Unit 10 Income-tax and Corporate Tax Planning PYQ’s 3rd Sept 2024 Shift 2

The correct answer is 4.

Key Points

Let’s analyze each factor:

●       Wages

o   Wages are the fixed regular payments made by an employer to an employee, typically on a monthly or bi-weekly basis, and are considered a fundamental part of the salary.

o   Reason for inclusion: Wages are clearly a component of salary as per section 17g of the Income Tax Act, 1961.

●       Perks

o   Perks (or perquisites) refer to the benefits provided by the employer to the employee in addition to regular salary. These could include things like company cars, housing, and other non-cash benefits.

o   Reason for inclusion: Perks are considered part of the salary package under the provisions of the Income Tax Act.

●       Benefits in lieu of salary

o   Benefits in lieu of salary refer to the compensation or other benefits provided to an employee instead of the traditional salary. This can include options like stock options or other financial compensations.

o   Reason for inclusion: These benefits are recognized as part of the salary under section 17g of the Income Tax Act.

●       Compensation on termination of employment

o   Compensation on termination of employment refers to the severance pay or other forms of compensation given to an employee when their employment is terminated.

o   Reason for inclusion: This form of compensation is also included under the definition of salary as per the Income Tax Act.

Therefore, the factors that are included in the salary as per section 17g of the Income Tax Act, 1961 are A: Wages, B: Perks, C: Benefits in lieu of salary, and D: Compensation on termination of employment. This makes option 4: “A, B, C, and D” the correct choice.

The correct answer is A, B, C & D.

Key Points

Let’s analyze each factor:

●       Allowability

o   Allowability refers to whether a particular business expense is permitted as a deduction under tax laws.

o   This is a critical consideration in tax planning because only allowable deductions can be used to reduce taxable income.

●       Year of Allowability

o   Year of allowability determines the specific tax year in which a business expense can be claimed as a deduction.

o   This is important for tax planning to ensure that deductions are claimed in the appropriate year to maximize tax benefits.

●       Extent of Allowability

o   Extent of allowability refers to the amount or percentage of the expense that is allowable as a deduction.

o   Some expenses might be partially deductible, and understanding the extent of allowability helps in accurate tax planning.

●       Carry Forward to Future Years

o   Carry forward to future years allows businesses to carry forward certain deductions that cannot be fully utilized in the current tax year to subsequent years.

o   This is important for tax planning as it helps in managing tax liabilities over multiple years.

Therefore, all four factors – Allowability, Year of Allowability, Extent of Allowability, and Carry Forward to Future Years – are relevant considerations in tax planning for business deductions. This makes option 4: “A, B, C & D” the correct choice.

The correct answer is D, C, B, A.

Key Points

●       Joint Commissioner (D):

o   The first level of appeal under the Income Tax Act-1961 is made to the Joint Commissioner. This is where an assessee initially contests an assessment order.

o   The Joint Commissioner reviews the appeal and makes a decision based on the merits of the case and the applicable tax laws.

●       Appellate Tribunal (C):

o   If the assessee is not satisfied with the decision of the Joint Commissioner, the next level of appeal is to the Appellate Tribunal.

o   The Appellate Tribunal is a quasi-judicial body that provides an independent review of the decisions made by the Joint Commissioner.

●       High Court (B):

o   Should the assessee still be dissatisfied with the outcome at the Appellate Tribunal, they can take their appeal to the High Court.

o   The High Court examines legal and substantial questions arising from the Tribunal’s decisions.

●       Supreme Court (A):

o   The final level of appeal is to the Supreme Court of India. This is the highest judicial authority and its decisions are binding.

o   Appeals to the Supreme Court are generally on points of law that have significant implications or where there are conflicting decisions among High Courts.

The correct answer is B & C Only.

Key PointsLet’s analyze each section:

●       Section 89

o   This section of the Income-Tax Act deals with relief when salary, etc., is paid in arrears or in advance.

o   Reason for exclusion: This section is not related to double taxation relief, but rather to the relief in the case of salary received in arrears or in advance.

●       Section 90

o   This section provides for the relief from double taxation by entering into an agreement with foreign countries or specified territories.

o   Reason for inclusion: This section directly addresses the issue of double taxation relief by allowing India to enter into treaties with other countries.

●       Section 91

o   This section provides unilateral relief from double taxation in cases where there is no agreement under section 90.

o   Reason for inclusion: This section is also related to double taxation relief, providing relief in situations where no bilateral agreement exists.

●       Section 92

o   This section deals with the computation of income from international transactions having regard to arm’s length price.

o   Reason for exclusion: This section is related to transfer pricing and not directly to double taxation relief.

●       Section 93

o   This section deals with avoidance of income tax by transactions resulting in the transfer of income to non-residents.

o   Reason for exclusion: This section is focused on preventing tax evasion rather than providing double taxation relief.

Therefore, the sections that specifically address double taxation relief are B: Section 90 and C: Section 91. This makes option 2: “B & C Only” the correct choice.

The correct answer is – ₹14,30,000

Key Points

●       Income Tax Computation

o   Tax is calculated as per the default tax regime applicable for AY 2024-25.

o   The given tax slabs are:

●       Up to ₹3,00,000: 0% (No tax)

●       ₹3,00,001 – ₹6,00,000: 5%

●       ₹6,00,001 – ₹9,00,000: 10%

●       ₹9,00,001 – ₹12,00,000: 15%

●       ₹12,00,001 – ₹15,00,000: 20%

●       Above ₹15,00,000: 30%

o   The total taxable income is ₹51,75,000.

●       Tax Calculation for Each Slab

●       Surcharge and Cess Calculation

o   Since the income is above ₹50,00,000, a 10% surcharge applies.

o   Surcharge: 10% of ₹12,52,500 = ₹1,25,250

o   Total Tax after Surcharge: ₹12,52,500 + ₹1,25,250 = ₹13,77,750

o   Health & Education Cess (4%): 4% of ₹13,77,750 = ₹55,110

o   Total Tax Liability: ₹13,77,750 + ₹55,110 = ₹14,32,860

o   Rounded Off: ₹14,30,000

Additional Information

●       Surcharge Applicability

o   The surcharge rate varies with income levels:

o   For Mr. X, the applicable surcharge is 10% since his income is ₹51,75,000.

●       Health & Education Cess

o   This cess is levied at 4% on the total tax (including surcharge).

o   The collected amount is used for funding education and healthcare programs in India.

●       Taxation in India

o   The income tax system follows a progressive taxation model.

o   Higher income leads to a higher tax rate, ensuring equitable tax distribution.

o   Individuals can opt for the New Tax Regime for reduced tax rates but without exemptions.

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

Key Points

●       Section 80-C (A) matches with the ceiling limit of 1,50,000 (IV).

o   Explanation: Under Section 80C of the Income Tax Act, individuals and HUFs can claim a deduction of up to Rs. 1,50,000 on their total income for various investments and expenditures.

●       Section 80-CCD (1) (B) matches with the ceiling limit of 10% of salary or 20% of gross total income as per case (II).

o   Explanation: Section 80CCD (1) allows a deduction for contributions to the National Pension System (NPS) up to 10% of the salary (for employees) or 20% of gross total income (for self-employed individuals).

●       Section 80-CCD (1B) (C) matches with the ceiling limit of 50,000 (I).

o   Explanation: Section 80CCD (1B) provides an additional deduction of Rs. 50,000 for contributions to the NPS, which is over and above the limit of Rs. 1,50,000 under Section 80C.

●       Section 80-CCD (2) (D) matches with the ceiling limit of 14% of salary (III).

o   Explanation: Section 80CCD (2) allows for a deduction for employer contributions to the NPS. For central government employees, this limit is set at 14% of salary (basic + DA).

The correct answer is BEPS.

Key Points

●       Base Erosion and Profit Shifting (BEPS):

o   BEPS refers to the strategies used by multinational enterprises (MNEs) to exploit gaps, mismatches, and loopholes in tax rules to artificially shift profits to low or no-tax jurisdictions, where there is little or no economic activity.

o   The Organisation for Economic Co-operation and Development (OECD) has developed an Action Plan on BEPS to combat this practice, emphasizing tax fairness and preventing revenue loss for governments.

o   Examples of BEPS strategies include manipulating transfer pricing, treaty shopping, and the use of hybrid mismatch arrangements to minimize taxable income.

o   This practice impacts government revenue significantly, reducing funds for public services and leading to an uneven economic playing field between businesses.

Additional Information

●       AEPS:

o   Stands for Aadhaar Enabled Payment System and is unrelated to tax avoidance. It facilitates banking transactions using Aadhaar authentication.

●       EBPS:

o   There is no significant financial or tax-related terminology abbreviated as EBPS, making this option irrelevant in this context.

●       CEPS:

o   While CEPS might refer to certain payment systems or organizations, it is not associated with the manipulation of tax systems by MNEs.

The correct answer is A & B only.

Key Points

Let’s analyze each option:

●       OECD Model Tax Convention

o   The OECD Model Tax Convention is one of the most widely used frameworks for tax treaties globally. It provides guidelines to prevent double taxation and allocate taxing rights between countries.

o   Reason for inclusion: Many countries base their bilateral tax treaties on the OECD Model Tax Convention, making it a significant reference point in international taxation.

●       UN Model Tax Convention

o   The UN Model Tax Convention is another important framework, particularly for tax treaties involving developing countries. It emphasizes source-based taxation to ensure that developing countries receive a fair share of tax revenue.

o   Reason for inclusion: The UN Model Tax Convention is also widely used in international tax treaties, especially in agreements between developed and developing countries.

●       WTO Model Tax Convention

o   The WTO (World Trade Organization) does not provide a model tax convention. Its main focus is on trade rules and regulations, not on tax treaties.

o   Reason for exclusion: The WTO does not have a model tax convention, making it irrelevant to the context of tax treaties.

●       IMF Model Tax Convention

o   The IMF (International Monetary Fund) also does not provide a model tax convention. Its primary role is in economic stability and financial support to countries, not in drafting tax treaties.

o   Reason for exclusion: The IMF does not have a model tax convention, thus it is not applicable to the context of tax treaties.

Therefore, the correct answer is 1) A & B only, as both the OECD Model Tax Convention and the UN Model Tax Convention are the primary frameworks used for international tax treaties.