Answer of Q.N.1.(a).
Previous Year:
[Sec. 3]
As the word
‘Previous’ means ‘coming before’ , hence it can be simply said that the
Previous Year is the Financial Year preceding the Assessment Year e.g.
for Assessment Year 2013-2014 the Previous Year should be the Financial
Year ending 31st March 2013. The term previous year is very
important because it is the earned during the previous year is to be assessed
to tax in the assessment year. The simple rule is that the income of a previous
year is taxed in its relevant assessment year. At present the
previous Year 2012-2013 (1-4-2012 to 31-3-2013) is going on. For a new business started during during
financial year, the previous year will be the financial year in which the
business is started.
The rule that the income of the previous year is taxable
as the income of the immediately following assessment year has certain
exceptions. These are:
1. Income of non-residents from shipping subject to following
conditions
a) Assessee should be Non Resident (NR).
b) Assessee should own a Ship or Chartered by NR.
c) Business of carrying passengers, livestock, mail or goods
shipped at a port in India.
d) The NR may (may not) have an agent in
India.
2. Income of persons leaving India either permanently or for a
long period of time subject to following conditions
a) It appears to the Assessing Officer that an
Individual may leave India during the current Assessment Year (A.Y.)
or shortly thereafter.
b) He has no present intention of
returning to India.
c) The total income upto the probable date of his
departure from India shall be chargeable to tax in that A.Y.
3. Income of bodies formed for short duration subject to
following conditions
a) There is an Association of Persons (AOP) or a Body of
Individuals (BOI) or an artificial judicial person, formed or established or
incorporated for a particular event or purpose.
b) It appears to the Assessing officer (A.O.) that it is
likely to get dissolved in the A.Y. in which it is formed or immediately after
such A.Y.
4. Income of a person trying to alienate his assets with a
view to avoiding payment of tax
a) It appears to the A.O. during any current
Assessment Year that a person is likely to charge, sell,
transfer, and dispose of any of his asset.
b) Such asset may be movable or immovable.
c) The intention is to avoid tax liability ;
and
5. Income of a discontinued business. In these cases, income of a previous year may be taxed as
the income of the assessment year immediately proceeding the normal assessment
year. These exceptions have
been incorporated in order to ensure smooth collection of income tax from the aforesaid
taxpayers who may not be traceable if tax assessment procedure is postponed
till the commencement of the normal assessment.
Answer of Q.N.1.(b).(i)
Residential Status of An individual
Residential status of an assessee
is important in determining the scope of income on which income tax has to be
paid in India. Broadly, an assessee may be resident or non-resident in India in
a given previous year.
Ø Resident in India: Satisfying any one of two BASIC
conditions given u/s 6(1). Further classified into two parts:
a) Resident
and Ordinarily Resident: Satisfying One of the Basic Conditions [6(1] + Both the Additional Conditions [6(6)(a)&(b)
b) Resident
but not Ordinarily Resident: Satisfying One of the Basic Conditions [6(1] + Not satisfying
any of the Additional Conditions
[6(6)(a)&(b)
Ø Non – Resident
[Sec. 2(30)]: Not satisfying any of the Basic Conditions mentioned in
[6(1)].
(Remember: Ordinarily Resident and Resident but not
ordinarily residential status is Applicable to individual and HUF Only)
Basic Conditions Under section 6(1):
a) 182
days or more during P/Y, or
b) At
least 60 days during the relevant P/Y
+ 365 days during the four years preceding that P/Y subject to
following exceptions:
Ø
Individual + Citizen of India + Leaving India
during P/Y + For Employment
Ø
Individual + Citizen of India + Leaving India
during P/Y + As Crew member of India Ship
Ø
Individual + Citizen of India or Person
of India Origin + Visit India during P/Y
(Here, Person of Indian Origin: Himself +
Parents + Grandparents (maternal and paternal grandparents) Born in Undivided India
)
Additional Conditions
section 6(6):
a) Resident
in India in at least 2 out of 10 previous years (according
to basic conditions noted above) preceding the relevant previous year;
b) In
India for a period of at least 730 days during 7 years proceeding
the relevant previous year.
Answer of Q.N.1.(b).(ii)
Determination of
Residential Status of Shri Ajay during Assessment year 2012 – 2013 (Previous
year 2011 – 2012)
Total Stay during Previous year (10th June, 2011 to 25th
December,2011)
June = 21 days, July = 31 days,
August = 31 days, September = 30 days, October = 31 days, November = 30 days, December = 25 days.
Total days = 199 days
Since, total stay of Shri Ajaj
during relevant previous year is more than 182 days, therefore shri ajay is
said to be resident in india.
Again, he comes to India for the
first time from America, therefore he is said to be RESIDENT BUT NOT ORDINARILY
RESIDENT in India.
Answer of Q.N.2.(a).
Perquisites
(Sec. 17[2]):
The term
perquisite is defined to signify some benefit in addition to the amount that
may be legally due by way of contract of services rendered. Section 17(2) gives
an inclusive definition of perquisites. As per the Terms of Section 17(2), Perquisites
Includes:
(i) The value of rent-free accommodation provided (used or not) to the assessee by his employer;
(ii) The value of any concession in the matter of rent respecting any
accommodation provided (used or
not) to the assessee by his employer;
(iii) The value of any benefit or amenity granted or provided (used or not) free of cost or at
concessional rate in any of the following cases (specified employee):
(a) By a company to an employee,
who is a director thereof;
(b) By a company to an employee
being a person who has a substantial
interest in the company;
‘Substantial Interest’ : In
relation to a company, means a person who is the beneficial owner of shares,
not being shares entitled to a fixed rate of dividend whether with or without a
right to participate in profits, carrying not less than 20% of the voting
power.
(c) by any employer (including a
company) to an employee to whom the provision of clause (a) and (b) do not
apply and whose income under the head of Salaries (whether due from, or paid or
allowed by, one or more employer), exclusive of the value of all benefits or
amenities not provided for by way of monetary payment, exceeds Rs. 50,000.
(iv) Any sum actually paid by
the employer in respect of any obligation on behalf of the employee;
(v) any sum payable (not
necessarily paid) by the employer to effect an assurance on the life of the
employee or to effect a contract for an annuity;
(vi) the value of any other fringe
benefit or amenity as may be prescribed.
Perquisites which are taxable
for specified employees only: The following Perquisites are
taxable in the hands of specified employees.
Ø
Domestic servants provided by
employer.
Ø
Gas, electricity or water for
household purpose provided by employer.
Ø
Education facility provided
employer.
Ø
Leave travel concession
Ø
Car or any other automotive
conveyance.
Ø
Transport facility by a
transport under taking.
Answer of Q.N. 2. (b).
Computation of Salary Income of Mr. Nitin
Kumar Gupta for the Assessment year (2012 - 2013)
Particulars
|
Amount
|
Amount
|
Basic Salary
Dearness Allowance (10% of Salary)
Entertainment Allowance (No deduction is allowed for
Private sector employees)
Bonus
Personal Expenses Allowance
Education Allowance
Less: Exempted @ 100 p.m. for One chirldren
Hostel Allowance
Less: Exempted @ 300 p.m. for One chirldren
House Rent Allowance
(Since no rent is paid, HRA is fully taxable)
|
3600
1200
3600
3600
|
120000
12000
4800
20000
6000
2400
Nil
18000
|
Gross Salary
|
183200
|
Answer of
Q.N.3.(a).
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.3.(b).
Capital Gains
Capital gain is
the gain which arises from the transfer of a capital asset. Any profit or gain,
which arises during a previous year, is chargeable under the head "capital
gains" under Section 45. For a gain to be charged under the head
"capital gain," it should arise due to a transfer of a capital asset.
Such a profit or gain should not be exempt from tax under sections 54, 54B,
54D, 54EC, 54ED, 54FD, and 54G of Income Tax Act.
Under section
2(14), property of any kind, held by any assessee, is a capital asset for the
purpose of Income Tax Act. However, the following assets are excluded from the
definition of capital assets.
a) Any stock in trade,
consumable stores or raw material, held for the purposes of business or
profession.
b) Personal effects of the
assessee, i.e. movable property, including wearing apparel and furniture, held
for his personal use or for the use of any member of his family, dependent upon
him.
c) Agricultural land in India,
provided it is not situated (a) in any area within the territorial jurisdiction
of a municipality or a cantonment board, having a population of 1000 or more or
(b) n any notified area.
d) 6.5 % gold bonds, 1977 or 7%
Gold bonds, 10980 or National Defense Gold Bonds, 1980,issued by the Central
Government.
e) Special Bearer Bonds 1991.
f) Gold Deposit Bonds, issued
under gold Deposit Scheme, 1999.
Exempted Capital Gains
A. Compensation received on compulsory
acquisition of agricultural urban land on or after 1 – 4 - 2004[Section 10(37)]:
Ø
For individual and HUF only
Ø
Such land has been used for agricultural
purposes during the preceding two years by such individual or a parent of his
or by such HUF.
B. Exemption of long-term capital gain
arising from sale of shares and units [Section 10(38)]
Ø
Such equity shares are sold through recognised
stock exchange,
Ø
Whereas units of equity oriented fund may either
be sold though the recognised stock exchange or may be sold to the mutual fund.
Ø
Such transaction is chargeable to securities
transaction tax.
C. Exemption of capital gains under
sections 54, 54B, 54D, 54EC, 54F, 54G and 54GA
Sec.
|
Assessee to whom allowed
|
Conditions to be satisfied
|
Quantum of exemption
|
54
|
Individual/ HUF
|
Ø
Long Term Residential house Property income of
which is chargeable under the head 'Income from house property'.
Ø
Purchase of another residential house should
be within one year before or 2 years after, or construction should be within
3 years after the date of transfer.
|
Actual amount
invested in new asset or the capital gain whichever is less.
|
54B
|
Individual
|
Ø
Transfer (excluding compulsory acquisition)
should be of urban agricultural land.
Ø
It must have been used in the 2 years
immediately preceding the date of transfer for agricultural purposes either
by the assessee or his parent.
Ø
Another agricultural land should be purchased
within 2 years after the date of transfer.
|
Actual amount
invested in new asset or the capital gain whichever is less.
|
54D
|
Any assessee
which is an industrial undertaking
|
Ø
There must be compulsory acquisition.
Ø
The property compulsorily acquired should be
land and building forming part of an industrial undertaking.
|
—do—
|
Ø
The asset must have been used in the 2 years
immediately preceding the date of transfer of the assessee for the purpose of
the business of the undertaking.
Ø
Within a period of 3 years after the date of
compulsory acquisition any other land or building should be purchased or
constructed for the use of existing or newly set up industrial undertaking.
|
|||
54EC
|
Any assessee
|
Ø
The asset transferred should be a long-term
capital asset
Ø
Within a period of 6 months after the date of
transfer, the capital gain must he invested in the specified assets i.e.
bonds redeemable after 3 years issued on or after 1-4-2007 by NHAI & RECL
|
Actual amount invested
subject to maximum Rs. 50 lakhs in new asset or the capital gain whichever is
less.
|
54F
|
Individual/ HUF
|
Ø
The asset transferred should be a long-term
capital asset, not being a residential house.
Ø
Within a period of 1 year before or 2 years
after the date of transfer, a residential house should be purchased or
constructed within a period of 3 years after the date of transfer.
|
If the cost of
the new residential house is not less than the net consideration then the
whole of the capital gain. Otherwise, LTCG ´
|
Ø
The assessee should not own more than one
residential house on the date of transfer.
|
|||
Ø
The assessee should not within a period of 2
years purchase or should not within a period of 3 years construct any
residential house other than the new asset.
|
|||
54G
|
Any assessee
being an industrial undertaking
|
Ø
Machinery, plant, building, or land used for
the business of an industrial undertaking situated in an urban area should
have been transferred.
Ø
Transfer should be due to shifting to any area
other than an urban area.
Ø
Within a period of 1 year before or 3 years
after the date of transfer purchased machinery, plant or acquired building or
land or constructed building and completed shifting to the new area.
|
If the cost of
the new assets and expenses incurred for shifting are greater than the
capital gain, the whole of such capital gain. Otherwise capital gain to the
extent of the cost of the new asset.
|
54GA
|
Any assessee
being an industrial undertaking
|
Ø
Machinery, plant, building, or land used for
the business of an industrial undertaking situated in an urban area should
have been transferred.
Ø
Transfer should be due to shifting to any
Special Economic Zone whether developed in any urban area or any other area.
Ø
Within a period of 1 year before or 3 years
after the date of transfer purchased machinery, plant or acquired building or
land or constructed building and completed shifting to the new area.
|
If the cost of
the new assets and expenses incurred for shifting are greater than the
capital gain, the whole of such capital gain. Otherwise capital gain to the
extent of the cost of the new asset.
|
Answer of Q.N. 5.
Calculation of Annual Value of House
Property of Mrs. Navneet Kaur for the Assessment year (2012 – 2013)
Particulars
|
Amount
|
a) Municipal Rental Value (MRV)
b) Fair Rental Value (FRV)
c) Expected Rental Value (Higher of MRV or FRV)
d) Actual rent receivable for the year less Unrealised
rent (10 months)
e) Higher of c) or d) will be Annual Rental value
Less: Loss due to Vacancy (3 months)
|
40000
48000
48000
42000
48000
12600
|
Balance will be
Gross Annual Value
Less: Municipal taxes paid during the year by landlord
|
35400
3400
|
Net Annual Value
|
32000
|
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