BBA/B.Com Fundamentals of Taxation DEC 2024

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Fundamentals of Taxation

December 2024 Examination

 

 

1. In what way do the provisions related to “Income from Salaries” under the Income Tax Act, 1961, impact the overall tax liability of an individual, and what strategies which individuals may employ to optimize tax efficiency in this area? (10 Marks)

Ans 1.

Introduction

The provisions related to “Income from Salaries” under the Income Tax Act, 1961, are pivotal for individual taxpayers, as they outline what constitutes salary income, its various components, and the relevant deductions and exemptions that can be claimed. The Act broadly defines income from salaries as any payment arising from an employer-employee relationship, including basic pay, allowances, perquisites, bonuses, and retirement benefits. The tax liability on salary income depends on factors like income slab rates, applicable exemptions, and allowable deductions. Understanding these provisions is essential, as individuals often seek strategies to optimize their

 

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2. Mr. Das owns five houses in India, all of which are let-out. Compute the Net Annual Value (NAV) of each house from the information given below:

Particulars	H 1	H 2	H 3	H 4	H 5
Municipal Value	80,000	55,000	65,000	24,000	80,000
Fair Rent	90,000	60,000	65,000	25,000	75,000
Standard Rent	N.A.	75,000	58,000	N.A.	78,000
Actual  rent  received/   receivable	72,000	72,000	60,000	30,000	72,000

 

Municipal Tax is payable @ 10% of the municipal value, it is paid by Mr. Das in respect of H 1, H 2 and H 3. Municipal Tax for H 4 and H 5 are paid by the tenants. (10 Marks)

Ans 2.

Introduction

The concept of Net Annual Value (NAV) is a vital component in calculating income from house property under the Income Tax Act, 1961. NAV represents the income an individual derives from property rentals after considering deductions like municipal taxes, provided they are borne by the property owner. For individuals with multiple rental properties, such as Mr. Das, calculating NAV is crucial as it determines the taxable income from each property and impacts the overall tax liability. NAV is calculated by first determining the Gross Annual Value (GAV), which considers the higher of Expected Rent (based on market and standard rent) or Actual Rent Received. This approach

 

3a. Mr. Vijay purchased a house in October, 2014 for Rs. 750,000 and sold the same in August, 2023 for Rs. 25,50,000 (brokerage paid Rs. 25,000).

Calculate the Capital Gains arising on the sale of the house.

Can Mr. Vijay claim any exemption from gain arising on this transaction?

CII Value for FY 2014-15 is 240 and of FY 2017-18  is 348.   (5 Marks)

Ans 3a.

Introduction

Capital gains are the profits generated from the sale of a capital asset, such as property. For Mr. Vijay, who purchased a house in October 2014 and sold it in August 2023, the calculation of capital gains involves determining the indexed cost of acquisition to account for inflation. By using the Cost Inflation Index (CII), the purchase cost can be adjusted to reflect its present-day value, thereby calculating the long-term capital gain (LTCG). This adjustment helps taxpayers like Mr. Vijay in reducing their taxable capital gain by offsetting the effects of inflation. The following answer presents a

 

31. Following is the income of Mr. Sunil during the year ending on 31.3.2024: Basic Salary Rs 4,80,000, Dearness Allowance (included in Retirement benefit) – Rs 50,000

HRA= Rs. 70,000

He resides in a rented house in Kolkata and pays a rent of Rs. 15,000 per month. Calculate the taxable amount of HRA.    (5 marks)

Ans 3b.

Introduction

House Rent Allowance (HRA) is a key component of salary income, allowing partial tax exemption for salaried individuals living in rented accommodations. Under the Income Tax Act, specific conditions govern the exemption calculation for HRA, where the exemption is based on the lesser of three values. Mr. Sunil, who resides in Kolkata and pays a monthly rent of ₹15,000, receives an HRA of ₹70,000 annually. The calculation below provides the taxable portion of his HRA based on his salary components and rent paid. Understanding HRA exemptions enables