Unit 10 Income-tax and Corporate Tax Planning PYQ’s 26th Nov 2021 Shift 1

The correct answer is – AOP/BOI

Key Points

Partial Integration of agricultural with non-agricultural income:

• Although there is no tax on agricultural income, if an assessee also has non-agricultural income, that non-agricultural income is taken into account when calculating the income tax on non-agricultural income.
• This is also known as partial integration of agricultural income with non-agricultural income or indirect way of taxing agricultural income.

Important Points

Such partial integration is done only in the case of:

• individual;
• HUF;
• AOP/BOI;
• Artificial juridical person.

It is not done in the case of:

• firm
• company
• co-operative society
• local authority

The partial integration is done to compute the tax on non-agricultural income only when the following two conditions are satisfied:

• non-agricultural income of the assessee exceeds the maximum exemption limit which is Rs. 2,50,000 in the case of an individual (other than individual of the age of 60 years or above) and HUF, etc.; and
• the Net Agricultural Income exceeds Rs. 5,000.

The correct answer is – 1 crore

Key Points

Tax Audit:

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

Important 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.

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 – 15th June

Key Points

Advance Tax:

• Advance tax is the amount of income tax that is paid much in advance rather than a lump-sum payment at the year-end.
• Also known as earn tax, advance tax is to be paid in instalments as per the due dates decided by the income tax department.
• As per section 208 of the Income Tax Act 1961, every person whose estimated tax liability for the year is more than or equal to `10,000 is liable to pay advance tax.

Important Points

Payment of Advance Tax:

• First Instalment- by 15th June every year you have to pay 15% of tax liability.
• Second Instalment- by 15th September you have to pay 45% of tax liability.
• Third Instalment- by 15th December you have to pay 75% of tax liability.
• The fourth Instalment- by 15th March you have to pay 100% of tax liability.

The correct answer is – Deduction in respect of contribution given by any person to political parties

Key Points

Section 80GGC:

• The section 80GGC of the Income Tax Act allows the deductions from the total income of an individual taxpayer for his/her contributions made towards electoral trust or political party
• Any individual taxpayer can claim deduction under section 80GGC.
• The artificial judicial person or local authority is not eligible to claim the deductions under this section.
• Contributions that qualify for the deductions, u/s 80GGC should be from the bank through cheque, internet banking, demand draft, debit/credit card, wire transfer.
• The contributions that an individual makes towards any political party or electoral commission in cash are not eligible for the deductions of Section 80GGC.
• Individuals who make donations to any political party can claim deductions of up to 100 per cent of their contribution to said party.

The correct answer is – Both Statement l and Statement II are correct

Important Points

Statement I: Assessee is always a person but a person may or may not be an assessee

Explanation:

• An assessee is any individual who is liable to pay taxes to the government against any kind of income earned, or any losses incurred by him for a particular assessment year.
• Each and every person who has been taxed in the previous years for income earned by him is treated as an Assessee under the Income Tax Act, 1961.
• If a person is not liable to pay taxes as his income does not qualify for taxes, he is not considered as Assessee.
• Hence, Assessee is always a person, but a person may or may not be an assessee

Statement ll: The term ‘person’ includes an individual, a HUF, a company, a firm, an association of persons, local authority and every artificial juridical person

Explanation:

[Section 2(31)] of Income Tax Act 1961

Person includes :

• an Individual;
• a Hindu Undivided Family (HUF) ;
• a Company;
• a Firm
• an association of persons or a body of individuals, whether incorporated or not;
• a local authority; and
• every artificial juridical person not falling within any of the preceding sub-clauses.
• An association of Persons or Body of Individuals or a Local authority or Artificial Juridical Persons shall be deemed to be a person whether or not, such persons are formed or established or incorporated with the object of deriving profits or gains or income.

Hence, Statement II is also true.

The correct sequence is – B, A, E, D, C

Key Points

E-Filing of Income Tax Returns:

• 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.
• When such individuals file their income tax returns online, the process is known as e-filing.
• 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.
• 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.

Important Points

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

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

Additional Information

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 – ll, B – l, C – lV, D – lll

Key Points

The correct match is given below:

Important Points

Section 10 (1) of Income Tax Act 1961:

As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax.

Section 10 (10 C) of Income Tax Act 1961:

As per section 10(10C), any compensation received at the time of voluntary retirement or termination of service is exempt from tax.

Section 10 (13 A) of Income Tax Act 1961:

As per section 10(13A), read with rule 2A, the exemption in respect of HRA will be the lower of the following amounts:

• 50% of salary, when residential house is situated at Mumbai, Kolkata, Delhi or Chennai and 40% of salary where residential house is situated at any other place.
• HRA actually received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year.
• Rent paid in excess of 10% of salary

Section 10 (10 AA) of Income Tax Act 1961:

As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is exempt from tax.

The correct answer is – A, B, C and D only

Important Points

The Income Tax Act, 1961:

• The Income-tax Act, 1961 is the charging statute of Income Tax in India.
• It provides for levy, administration, collection and recovery of Income Tax.
• The Income Tax Act provides separate provisions for the taxation of income that has been received in advance as well as income for which the money has not yet been received.
• Thus, this is required to be studied for a deep understanding of Income Tax procedures

The Income Tax Rules, 1962:

• This contains all rules and regulations related to imposition of income tax.
• Hence, this is needed for understanding of Income tax procedures.

Notifications, circulars and classification issued from time to time by the CBDT:

• From time to time CBTD released circulars and notifications regarding amendments, changes or for any information to be passed in relation to income tax.
• Hence, this is needed for understanding of Income tax procedures.

Judicial decisions:

• From time to time there are many judicial decisions passed regarding any issue regarding income tax.
• For example: “Applicability of interest under sections 234A, 234B and 234C to Settlement Commission proceedings and Rectification under section 154”
  This has been the outcome of judgement of the supreme court in Brij Lal v. Commissioner of Income Tax case.

The correct answer is – A, B and C only

Key Points

ITR -1 Sahaj Form:

• The Income Tax Department has divided people into multiple groups based on their income and the source of their income in order to make tax compliance easier.
• As a result, one must file his returns appropriately. ITR-1, often referred to as the Sahaj Form, is for individuals with incomes up to Rs. 50 lakh.

Important Points

Who is Eligible to File ITR-1 ?

ITR-1 is a one-page, simplified form for people who receive income from the following sources totalling up to Rs. 50 lakh:

• 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)
• In the case of clubbed Income Tax Returns, where a spouse or a minor is included, this can be done only if their income is limited to the above specifications.

Who cannot file ITR-1?

• An individual with an income above Rs 50 lakh.
• An individual who is either a director of a company or has held any unlisted equity shares at any time during the financial year.
• Residents not ordinarily resident (RNOR) and non-residents.
• Individuals who have earned income through the following means:
  • More than one house property
  • Lottery, racehorses, legal gambling, etc.
  • Taxable capital gains (Short-term and Long-term)
  • Agricultural income exceeding Rs. 5,000
  • Business and profession
  • A Resident that has assets (including financial interest in any entity) outside India or is a signing authority in any account located outside India
  • Individuals claiming relief of foreign tax paid or double taxation relief under section 90/90A/91
  • Deferred income tax on ESOP received from an eligible start-up

The correct answer is – A, B, D only

Key Points

Business Income:

Business income may include income received from the sale of products or services.

Income Tax is chargeable on the profit earned by the business.

Important Points

Income tax slabs for businesses in India:

• Income up to Rs. 2.5L- NIL
• Income between Rs. 2.5-5L lakh- 5%
• Income between Rs. 5-10L- 20%
• Income above Rs. 10L – 30%

Business Loss Not Allowed under Income Tax:

The following types of business loss are not deductible from business income:

• Losses sustained before the business is commenced
• Losses incurred in the closing down of a business.
• Losses incurred due to damage, destruction, etc., of capital assets.
• A loss which is not incidental to the carrying on of the business of the assessee.
• Loss due to the sale of securities held as investments as it will be a capital loss and not the business loss.
• Loss caused by forfeiture of advance given for the purchase of capital assets.

Additional Information

Business Losses Deductible under Income Tax:

The following types of business loss are considered to be incidental to the business and are deductible under the Income Tax Act:

• Loss on account of embezzlement by an employee is allowed as a deduction in the year in which such embezzlement is discovered.
• Loss of stock-in-trade by fire or other natural calamities or due to the negligence of employees is deductible.
• Loss on account of robbery or theft provided it is in the course of business and incidental to the trade is deductible.
• Loss caused on account of fluctuation in the exchange rate at the time of remitting the money for the purchase of raw materials is deductible.
• Loss caused due to non-recovery of advances made in the course of business, providing it is a trading loss is deductible under the Income Tax Act.
• Loss caused due to a breach of contract for the delivery of goods by either party is deductible.
• Loss of raw material or finished goods in transit is tax-deductible.