Taxation-direct and indirect Dec 2024

Description

Taxation- Direct and Indirect

December 2024 Examination

 

 

 

Q.1. You are required to compute the taxable income for Mr. Sharan for the Assessment

Year 2023-24 from the information provided below:

• Basic salary – Rs. 20,000 per month
• Bonus – Rs. 30,000
• Cash gift – Rs. 40,000
• Arrears of salary – Rs. 10,000
• Dearness allowance – Rs. 8,000 per month
• Insurance premium paid by Employer – Rs. 20,000 per annum
• Medical expenses paid by employer – Rs. 18,000
• Education allowance for his two children – Rs. 600 per month
• City compensatory allowance – Rs. 2,000 per month
• He is given lunch allowance – Rs. 100 per day for 250 days during the previous year.
• He contributes 15% of his salary to a recognized provident fund and his employer also contributes the same.
• He is provided with a mobile phone, the bill of which is paid by the company – Rs. 6,000. [10 Marks]

Ans 1.

Introduction

Taxable income is the amount of income that is subject to tax under the Income Tax Act of 1961. In India, different components of an individual’s income are taxed differently depending on their nature—salaries, bonuses, gifts, allowances, and various perquisites. Taxation involves determining which portions of income are taxable and whether they qualify for deductions or exemptions. For the assessment year (AY) 2023-24, income tax computation includes several factors such as basic salary, allowances (like dearness and compensatory allowances), employer-provided benefits (

 

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Q.2. Mr. Fenil is a 52 year old IT professional. He provides you with the following information related to the premium payments made by him for the year ending 31st March 2024 towards the mediclaim policy.

From the above information, you are required to help Mr. Fenil in computing the correct deduction value under section 80D considering the fact that he has made all the premium payments by cheque and only one payment towards preventive health check-up is made in cash as mentioned in the list below.

1. Payment made for dependent father’s medical expenditure  (Age: 81 years): Rs.50,000
2. Premium paid for dependent mother (Age: 72 years): Rs. 7,000
3. Payment made for  preventive  health  check-up  of  self  and  spouse  (Cash payment): Rs.6,000
4. Premium paid for self (Age: 52 years): Rs. 10,000
5. Premium paid for spouse (Age: 49 years): Rs. 9,000
6. Premium paid for dependent mother in law (Age: 65 years): Rs.5,000

Also comment whether the computed value of deduction under section 80D would change if the above premium payments were made in cash.    [10 Marks]

Ans 2.

Introduction

Section 80D of the Income Tax Act provides deductions for medical insurance premiums paid by an individual or Hindu Undivided Family (HUF). It allows taxpayers to claim deductions on the premium paid for themselves, their spouses, dependent children, and parents, subject to certain limits based on the age of the insured individuals. The deduction also includes preventive health check-ups up to a specified limit. Mr. Fenil, a 52-year-old IT professional, has made several premium payments towards his and his family’s mediclaim policies, including his

 

Q.3 (a) “Direct Taxes. are taxes that are to be paid by an assessee or the tax payer directly to the government, whereas, Indirect Taxes are the taxes that are levied on various business activities including manufacturing, trading, imports, exports, etc.”

In the context of the above, highlight 5 points of differences between the Direct and Indirect Taxes.   [5 Marks]

Ans 3a.

Introduction

Taxes form an essential component of government revenue and are broadly classified into direct and indirect taxes. Direct taxes are those that are paid directly by individuals or organizations to the government based on their income or wealth. In contrast, indirect taxes are collected on goods and services, and the burden of paying these taxes is transferred to the end consumer. Understanding the differences between direct and indirect taxes is crucial for businesses and individuals

 

Q.3 (b) Sam is a British citizen, comes to India for the first time during PY 2018-19. He stays in India for 55 days during 2018-19. In the following financial years as well, he stays in India for the following duration:

2019-20: 60 days

2020-21: 90 days

2021-22: 150 days

2022-23: 70 days

From the above information, you are required to determine Sam’s residential status for the AY 2023-24.     [5 Marks]

Ans 3b.

Introduction

Residential status is a critical factor in determining an individual’s tax liability in India. According to the Income Tax Act, 1961, an individual’s tax obligations in India depend on whether they qualify as a resident, non-resident, or resident but not ordinarily resident (RNOR). The residential status is determined based on the number of days the person stays in India during the previous years. In Sam’s case, his residential status for the Assessment Year (AY) 2023-24 will be determined based on the number of days he stayed in India over the past years, particularly focusing on the criteria laid