Unit 10 Income-tax and Corporate Tax Planning PYQ’s 17th Oct 2020 Shift 2

The correct answer is – Rs. 1,600 p.m.

Important Points

Both Transport and Medical allowances were available till FY 2017-18. However, from FY 2018-19, the standard deduction was introduced in lieu of transport allowance and medical reimbursements.

If these two allowances are still part of your salary components, then the amount received by you is fully taxable.

Key Points

Transport allowance means an allowance given for the purpose of transport.

Transport allowance u/s 10(14) of the Income Tax Act, 1961 read with rule 2BB of Income-tax rules can be either of the following:

• Allowance granted to an employee to meet his expenditure for the purpose of commuting between his place of residence and office.
• Allowance granted to an employee working in transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided the employee is not in receipt of the daily allowance.

Before FY 2018-19, Following were the provision for exemption of Transport Allowance.

Quantum of Exemption:

Section 10(14) read with Rule 2BB states the exemption of transport allowance as follows:

In our case, Mr. X has spent only Rs. 1400 p.m. on transport allowance which is less than the standard exemption amount for commuting from the place of residence to the place of office i.e. Rs. 1600 p.m.

Therefore, Mr. X shall be allowed for an exemption of Rs. 1600 p.m.

Additional Information

“Did you know that it is not mandatory to spend the complete amount of Transport Allowance received in order to get the benefit of tax exemption!”

The correct answer is – Before the expire of relevant assessment year or before the assessment is complete, whichever is earlier

An income tax return filed after the due date is known as a “Belated return”. A late fee will be required to pay, as applicable, by those filing belated ITR.

Key Points

If an individual fails to file an ITR before the due date, then as per section 139(4) of the Income Tax Act, he can file a Belated return.

Deadline to file belated return:

• A belated return can be filed anytime before the expiry of the relevant assessment year or before the assessment is complete, whichever is earlier.
• The relevant assessment year for the financial year is the immediately succeeding financial year.
• It means that an individual can file a belated return for FY2020-21 by March 31, 2022, i.e. before the end of the assessment year (AY)2021-22.

Therefore, Belated return u / s 139(4) can be filled at any time before the expiry of the relevant assessment year or before the assessment is complete, whichever is earlier.

Important Points

Penalty to file Belated returns:

• Until AY 2017-18, there was no penalty for filing belated income tax returns.
• According to amendments made in the budget 2017, taxpayers are liable to pay a penalty for filing belated returns.
• A new section, 234F, was inserted by the government in the Income Tax Act.
• As per this section, an individual would have to pay a fee of up to Rs 10,000 for filing ITR after the due dates specified in section 139(1) of the Act.
• This penalty became applicable from AY 2018-19, i.e., ITR filing for FY2017-18.

• If an individual files a belated return for FY2020-21 on or after January 1, 2022, but on or before March 31, 2022, then that individual will have to pay a penalty of Rs. 10,000.
• However, if the total income of the taxpayer is less than Rs. 5 lakh then the penalty amount will not exceed Rs. 1000.

Mistake Points

• Prior to the amendment vide Finance Act 2021, if any person had not furnished the ROI within the time allowed under section 139(1), then that person was required to furnished the ROI before the end of the relevant assessment year.
• In the Finance Act 2021 the time period to file return under section 139(4) has been reduced by 3 months i.e. the person who has not filed his ROI within the time prescribed under section 139(1), then the person may file its ROI, within three months prior to the end of the relevant assessment year or before the completion of the assessment, which- ever is earlier.

The correct answer is – Rs. 1 Crore

The Income Tax Act, 1961 is a comprehensive statute that focuses on the various rules and regulations that govern taxation in the country. It provides for levying, administering, collecting, and recovering income tax for the Indian government.

A tax audit is an examination of a tax return by the IRS to verify that your income and deductions are precise.

There are three main types of tax audit namely external audit, internal audit, and Internal Revenue Service (IRS) audit.

Key Points

As per Section 44AB of the Income Tax Act, 1961:

• Every person carrying on a business is entitled to get his accounts audited, if his turnover, total sales, or gross receipts in business exceeds Rs. 1 crore in the previous year
• Every person carrying on a profession is entitled to get his accounts audited if his gross receipts in profession exceed Rs. 50 lakhs in the previous year.

Therefore, a tax audit is compulsory in case of a person is carrying on a business whose gross turnover exceeds Rs. 1 crore.

Important Points

With effect from 1st April 2020, that is from the assessment year 2020-21, the above provision is amended as follows:

The threshold limit has been revised to increase it for a person carrying on a business from Rs. 1 crore to Rs. 5 crore if the following conditions are satisfied:

• His aggregate of all the cash receipts in the previous year does not exceed 5% of such receipts.
• His aggregate of all the cash payments in the previous year does not exceed 5% of such payments.

The correct answer is – i, ii, iv, v

The closure is the term used when a business decides to discontinue or shut down its activities of the organization. A closure may be a result of bankruptcy, where the business has fewer funds to continue its operations, or when some other organization (or a competitor) decides to take over the firm and shut down as superfluous.

Closure can be of two types, voluntary or involuntary where voluntary closures of organizations are much rare as compared to involuntary closures of organization.

Key Points

The shut down refers to complete cessation or closing down of the business and it involves:

i) No buying or selling of goods and services

ii) No manufacturing of products

iii) Assets to be sold or disposed off to pay the debts of the organization

iv) Returning capital to the owners after the organization decides to liquidate assets.

Therefore, option 1) is the correct answer.

The correct answer is – a-iii, b-i, c-iv, d-ii

Below is the explanation of the above deduction:

1. 80GG is a deduction under Chapter VI-A of the Income Tax Act, 1961. It has been introduced to provide relief to those individuals who do not receive any house rent allowance but are paying rent for the stay. Thus, an individual can claim a deduction for rent paid even if he or she does not get a house rent allowance.
2. Section 80GGA allows deductions for donations made towards scientific research or rural development. This deduction is allowed to all assesses except those who have an income (or loss) from a business and/or a profession. 100% of the amount that is donated or contributed is considered eligible for deduction.
3. Section 80GGB of the Income Tax Act, 1961, allows any Indian company or enterprise that donates to a political party or an electoral trust registered in India can claim a deduction for the amount contributed.
4. Section 80GGC of the Income Tax Act, 1961, allows the deductions from the total income of an individual taxpayer for his/her contributions made towards electoral trust or political party.

Confusion Points

Section 80GGB deduction is allowed when the company donates, Section 80GGC deduction is allowed when any person donates.

Therefore, the correct match is:

Hence Option 3 is the correct answer.

The correct answer is – A, C, B, D

Key Points

• Step 1:
• Compute the income of an individual under 5 heads of income on the basis of his residential status.
• Step 2:
• The income of any other person, if includible u/s 60 to 64, will be included under respective heads.
• Step 3:
• Set off of the losses if permissible, while aggregating the income under 5 heads of income.
• Step 4:
• Carry forward and set off of the losses of past years, if permissible, from such income.
• Step 5:
• The income computed under Steps 1 to 4 is known as Gross Total Income from which deductions under sections 80C to 80U (Chapter VIA) will be allowed.
• However, no deduction under these sections will be allowed from short-term capital gain covered under section 111A, any long-term capital gain and winning of lotteries, etc., though these incomes are part of gross total income.
• Step 6:
• The balance income after allowing the deductions is known as total income which will be rounded off to the nearest Rs. 10.
• Step 7:
• Compute tax on such Total Income at the prescribed rates of tax.
• Step 8:
• Allow rebate of maximum Rs. 2,500 under section 87A in case of a resident individual having total income up to Rs. 3,50,000. For details see below.
• Step 9:
• Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and up to Rs. 1 crore and 15% of such income-tax in case of an individual having a total income exceeding Rs. 1 crore.
• Step 10:
• Add education cess @ 2% and SHEC @ 1% on the tax (including surcharge if applicable).
• Step 11:
• Allow relief under section 89, if any.
• Step 12:
• Deduct the TDS, advance tax paid for the relevant assessment year, and double taxation relief under section 90, 90A, or 91.
• The balance is the net tax payable which will be rounded of the nearest ten rupees and must be paid as self-assessment tax before submitting the return of income.

Therefore, the correct sequence is:

1. Income under the different heads of income.
2. Adjustment of losses of the current year and earlier years.
3. Deduction from gross total income.
4. Rounding off.

Hence, Option1 is the correct answer.

The correct answer is – A and B

The term “TDS” refers to “Tax Deduction at Source”. It is a mechanism wherein a person who is responsible to pay a sum of specified nature shall deduct an amount towards TDS and pay it to the credit of the Central Government.

Key Points

Therefore, statements A and B only are correct about the TDS certificates.