TUTOR MARKED ASSIGNMENT
Course Code : ECO - 11
Course Title : Element of
Income Tax
Assignment Code : ECO –
11/TMA/2014-15
Coverage : All Blocks
Maximum Marks: 100
Attempt all the questions.
Answer of Q.N.1.
Concept of Residential Status
of Individuals
Under Section 5, total income of an assessee
is be chargeable to tax depending upon the residential status of a person and
place and time of accrual of such income and the rules for determining
residential status of various types of persons are contained in Section 6. Provisions
for determination of the residential status are different for different
categories of the assessee viz:
a)
individuals;
b)
Hindu
Undivided Families (HUF
c)
Firms
or Associations of Persons(AOP);
d)
Companies;
and
e)
Every
other person
Residential status of individual Section
6(1):
To determine the residential status of an
individual, it is to be ascertained whether he is resident or a non –resident
during the previous year. An individual will be a resident in India in any
previous year, if he satisfies at least
one of the following TWO basic
conditions:
1) He is in India in the previous year for a
period of 182 days or more OR
2) He is in India for a period of 60 days or more during the previous
year AND 365 days or more during
4 years immediately preceding
the previous year
But there are
certain exception to these basic conditions. The Second condition of 60 days
or more is extended to 182 days
or more in following two circumstances:
i. An
Indian citizen leaves India during the previous year for the purpose of
taking up employment outside India. OR as a member of the crew of an Indian
ship OR .
ii. An
Indian citizen or a person of Indian origin comes on visit to India
during the previous year. For
this purpose, a person is said to be of Indian origin if either he or any of his parents or any of his grandparents was
born in undivided India. In both the above cases, an
individual needs to be present in India
for a minimum of 182 days or more to
become resident in India instead of 60 days.
If the individual satisfies any of the two
conditions, he is a resident in India and if he does not satisfy any of the
conditions, he is a non resident during that particular assessment year.
Resident and Ordinarily Resident [R & O
R ]- Secion 6(6) :
Once an individual satisfies any of the
above two basic conditions for a
particular assessment year, next step would be to determine whether he will be a resident and ordinarily resident
of India in that assessment
year. Sec. 6(6) provides that a person will be “resident and ordinarily resident” in India in any assessment year if he satisfies BOTH of the following two conditions:
1) he has been resident in India in at least 2 out of 10 previous years according to the above basic conditions
immediately proceeding the relevant
previous year. AND
2) in India for a period of 730 days or more during 7 years immediately
preceding the relevant previous year.
Resident and Not Ordinarily Resident [R
&N O R ]
A resident individual, who does not satisfy
BOTH of the above conditions given above, will be a Resident but Not Ordinarily
Resident in India. In other words, an individual becomes resident but not ordinarily
resident in India If he Satisfies at least one of the basic conditions but
satisfies NONE of the additional
conditions OR Satisfies ONLY ONE of
the two additional conditions.
Non Resident
An individual is a non-resident in India if
he satisfies none of the basic conditions. It must be noted that if a person
satisfies the additional conditions but does not satisfy the basic conditions,
he will still be treated as Non-Resident. In such a case, additional conditions
are not relevant.
From the above discussion it is
brought out that an individual can either be:
(a) resident and ordinarily
resident in India;
(b) resident but not ordinarily
resident in India or
(c) non-resident
Answer of Q.N.2.
COMPLETE
SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME
ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS
CONTACT:
KUMAR NIRMAL
PRASAD, TINSUKIA (ASSAM)
CONTACT NO.
9577097967
Answer of Q.N.3.
Annual Value (Section 23)
The Annual Value of a house property is the
inherent capacity of the property to earn income and it has been
defined as the amount for which the property may reasonably be expected to be
let out from year to year. It is not necessary that the property should
actually be let out. It is also not necessary that the reasonable return from
property should be equal to the actual rent realized when the property is, in
fact, let out.
Computation of annual value: Computation of Annual Value for the determination of Income
from House property requires three steps.
Ø STEP 1
Determine the Gross Annual Value(GAV)
Ø
STEP 2 Determine the value of Municipal taxes
Ø
STEP 3 Compute the Net Annual Value
STEP
1- Determine the Gross Annual Value (GAV):
Calculation of GAV based on the following factors:
1) Fair Rental Value (FRV): The amount of rent which a similar property (similar
to the house property the GAV of which is to be determined) in the same locality
would fetch.
2) Municipal Rental Value (MRV): The value of the house property under consideration
as determined by the Municipal authorities for the purpose of levying Municipal
taxes.
3) Standard Rental Value (SRV): The maximum amount of rent which a person can
recover from his tenant, legally, as determined by the Rent Control Act.
4) Expected Rental Value (ERV): The Fair rent or Municipal value, whichever is
higher, subject to the Standard rent.
5) Unrealised rent:
The amount of rent which is not capable of being realised. The amount of Unrealised rent shall not be included in
the actual amount of rent receivable from the house property if all the
following for conditions are satisfied:
a) Tenancy is in
good-faith.
b) The defaulting
tenant has vacated or steps must have been taken to vacate such tenant.
c) The defaulting
tenant doesn't continue to occupy any other property of the assessee.
d) Assessee has taken
all the reasonable steps to proceed against the defaulting tenant legally or he
must satisfy the assessing officer that if such steps are taken, it will be of
no use.
6) Actual rent receivable (ARR): The amount of rent which is equal to the difference
between the Rent receivable and the unrealised rent.
7) Unoccupied property: The House property which cannot be occupied by its owner by reason of
his employment, business or profession being in some other place and he resides
at that place in a property not owned by him.
It should be noted that the procedure for determination of
Gross Annual Value is not same in all the cases. It varies according to the
given situation. Various situations and the respective procedures for computation
of GAV are given below:
1) Property is let out throughout
the previous year (Section 23(1) (a)/
(b)): GAV = ERV or ARR, whichever is
higher.
2) Let out property is vacant for
a part of the year (Section 23(1) (c)):
If the ARR < ERV only because the property
was vacant for a part of the year, GAV = ERV. If the ARR < ERV for any other reason, GAV = ERV.
If the ARR > ERV even though it was vacant
for a part of the year, GAV = ARR. In all
the cases, ARR is computed for the let out period only and the ERV is for whole
year as usual.
3) Self-occupied or Unoccupied
property (Section 23(2)): GAV = Nil
4) Let out for a part of the year
and self-occupied for a part of the year (Section
23(3)): GAV = Higher of ERV
(calculated for the whole year) and ARR (calculated for let out period only)
5) Deemed to be let out property (Section 23(4)): This case arises when the assessee has more than one Self-occupied
properties in a previous year. In such case, only one of such properties is
treated as self-occupied and the remaining shall be treated as Deemed to be let
out properties. Here, GAV = ERV.
6) A portion of the property is
let out and the remaining portion is self-occupied: GAV is calculated separately for self-occupied part
and the let out part. The values of FR, MV, SR and Municipal taxes are
apportioned on the given basis.
Thus, there is a scope for charging tax on Notional rent too.
This happens when the GAV determined according to the above steps is the ERV.
Now that the Gross Annual Value of the house property is
determined, the next step is to determine the value of Municipal taxes paid
that is deductible from the Gross Annual Value.
STEP
2 - Determine the value of Municipal taxes:
The municipal tax or the property tax paid is allowed as
deduction from the Gross Annual Value if the following two conditions are
satisfied.
(a) The property is let out during the
whole or any part of the previous year,
(b) The Municipal taxes must be borne by the
landlord. If the Municipal taxes or any part thereof are borne by the tenant,
it will not be allowed.
(c) The Municipal taxes must be paid during
the year. Where the municipal taxes become due but have not been actually paid,
it will not be allowed.
STEP
3 - Compute the Net Annual Value:
Gross Annual Value ++++++
Less: Municipal Taxes ++++++
Net Annual Value ++++++
Deductions allowable
under section 24 of the income tax act
Following two deductions will be allowable from
the net annual value to arrive at the taxable income under the head ‘income
from house property’:-
(a) Statutory deduction:
30 per cent of the net annual value will be allowed as a deduction towards
repairs and collection of rent for the property, irrespective of the actual
expenditure incurred.
(b) Interest on borrowed
capital: The interest on borrowed capital will be allowable as a deduction on
an accrual basis if the money has been borrowed to buy or construct the house.
It is immaterial whether the interest has actually been paid during the year or
not. If money is borrowed for some other purpose, interest payable thereon
cannot be claimed as deduction.
Limit of deduction u/s 24(b)
A. In case of Let out/ deemed to
be let out house property: Interest on Money borrowed is allowed as
deduction without any limit. Here interest on money borrowed = interest of P/Y
+ 1/5 of Pre-construction period (PCP) interest. PCP started from the
date of borrowing and ended on 31st mar immediately preceeding (Before) the year of
completion.
B. In Case of Self Occupied House
Property: Max. Rs. 1,50,000 is
allowed as deduction if the following conditions are satisfied:
Ø
Loan taken after 1 – 4 – 99
Ø
For construction/purchase
(Capital expenditure) of house
Ø
Construction completed within 3years from the end of financial year in which loan is
borrowed.
Ø
Loan certificate is obtained
For all other cases maximum allowed deduction is Rs. 30000
Answer of Q.N.4.
COMPLETE
SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME
ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS
CONTACT:
KUMAR NIRMAL
PRASAD, TINSUKIA (ASSAM)
CONTACT NO.
9577097967
Answer of Q.N.5.
COMPLETE
SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME
ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS
CONTACT:
KUMAR NIRMAL
PRASAD, TINSUKIA (ASSAM)
CONTACT NO.
9577097967
Notes:
1) Agricultural
income is exempt but it is integrated with total income while calculating
Income tax liability.
2) Rent from house
property is assumed to be gross.
2) loss from
speculation can be set off against income from speculation.