolished in the Finance Act, 2015. However,
individuals are still required to disclose their wealth as part of their income tax returns under the
provisions of the Income Tax Act.

18. Features of the Assessment of a Firm:

The assessment of a firm, typically for income tax purposes, involves specific features:

1. Separate Legal Entity: A firm is considered a separate legal entity, distinct from its partners. Its
income, expenses, and tax liability are calculated separately from those of its partners.
2. Assessment under the Income Tax Act: The income of a firm is assessed under the provisions
of the Income Tax Act, and it is taxed at applicable rates.
3. Filing of Returns: A firm is required to file an income tax return disclosing its income,
deductions, and tax liability. The return should be filed within the due date specified by the tax
authorities.
4. Tax Computation: The firm's income is computed by considering its revenue, expenses, and
deductions in accordance with income tax rules.
5. Audit Requirements: In some cases, firms are required to undergo a tax audit if their turnover
or income exceeds specified thresholds. A tax audit involves a detailed examination of the firm's
financial records and compliance with tax laws.
6. Assessment Year: The income of the firm is assessed for a specific assessment year, which
follows the financial year in which the income was earned.
7. Partners' Share: The firm's income is eventually distributed among the partners based on their
profit-sharing ratios. Partners are liable to pay tax on their respective shares of the firm's
income.
8. Tax Liability: The firm is responsible for paying income tax on its taxable income. Partners are
individually responsible for paying taxes on their respective shares of the firm's income.
9. Capital Contribution: The capital contributed by partners is not considered as income for the
firm. It represents their investment in the business.
10. Maintenance of Records: Firms are required to maintain proper books of accounts and
financial records, which are subject to scrutiny by tax authorities during assessments and audits.

These features ensure that firms are assessed and taxed appropriately under the provisions of
the Income Tax Act, taking into account the legal structure and financial activities of the firm.

19. Explain the different types of assessment.

There are several types of assessments under the Indian Income Tax Act, each designed to serve
specific purposes and situations. Here are the different types of assessments:

1. Self-Assessment: This is the most common type of assessment for individual taxpayers and
businesses. Taxpayers are required to calculate their taxable income, compute the tax liability,
and pay the tax due before the due date for filing income tax returns. They submit their returns
with details of income, deductions, and taxes paid. The tax authorities generally accept the self-
assessment as final.
2. Regular Assessment: Tax authorities may conduct regular assessments when they have reasons
to believe that a taxpayer's income has not been correctly reported or if there are discrepancies.
They issue notices to the taxpayer, who is required to provide additional information and
documentation. The tax authorities assess the taxpayer's income and tax liability based on the
information provided.
3. Best Judgment Assessment: If a taxpayer fails to comply with tax authorities' requests for
information, documents, or explanations, the tax officer can make a best judgment assessment.
In this type of assessment, the tax officer estimates the taxpayer's income and tax liability based
on available information.
4. Scrutiny Assessment: A scrutiny assessment is conducted when the tax authorities select a
taxpayer's return for a detailed examination. They issue a notice to the taxpayer, requesting
additional information and documents. The taxpayer's return is closely scrutinized, and any
discrepancies or irregularities are addressed through this assessment.
5. Limited Scrutiny Assessment: In a limited scrutiny assessment, tax authorities focus on specific
issues or transactions within the taxpayer's return. They issue a notice seeking clarification or
additional information related to these specific matters.
6. Reassessment: Reassessment occurs when tax authorities have reason to believe that income
has escaped assessment in the original assessment. This typically happens when there is
undisclosed income, or income has been underreported due to fraud, willful misrepresentation,
or suppression of facts.
7. Block Assessment: Block assessment is applicable to search and seizure cases. When the tax
authorities conduct a search operation and discover undisclosed income or assets, they can
assess the entire undisclosed income for a specified block of assessment years.
8. Summary Assessment: Summary assessment is a simplified assessment procedure for small
taxpayers or taxpayers with simple tax situations. It involves a brief examination of the return,
and the tax liability is determined without a detailed scrutiny.
9. Assessment in Case of Special Entities: Certain entities like firms, companies, trusts, or those
claiming exemptions may undergo specialized assessments to ensure compliance with specific
provisions and requirements.
10. Pre-Assessment Review: The income tax department may conduct a pre-assessment review to
check the correctness of the return before processing it. If discrepancies are found, the taxpayer
may be asked to rectify them.

It's important for taxpayers to understand the type of assessment applicable to them and
comply with tax authorities' requests for information and documents to avoid penalties and
legal consequences.

20. Indhiran is employed with a Public Limited Company in Mumbai provides the
following particulars for the year ending 31st March 2020.
(a) Basis Salary of Rs. 10,000 p.m.
(b) He contributes to the Recognised Provident Fund at 12% of his Salary.
(c) A similar amount is contributed by the employer.
(d) Interest credited to his Provident Fund Account at 12.25% during the year is Rs.9,800.
The accumulated balance to his credit is Rs.80,000.
(e) The two children of Mr. Indhiran are studying in the institution run by the employer
for which no fees are paid. Normal expenditure per student in such Institution is Rs.300
per month.
(f) He is provided with a rent free unfurnished accommodation owned by the employer,
the municipal valuation of which is Rs.29,400 per annum. Find out his Taxable Salary
Income.
To calculate Indhiran's taxable salary income, we need to consider various components of his
income and deductions available under the Income Tax Act. Here's the breakdown:

1. Basic Salary: Rs. 10,000 per month * 12 months = Rs. 1,20,000

2. Employee's Provident Fund Contribution: Indhiran contributes 12% of his salary to the
Recognized Provident Fund. So, his contribution is 12% of Rs. 1,20,000, which is Rs. 14,400.
3. Employer's Provident Fund Contribution: The employer also contributes an equal amount of
12% of his salary, which is Rs. 14,400.
4. Interest on Provident Fund: The interest credited to his Provident Fund account during the
year is Rs. 9,800. This interest is not taxable and can be fully exempted.
5. Children's Education Allowance: The allowance for two children studying in the institution run
by the employer is Rs. 300 per month per child. So, the annual allowance is 2 children * Rs. 300 *
12 months = Rs. 7,200. This allowance is exempt up to a maximum of Rs. 100 per month per
child. Therefore, the exempted amount is 2 children * Rs. 100 * 12 months = Rs. 2,400. The
balance amount of Rs. 7,200 - Rs. 2,400 = Rs. 4,800 is taxable.
6. Perquisites (Rent-Free Accommodation): The municipal valuation of the rent-free unfurnished
accommodation provided by the employer is Rs. 29,400 per annum. This perquisite is taxable as
a part of his salary income.

Now, let's calculate the taxable salary income:

Total Salary Income (Basic Salary + Employer's PF Contribution) = Rs. 1,20,000 + Rs. 14,400 = Rs.
1,34,400

Addable Perquisites (Rent-Free Accommodation) = Rs. 29,400

Deductible Allowance (Children's Education Allowance) = Rs. 4,800

Taxable Salary Income = Total Salary Income + Addable Perquisites - Deductible Allowance
Taxable Salary Income = Rs. 1,34,400 + Rs. 29,400 - Rs. 4,800 = Rs. 1,59,000

So, Indhiran's taxable salary income for the year ending 31st March 2020 is Rs. 1,59,000.

21. Compute the Income from House Property of Mrs. Nishitha from the Information
given below: Rs. (a) Municipal rental value Rs.18,000
(b) Rent received during the year Rs. 24,000
(c) Municipal taxes (50% paid by tenant) Rs.1,800 p.a.
(d) Expenses incurred on repairs (i) By owner 3,000 (ii) By tenant 3,000
(e) Collection charges 1,000 (f) Date of completion of house 1.6.97.
To compute the Income from House Property for Mrs. Nishitha, we need to consider the
following components:

1. Municipal Rental Value: Rs. 18,000 per annum

2. Rent Received: Rs. 24,000 per annum
3. Municipal Taxes: Rs. 1,800 per annum (50% paid by tenant)
4. Expenses Incurred on Repairs: (i) By Owner: Rs. 3,000 (ii) By Tenant: Rs. 3,000
5. Collection Charges: Rs. 1,000
6. Date of Completion of House: 1.6.97

Now, let's calculate the Income from House Property step by step:

1. Gross Annual Value (GAV): This is the higher of Municipal Rental Value and Rent Received. In
this case, GAV is Rs. 24,000 because Rent Received is higher than Municipal Rental Value.
2. Net Annual Value (NAV): To calculate NAV, we deduct municipal taxes paid by the owner from
GAV. In this case, 50% of the municipal taxes is paid by the tenant, so the owner pays the
remaining 50%. Therefore, NAV = GAV - Owner's share of municipal taxes. NAV = Rs. 24,000 -
(50% of Rs. 1,800) = Rs. 24,000 - Rs. 900 = Rs. 23,100
3. Deductions:
 Deduct the expenses incurred on repairs by the owner: Rs. 3,000
 Deduct collection charges: Rs. 1,000 Total Deductions = Rs. 3,000 + Rs. 1,000 = Rs. 4,000
4. Income from House Property: To calculate the taxable income from the house property, we
subtract the total deductions from the Net Annual Value. Income from House Property = NAV -
Total Deductions Income from House Property = Rs. 23,100 - Rs. 4,000 = Rs. 19,100

So, Mrs. Nishitha's Income from House Property is Rs. 19,100 for the year.

22. Describe the set off loss of one head against the income of another head in the same
assessment year.
Set Off Loss of One Head Against the Income of Another Head in the Same Assessment
Year:In the Income Tax Act, there are five heads of income:

1. Income from Salary

2. Income from House Property
3. Profits and Gains of Business or Profession
4. Income from Capital Gains
5. Income from Other Sources

Taxpayers can set off losses incurred in one head against income earned in another head within
the same assessment year. This provision is known as "Set Off of Losses." Here's how it works:

 Inter-head Set Off: Losses from one head can be set off against income from another head. For
example, if you have losses from a business (Profits and Gains of Business or Profession) and
income from house property, you can set off the losses from the business against the income
from house property.
 Intra-head Set Off: Within some heads, there can be multiple sources of income and losses. In
such cases, losses from one source can be set off against income from another source within the
same head. For example, if you have multiple house properties and one property is generating a
loss while others have income, you can set off the loss from one property against the income
from the others.
 Carry Forward and Set Off: If the entire loss cannot be set off in the current year, the
unabsorbed losses can be carried forward for a certain number of years and set off against
future income. For example, business losses can be carried forward for up to 8 assessment years.

23. Explain the provisions of law relating to tax on distributed profits of companies.
Tax on Distributed Profits of Companies: The tax on
distributed profits of companies is levied under Section 115-O of the Income Tax Act, 1961.
Here's an explanation of this provision:
 Applicability: This tax is applicable to domestic companies (Indian companies) that declare or
distribute dividends to their shareholders.
 Rate of Tax: The tax rate is 15%, and an additional 12% surcharge is applied, making the
effective rate 17.70%.
 When is it Applicable: This tax is applicable when a company declares, distributes, or pays
dividends to its shareholders. It is the responsibility of the company to deduct and pay this tax
to the government within 14 days from the date of declaration, distribution, or payment of
dividends, whichever is earliest.
 Exemptions: Dividends received by an individual or Hindu Undivided Family (HUF) up to Rs. 10
lakh are exempt from tax. However, any amount above this threshold is subject to a tax at the
rate of 10%.
 Credit for Tax: Shareholders receiving dividends are allowed to claim a credit for the tax paid
by the company while calculating their own tax liability.
24. Explain how tax will calculated on UTI or Mutual fund.

Tax Calculation on UTI or Mutual Fund:Taxation on income earned from Unit Trust of India
(UTI) or mutual funds depends on the type of income and the holding period:

 Dividend Income: Dividends received from mutual funds are tax-free in the hands of the
investor. However, the mutual fund house deducts Dividend Distribution Tax (DDT) before
distributing dividends to unit holders.
 Capital Gains: Capital gains from mutual funds are taxable. The tax rate depends on the holding
period:
 Short-term Capital Gains: If units are held for less than 36 months (3 years), short-term
capital gains are added to the investor's income and taxed at their applicable income tax
slab rate.
 Long-term Capital Gains: If units are held for 36 months or more, long-term capital
gains are taxed at a flat rate of 20% after allowing for indexation benefits.
 Tax-Saving Schemes: Some mutual funds, like Equity-Linked Savings Schemes (ELSS), offer tax
benefits under Section 80C of the Income Tax Act. Investments in ELSS are eligible for a
deduction of up to Rs. 1.5 lakh from taxable income.

Investors should consider these tax implications while investing in mutual funds and UTIs and
choose investments that align with their tax planning goals.
Answer questions each in 500 words. - DEC 2021_RMBF3
20. Hema Kumar an employee of a private company provides the following particulars for
the year ending 31st March 2020. (a) He is drawing basic salary of Rs.50,000 p.m.
(b) He is provided with a rent-free unfurnished accommodation at Vellore (population
below 10,00,000), the Municipal Value of which is Rs.9,000 pa.
(c) He is drawing entertainment allowance of Rs.300 p.m.
(d) He is also enjoying the facility of a small car both for his official and personal use.
 (e) His two children are studying in a school, the education bill paid by employer is Rs.500
p.m. per child. Compute Income from Salary for the Assessment Year 2020-21.
To compute Hema Kumar's Income from Salary for the Assessment Year 2020-21, we need to
consider various components of his salary and the relevant exemptions:

1. Basic Salary: Rs. 50,000 per month * 12 months = Rs. 6,00,000 per year
2. House Rent Allowance (HRA): Hema Kumar is provided with a rent-free accommodation.
However, HRA is a part of his salary, and he can claim exemption under Section 10(13A) of the
Income Tax Act. The exemption is calculated as the least of the following:
 Actual HRA received: Rs. 50,000 per month * 12 months = Rs. 6,00,000 per year
 50% of basic salary: 50% * Rs. 6,00,000 = Rs. 3,00,000 per year
 Rent paid in excess of 10% of salary: (Nil in this case as the accommodation is rent-free)
Therefore, HRA exemption = Rs. 3,00,000
3. Entertainment Allowance: Rs. 300 per month * 12 months = Rs. 3,600 per year. However,
entertainment allowance is taxable and not exempt.
4. Car Facility: The personal use of a car provided by the employer is considered a perquisite and
is taxable. The taxable value is calculated based on the actual expenses incurred by the
employer, and this amount is added to the income.
5. Education Allowance: Rs. 500 per child * 2 children * 12 months = Rs. 12,000 per year.
However, education allowance is also taxable.

Now, let's calculate Hema Kumar's taxable salary:

Taxable Salary = Basic Salary + Entertainment Allowance + Perquisites - Exemptions

Taxable Salary = Rs. 6,00,000 + Rs. 3,600 (Entertainment Allowance) + Perquisites - Rs. 3,00,000
(HRA exemption)

Perquisites include the taxable value of the car facility and any other taxable allowances or
benefits provided by the employer.

Once you have the exact details of the perquisites and other taxable components, you can
calculate the final taxable salary and use it to compute the total taxable income for the
Assessment Year 2020-21.
21. The net annual Value of a house property of Mr. Murali is Rs. 12,000. The deductions
claimed are as follows : (a) Repair Rs.2,000 (b) Interest on loan obtained for repairing the
house Rs.1,000 (c) Ground rent Rs.600 (d) Insurance premium due Rs.1,000 Find Income
from house property.
To calculate the Income from House Property for Mr. Murali, we need to consider the annual
value of the property and the deductions claimed. The formula to calculate the Income from
House Property is as follows:
 Income from House Property = Gross Annual Value - Municipal Taxes Paid - Deductions Allowed

Let's calculate each component:

1. Gross Annual Value (GAV): The GAV is the reasonable expected rent that the property can
fetch. In this case, it's given as Rs. 12,000.
2. Municipal Taxes Paid: Municipal taxes paid by the owner of the property are deductible. In this
case, it's not mentioned whether Mr. Murali paid municipal taxes. So, we assume it to be zero.
3. Deductions Allowed:
 Repair: Rs. 2,000
 Interest on loan for repairing the house: Rs. 1,000
 Ground Rent: Rs. 600
 Insurance premium: Rs. 1,000

Now, we can calculate the Income from House Property:

Income from House Property = GAV - Municipal Taxes Paid - Deductions Allowed

Income from House Property = Rs. 12,000 - Rs. 0 (Municipal Taxes Paid) - (Rs. 2,000 + Rs. 1,000
+ Rs. 600 + Rs. 1,000) (Deductions Allowed)

Income from House Property = Rs. 12,000 - Rs. 4,600

Income from House Property = Rs. 7,400

So, the Income from House Property for Mr. Murali is Rs. 7,400.
22. Explain the provision regarding Gift income.
Income tax provisions related to gifts are primarily governed by Section 56(2) of the Income Tax
Act, 1961. This section deals with the tax treatment of gifts received by individuals and Hindu
Undivided Families (HUFs). Here are the key provisions:

1. Applicability: Section 56(2) applies to individuals and HUFs. It does not apply to gifts received
by companies, firms, or other entities.
2. Gifts in Kind: The provisions of Section 56(2) are applicable to both monetary gifts and gifts in
kind (assets).
3. Exempted Gifts: Certain gifts are exempt from tax under Section 56(2). These include gifts
received:
 From relatives. The term "relative" includes spouse, siblings, siblings of the spouse, lineal
ascendants, and lineal descendants.
 On the occasion of the marriage of the individual.
 Under a will or by way of inheritance.
 In contemplation of death of the donor.
  From any local authority.
 From any fund or foundation or university or other educational institution or hospital or
other medical institution or any trust or institution.
 By way of a gift from any person referred to in Section 10(17A), which includes
government, local authority, certain specified institutions, etc.
4. Taxable Gifts: If an individual or HUF receives gifts that do not fall under the exempted
categories mentioned above, the amount or fair market value of the gift will be included in their
total income under the head "Income from Other Sources." This means the recipient will be
liable to pay tax on such gifts as per their applicable income tax slab rates.
5. Valuation of Gifts: The valuation of gifts in kind is based on their fair market value. The fair
market value is determined based on the highest price at which the asset could be sold on the
open market as of the date of the gift.
6. Clubbing of Income: In some cases, the income arising from taxable gifts may be clubbed with
the income of the donor if the donor and recipient have a specified relationship, and the income
from the gifted asset continues to accrue to the donor.
7. Gifts to Minors: If gifts are made to minors, the income arising from such gifts may be clubbed
with the income of the parent or guardian as per the provisions of Section 64(1A) of the Income
Tax Act.
8. Documentation: It's essential to maintain proper documentation and records of gifts received,
including details of the donor, the nature of the gift, date of receipt, and valuation, to comply
with tax regulations.
It's important to note that the provisions related to gifts and taxation can be complex, and the
tax liability may vary depending on the specific circumstances of the gift. Therefore, it's
advisable to consult a tax professional or chartered accountant for accurate and personalized
guidance on gift taxation.

Answer questions in 50 words each.

1. Assessment Year: The assessment year is the year immediately following the financial year in
which an individual or entity's income is assessed or evaluated for tax purposes.
2. Heads for Taxation: The heads for taxation in India include income from salary, income from
house property, income from business or profession, income from capital gains, and income
from other sources.
3. Self-assessment Tax: Self-assessment tax is the tax paid voluntarily by a taxpayer to fulfill their
tax liability after assessing their income and calculating the amount owed to the government.
4. Wealth Tax: Wealth tax is a tax levied on an individual's net wealth, which includes assets like
real estate, jewelry, and other valuable possessions. However, wealth tax has been abolished in
India.
5. MAT (Minimum Alternate Tax): MAT is a tax levied on companies that show profits in their
financial statements but pay little or no tax due to various exemptions and deductions. It
ensures that companies pay a minimum amount of tax.
6. Residential Status Calculation: Residential status is determined based on the number of days
an individual has stayed in India during a financial year. The residential status categories include
resident, non-resident, and resident but not ordinarily resident.
7. Perquisites: Perquisites are non-monetary benefits or privileges provided by employers to
employees, like company cars, housing, or medical benefits, which are taxable as part of the
employee's income.
8. Tax-Free Incomes Examples: Tax-free incomes include agricultural income, income from
specified investments like PPF and tax-free bonds, and gifts received from specified relatives.
9. Allowances: Allowances are fixed amounts paid to employees in addition to their basic salary to
cover specific expenses such as house rent, travel, or medical expenses.
10. Forms of Salary: Various forms of salary include basic salary, dearness allowance (DA), house
rent allowance (HRA), special allowances, and other monetary components.
11. Annual Value: Annual value is the potential rental income that a property can generate in a
year. It is used to calculate income from house property for tax purposes.
Answer questions in 50 words each. - JUN 2020_RMBF3
1. Taxation: Taxation refers to the process of imposing and collecting taxes, which are mandatory
financial charges levied by governments on individuals and entities to generate revenue for
public expenditure and government functions.
2. Sales Tax: Sales tax is a consumption tax imposed on the sale of goods and services. It is
typically collected by the seller from the buyer and remitted to the government.
3. Provisions: Provisions in accounting and finance refer to estimated liabilities or expenses that a
company anticipates in the future and records on its balance sheet. They are set aside to ensure
that a company is financially prepared for future obligations.
4. Salary: Salary is a regular payment made by an employer to an employee for the work
performed. It is typically paid on a monthly basis and may include various components such as
basic pay, allowances, and bonuses.
5. Fringe Benefits: Fringe benefits are non-monetary benefits or perks provided by employers to
employees in addition to their regular salary. These can include health insurance, retirement
plans, company cars, and more.
6. Profit: Profit is the financial gain or surplus earned by a business or individual when total
revenue exceeds total expenses. It is a key measure of financial performance and can be further
categorized into gross profit, operating profit, and net profit.
7. Advance Tax: Advance tax is a system where taxpayers make periodic payments of their
estimated tax liability in advance of the regular assessment or filing of the annual income tax
return.
8. Self-assessment tax: Self-assessment tax refers to the tax paid by a taxpayer to fulfill their tax
liability after self-assessing their income and calculating the amount owed to the government. It
is typically paid by individuals who do not have tax deducted at source.
9. Corporate Taxation: Corporate taxation is the system of taxing the profits earned by
corporations or companies. It involves levying taxes on a company's income, capital gains, and
other financial activities.
10. Carry-forward losses: Carry-forward losses refer to business or capital losses that can be offset
against future income or profits. They are allowed to be carried forward to reduce taxable
income in subsequent years.
11. Direct Tax: Direct tax is a type of tax imposed directly on individuals or entities and cannot be
shifted to someone else. Examples include income tax, corporate tax, and wealth tax.
12. Gift Tax: Gift tax refers to the taxation of gifts received by individuals and entities. In India, it
was brought under income tax regulations, and taxable gifts are included in the recipient's total
income for taxation.
Answer questions in 250 words each.
19. Write a short note on ‘‘Assessment of charitable trusts’’.
The assessment of charitable trusts in India is governed by Section 11 of the Income Tax Act,
1961. Charitable trusts enjoy certain exemptions and deductions under the Act, provided they
meet specific criteria and adhere to certain conditions. Here's a brief overview of the assessment
of charitable trusts:

1. Eligibility for Exemption: To qualify for exemptions, a trust must be established for charitable
or religious purposes. The income generated by such a trust is exempt from taxation under
Section 11 and Section 12 of the Income Tax Act.
2. Conditions to be Met: To enjoy tax exemptions, charitable trusts must fulfill certain conditions.
These include maintaining separate books of accounts, applying at least 85% of their income for
charitable or religious purposes, and not involving in any business activities that are not directly
related to their objectives.
3. Application for Exemption: Charitable trusts must apply for exemption under Section 12A of
the Income Tax Act. The Income Tax Department will review the trust's objectives and activities
to grant or deny the exemption.
4. Utilization of Income: Charitable trusts are required to utilize at least 85% of their income for
their stated charitable or religious purposes. If they fail to do so, the surplus income will be
taxable.
5. Accumulation of Funds: Charitable trusts can accumulate income up to 15% of their total
income for specific purposes, provided they follow certain guidelines and seek approval from
the Income Tax Department.
6. Audit and Compliance: Charitable trusts must get their accounts audited annually and submit
the audit report to the Income Tax Department. Non-compliance with the rules and conditions
can result in the loss of tax-exempt status.
7. Reporting and Filing: Charitable trusts must file their annual income tax returns to maintain
their tax-exempt status.

In conclusion, the assessment of charitable trusts involves strict compliance with the Income Tax
Act's provisions and conditions. These trusts play a crucial role in promoting charitable and
philanthropic activities while enjoying tax benefits to encourage their valuable work.