Unit 10 Income-tax and Corporate Tax Planning PYQ’s 17th Oct 2020 Shift 1

The correct answer is – Rs. 2,000

As per section 80G maximum deduction allowed for any cash donation is up to Rs. 2000.

Key Takeaways

Finance Act, 2017 amended section 80G so as to provide that no deduction shall be allowed under section 80G in respect of donation of any sum exceeding Rs. 2,000/- unless such sum is paid by any mode other than cash. Earlier this limit was Rs. 10,000/-.

Section 80G of the Income Tax Act allows donations made to specified relief funds and charitable institutions as a deduction from gross total income before arriving at taxable income.

The correct answer is – 5 percent

Insurance can go a long way when it comes to mitigating the financial crunch caused due to medical emergencies. Therefore, it is advisable to take an insurance policy not only for oneself but for one’s dependents as well. Most times people choose their insurance via agents, brokers, etc. In such cases, the insurance commission or any other remuneration/reward received by such agents, brokers, etc., are subjected to Tax Deducted at Source (TDS) as dictated under Section 194D of the Income Tax Act.

Key Takeaways

Section 194D is applicable for all such payments made to a resident whether they are an individual, company, or any other category of persons. The rate of TDS is mentioned below

The TDS rate under section 194D is 3.75% for non-company deductees and 10% for domestic company deductees for payments from 14 May 2020 until 31 March 2021.

• Surcharge or SHEC will not be added to these rates. Therefore, the tax will be deducted at the source at the basic rates mentioned above.
• The rate of TDS will be 20% in cases where the deductee has not quoted PAN.

Thus, option 2 is the correct answer.

The correct answer is – Deemed to accure or arise in India

Any pension payable outside India to a person residing permanently outside India shall be deemed to accrue or arise in India.

Key Takeaways

Any pension payable outside India to a person residing permanently outside India shall be deemed to accrue or arise in India if the services for which the pension is paid were rendered in India.

Following incomes are treated as incomes deemed to have accrued or arisen in India:

• Capital gain arising on transfer of property situated in India.
• Income from a business connection in India.
• Income from salary in respect of services rendered in India.
• Salary received by an Indian national from the Government of India in respect of service rendered outside India. However, allowances and perquisites are exempt in this case.
• Income from any property, asset, or other sources of income located in India.
• Dividend paid by an Indian company.
• Interest received from the Government of India.

Important Points

The income of a non-resident shall be deemed to accrue or arise in India and shall be included in the total income of the non-resident, whether or not,—

(i) the non-resident has a residence or place of business or business connection in India; or

(ii) the non-resident has rendered services in India.

The correct answer is – Can be carried forward for 8 years

Set-off of Loss from House Property:

1. The Loss from House Property is allowed to be set-off against any other Income arising during the same year.
2. Therefore, if there is a loss under head House Property, and there is Income under any of the other 5 heads of Income i.e. Salary/ House Property/ Business or Profession/ Capital Gains/ Other Sources, this loss from House Property can be adjusted against such income.

1. The Loss under head House Property which is allowed to be set-off against Income from Other Sources is restricted to Rs. 2 Lakhs for each assessment year.
2. The balance unabsorbed loss would be allowed to be carried forward to the next assessment year and set-off accordingly. This amendment is applicable from Assessment Year 2018-19 onwards.

Key Takeaways

The Loss from House Property is allowed to be carried forward for 8 assessment years, such loss should be set off in the subsequent assessment year if there is income under head House Property.

The balance which has not been set-off shall be carried forward to the next assessment year.

The correct answer is – Rs. 50,00,000/-

A surcharge of 10% (percent) is payable by an Individual where the total income exceeds Rs.50,00,000.

Key Takeaways

Surcharge:

• A surcharge is an additional charge, tax, or payment that a company adds to the already existing cost of a good or service.
• Many industries, including travel, telecom, and cable, will add surcharges to offset the cost of higher prices, such as fuel, or regulatory fees imposed by the government.
• Surcharges are a way to indirectly pass costs on to the consumer, by listing a charge separately from the cost of the good or service, which appears to stay at the same price.

Important Note

1. A surcharge of 10% is levied if an individual’s income is more than Rs. 50 Lakhs and
2. A surcharge of 15% is levied if the individual’s income is more than Rs 1 crore.
3. In the case of companies, it is levied if the income is more than Rs. 1 Crore.

The correct answer is – ITR-4

Sugam is also known as ITR-4.

The presumptive taxation scheme is available for individuals, HUFs, and partnership firms under Section 44AD, Section 44AE, and Section 44DA of the IT Act. Taxpayers using such presumptive schemes can file their tax returns with the help of the ITR-4 form, also known as the Sugam form.

Key Takeaways

ITR 4 or Sugam form is to be filed by the individuals/HUF/ Partnership firm whose total income of AY 2020-21 includes

• Business income under section 44AD or 44AE
• Income from profession calculated under section 44ADA
• Salary/pension having income up to Rs 50 lakh
• Income from One House Property having income up to Rs 50 lakh (excluding the brought forward loss or loss to be carried forward cases under this head);
• Income from Other Sources having income up to Rs 50 lakh (Excluding winning from lottery and income from horse races).

Additional Notes

1. ITR -1 should be filed for an assessment year when the Total Income of an Individual includes: Income from Salary/Pension. Income from One House Property (excluding cases where loss is brought forward from previous years) Income from Other Sources (excluding winning from Lottery and Income from Race Horses)
2. The ITR 2 can be used by all the persons who are not eligible to use ITR 1 and do not have any business or professional income
3. ITR-6: Indian income tax return for companies other than companies claiming exemption. under section 11.

The correct answer is – (A), (B), (C) only

The government has set up various kinds of Provident fund in order to encourage savings for the social security of the employees. The employee contributes a fixed percentage of his salary towards these funds and also the employer contributes in many cases.

Key Takeaways

Treatment of Provident fund for Income Tax:

Where, PF = Provident Fund, SPF = Statutory Provident Fund, RPF = Recognized Provident Fund, UPF = Unrecongized Provident Fund, PPF = Public Provident Fund.

Therefore, Statements (A), (B), (C) only are correct about deduction available in respect of contribution to various provident funds in case of salaried employees.

Additional Notes

Note:

1. Employer’s contribution and interest on provident fund in the case of unrecognized provident fund are not taxable in the year of contribution or credit of interest. However, when the lump sum amount is received by the employee then it becomes taxable.

2. Lump-sum payment received from UPF at the time of retirement/termination shall be taxable as follows:

• Payment received in respect of employer’s contribution and interest thereon is taxable under the head “Salaries”.
• Payment received in respect of interest on employee’s contribution is taxable under the head “Income from other sources”.
• Payment received in respect of employee’s contribution is not chargeable to tax.

Mistake Points The answer to this question is marked according to the official answer key. However, option B is not entirely true as Employer’s contribution to unrecognised provident fund is not entirely exempted from tax.

The most relevant option is marked as the answer.

The correct answer is – (A), (B), (C), (D) only

The Profit and loss a/c is a financial statement that summarizes the revenues, expenses, and costs incurred during a specified period, usually a fiscal quarter or year.

Income from a business means any income shown in the profit and loss account after taking into account all the allowed expenditures by an assessee. The income includes both positive income i.e. profit and negative income i.e. loss.

Key Takeaways

Expenses debited to Profit and Loss a/c but disallowed while computing income from Business:

• General expenses are expenses that are incurred in the ordinary course of business, such as rent, salaries, and utilities. However, some general expenses, such as entertainment expenses, are not allowed as deductions for income tax purposes.
• Personal expenses are expenses that are incurred for the benefit of the taxpayer and their family, such as travel expenses and home mortgage interest. Personal expenses are not allowed as deductions for income tax purposes.
• Expenses of income which is taxable under the other heads of income are expenses that are incurred in earning income that is taxable under a different head of income, such as capital gains or rental income. These expenses are not allowed as deductions for income tax purposes.
• Charities and donations are expenses that are incurred in making charitable donations. However, certain charitable donations are allowed as deductions for income tax purposes, subject to certain conditions.

Therefore, Statement (A), (B), (C), (D) only are debited to Profit and Loss a/c but always disallowed while computing income from Business.

The correct answer is – (B), (A), (D), (E), (C)

E-Filing of Income Tax Returns:

1. According to Section 139 (1) of the Income Tax Act, 1961 of India, individuals whose total income during the previous year is more than the maximum amount not chargeable to tax, should file their ITR or income tax returns.
2. When such individuals file their income tax returns online, the process is known as e-filing.
3. As a taxpayer, you can seek professional help or file your returns yourself by simply registering on the income tax department website or other relevant websites.
4. While every year the due date for filing tax returns is July 31st, the government may offer a grace period of 15-30 days to file the returns online or physically.

Key Takeaways

The basic procedure of Income Tax return e-Filling in India is

1. Register: Visit the ‘e–Filing‘ Portal www.incometaxindiaefiling.gov.in. and register yourself by providing basic details.
2. Once the registration process is complete login into your account by providing the credentials.
3. The next step is to download the utility and preparing returns
4. Next step enter your bank account details and proceed towards e-filing.
5. Once your return is filed e-Verify your income tax return.

Additional Notes

E-filing is now mandatory for individuals and Hindu Undivided Families whose accounts have to be audited under Section 44AB of the Income Tax Act. For companies, e-filing with a digital signature is mandatory.

The correct answer is – A – IV, B – III, C – I, D – II

Deductions under section 80 are given under the Income Tax Act, 1961 and they include various options like investments, the premium paid, loan repayment, etc. It can help in reducing tax liabilities considerably if it is optimized properly.

Key Takeaways

Therefore, it is clear from the above explanation that option 1) is the correct answer.

The correct answer is – Both Statement (I) and Statement (II) are true

Gratuity received by Government employees is exempted from tax under Section 10(10)(i) of the Indian Income Tax Act, 1961, and Gratuity received by local authority employees is exempted from tax, both the statements are correct.

Additional Notes

Gratuity is a monetary benefit given by the employer, but not paid as part of the regular monthly salary. The provisions of gratuity are governed by the Payment of Gratuity Act, 1972, and it is given on the occurrence of any of the following events.

a. On superannuation (means an employee who attains the age of retirement is said to be in superannuation)

b. On retirement or resignation

c. On death or disablement due to accident or disease (the time limit of 5 years shall not apply in the case of death or disablement of the employee)

It is mandatory for the employee to have completed a minimum of five years in service to be able to receive gratuity. It is not available for interns or temporary employees.

Key Takeaways

Any gratuity received by an employee of the Central Government, State Government or local authority, on death or retirement is fully exempt from tax.

In case of Gratuity received by an employee where the Employer is covered by the Payment of Gratuity Act.

The least of the following is exempt from Tax

1. Last drawn salary x number of years in employment x 15/26.
2. The actual amount received.
3. Rs.20,00,000