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  1. Define Business?

Ans.             Sec 2(13) defines business as “any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce and manufacture.”

  • Explain the term “Profession” and “Vocation”.

Ans.             Sec 2(36) defines profession and Vocation as “A profession is an occupation requiring purely intellectual skill or manual skill controlled by the intellectual skill of the operator, Eg. Lawyer, engineer, surgeon, author etc. So profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill.”

                     Vocation simply means a way of living for which one has special fitness. A vocation does not involve any organized or systematic activity like business. So vocation simply means any type of activity in which a person is engaged and he earns his livelihood from such activity.

  • How will you treat profit earned from an illegal business?

Ans.             The income earned from any business – whether legal or illegal – is taxable. Incometax laws does not make any disctinction between a legal and illegal business.

          Expenses incurred to earn illegal income( u/s 37(1)).

                    “For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose, which is an offence, or which is prohibited by law shall not be declared to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.”

  • Explain the term “Keyman Insurance Policy”?

Ans.             Keyman insurance policy means a life insurance policy taken by a person on the life of another person who is or was

  • The employee of the first mentioned person, or
  • Connected in any manner whatsoever with the business of the first mentioned person.

Any sum received under a keyman insurance policy including bonus on such policy shall be chargeable under the head ‘Profits and Gains of business or profession.’

  • What is speculation Business?

Ans.             Sec 28 says that where speculatve transactions carried on by an assessee  are of such nature as to constitute a business, such business shall be deemed to be distinct and separate from any other business.

                     Sec 43(5) has explained a speculative transaction as “ a transaction in which a contract for the purchase or sale of any commodity,including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.

  • Mention any 8 deductions allowed under Sec 30 to 44DB.

Ans.             Some of the deductions allowed under sec 30 to 44DB are :

  • Rent, rates, taxes, repairs and insurance for building, used for the purpose of the assessee’s  business  – Sec 30
  • Repairs and insurance premium paid in connection with the plant, machinery, furniture etc used in business or profession – Sec 31.
  • Depreciation of  buildings, machinery, plant or furniture  – Sec 32.
  • Expenses not allowed to be deducted under certain circumstances – Sec 40A.
  • Deemed profits – Sec 41
  • Deduction incase of  oil mining concerns – Sec 42
  • Definition of certain terms – Sec 43
  • Insurance business Profits – Sec 44.
  • Mentions  any 6 deductions expressly admissible under sec 30 to 36.

Ans.             Expressly admissible deductions Sec 30 to 36 :

  • Rent, rates, taxes, repairs and Insurance in the case of building premises Sec 30.
  • Depreciation on Fixed assets Sec 32,
  • Expenditure incurred in the field of Scientific research. Sec 35.
  • Write a few lines on expenditure incurred on “Scientific Research”.

Ans.             Sec 43(3) defines the scientific research as activities for the extension of knowledge in the fields of natural or applied sciences including agriculture, animal husbandry or fisheries.

                     References to expenditure incurred on scientific research includes all expenditure incurred

  • For the prosecution. Or
  • The provison of facilities for persuing the scientific research, but does not include any expenditure incurred on the acquisition of rights in or
  • Arising out of scientific research .

References to scientific research related to a business or class of business include :

  1. Any scientific research which may lead to or facilities an extension of that business or, as the case may be, all business of that class;
    1. Any scientific research of a medical nature and which has a special relation to the welfare of workers employed in that business or, as the case may be, all business of that class.

All expenses incurred by an assesse on promotion of research can be divided into two broad categories

  1. On research carried on by assesse himself
  2. Revenue expenditure (Sec. 35(1)(i))
  3. Capital expenditure (Sec. 35(2))
  4. Expenditure on in house research and development. (Sec. (2AB))
    1. On research carried on by outsiders
  5. Approved research associations, university, college or other institutions. (Sec. 35(1)(ii)(iii)
  6. Contribution to National Laboratory. (Sec. 35(1)(iia)
  • What  is Security Transaction Tax?

Ans.             Sec 36(1)(xv). During the course of its business, any security transaction paid by the assesse during the previous year shall be allowed as deduction provided the income arising from such taxable securities transaction is included in the computed under the head “Profits and Gains from Business and Profession”. Security transaction tax is deductible only incase of those assesse who are dealers in securities.

  1. How does the act deal with expenditure related to Corporate Social Responsibility?

Ans.             Disallowance of expenditure related to corporate social responsibility

Anyexpenditure incurred by an assesse on the activities relating to corporate social responsibility referred to in Sec 115 of the companies act, 2013 shall not be deemed to be an expenditure incurred by the assesse for the purpose of the business or profession u/s 37(1) hence shall not be allowed as deduction while computing Income from business or profession. It is because CSR expenditure has been regarded as mere application of income by a company hence cannot be allowed as deduction for computing taxable income of the company.

          Allowance of CSR expenditure specified in section 30 to section 36.

It is important to note that the above disallowance of CSR expenditure relates to CSR expenditure allowable u/s 37(1). However, the CSR expenditure which qualifies for deduction u/s 30 to section 36 shall be allowed as deduction subject to fulfilment of conditions prescribed, if any, in respective sections.

  1. Explain the term block of assets?

Ans.             Block of assets means group of assets falling within a class of assets comprising tangible assets in respect of  sharing same rate of depreciation. Under sec 50 depreciable assets are calculated and treated as short term in such cases, cost of acquisition is calculated as follows:

Written down value of block of assets at the beginning of the year        xxx       +Purchases made in the block of assets during the previous year             xxx         -Expenses on transfer                                                                                xxx

  1. What is additional depreciation?

Ans.             With effect from assessment year 2006-2007 an additional depreciation at 20% of actual cost of plant and machinery allowed if following conditions are fulfilled:

  • The assessee is engaged in the business of manufacture or production of any article or thing or goods.
  • It is allowed in addition to normal depreciation and shall be taken into consideration for calculating written down value.
  • The plant and machinery is new and it has not been used earlier either in india or outside india
  • The plant and machinery is not eligible to be written off at 100% of its actual cost in any one previous year.
  1. Explain the treatment of unabsorbed depreciation under this act?

Ans.             The unabsorbed depreciation can be adjusted in following manner:

  • Depreciation allowance is deductible out of profits and gains of the business or profession for that assessment year.
  • If any portion of depreciation remains unadjusted it will be set off from any other income of the year except income under the head ‘salaries’
  1. Define Capital Asset?

Ans.             Sec 2(14) defines capital assets as :

  • Property of any kind held by an assessee whether or not connected with his business or profession. ;
    • Any security held by a Foreign Institutional Investor which has invested in such security in accordance with the regulations made under SEBI Act 1992.
  1. Define the term transfer under this act?

Ans.             Sec 2(47) : Transfer of  Capital Assets  includes – Sale, exchange or relinquishment of the asset or the extinguishment of any right under the law.

  1. Write a few lines on carry forward and set off of capital expenditure on scientific research?

Ans.             Capital Expenditure on research is allowed to debited to the profit and loss account in full but incase profit is insufficient to absorb full amount of capital expenditure then the same shall be allowed to be set off out of income of any other head except salary income and if any part of capital allowed to be set off out of income of any other head except salary income and if any part of capital expenditure still remains un adjusted the same shall be allowed to be carried forward and set off in future years as if it is an unabsorbed depreciation.

  1. State any four transactions that are not regarded as Transfer?

Ans. Some of the transaction not regarded as transfer are :

  1. u/s 46(1), distribution of asset in kind by a company to its share holders at the time of liquidation
    1. u/s 47(iii) transfer of capital asset under gift or will.
    1. u/s 47(iv) transfer of capital assets in a scheme of amalgamation
    1. u/s 47(x) transfer by way of, conversion of  bonds or debentures into shares.
  2. Explain short term capital gains?

Ans.             Sec 2(42A) Short-term Capital asset is that which is held by an assessee for not more than 36 months immediately preceding the date of its transfer.

                     In the case of shares held in a company securities listed in any recognised stock exchange, units of  U.T.I or  units of mutual funds specified u/s 10(23D) and zero coupon Bonds the period has been reduced to 12 months with effect from 1-4-88 i.e assessment year 1988-89.

                     Thus, unlisted shares the securities listed in any recognised stock exchange, units of U.T.I  or units of  mutual funds  and zero coupon bonds shall be treated as Long term capital assets if held for 12 months or more.

  1. What is Long term Capital Gain?

Ans.             The assets which are held by the assesse for a period exceeding 36 months immediately preceding the date of transfer, are called long term capital assets.

  • Write a few lines on Sec 54

Ans.             Sec 54- Capital Gain on transfer of long term residential house property.

  1. Who can claim exemption?                                                                     An individual or hindu undivided family.
    1. Which specific asset is eligible for exemption?

If it’s a residential house property, a long term asset transferred.

  1. Which asset, the tax payer should acquire to get the benefit of exemption?

Exemption is available if another residential house is purchased or constructed.

  1. What is the time limit for acquiring the new asset?
  2. Purchase : Residential houses can be purchased within 1 year before transfer or within 2 years after  transfer.
  3. Construction : Residential house can be constructed within 3 years from transfer.
  4. Bank deposit : In CGDS (Capital Gain Deposit Scheme)
    1. How much is exempt?

Investment in new asset or gross capital gain whichever is less.

  • Is it possible to revoke the exemption in subsequent year?

If the new asset is transferref within 3 years of its acquisition, exemption will be taken back for calculating capital gainson transfer of new asset, cost of acquisition will be calculated as original cost of acquisition- Exemption given earlier u/s 54)

  •  What is Sec 54 B

Ans.             Capital Gains arising from the transfer of land for agricultural purpose.

  1. Who can claim exemption?

Individual or with effect from Ayr 2013-2014, a hindu undivided family.

  1. Which specific asset is eligible for exemption?

Any short term or long term capital asset being used for agricultural purpose by the individual or his parents or by an hindu undivided family for agricultural purpose atleast 2 years immediately prior to transfer.

  1. Which asset the tax payer should acquire to get the benefit of exemption?

Agricultural land, may be in rural area or urban area.

  1. What is the time limit for acquiring the new asset?

Within 2 years from the date of transfer or deposit in capital gain deposit scheme.

  • How much is exempt?

Investment in the new asset or capital gain whichever is low.

  • Is it possible to revoke the exemption?

If the new asset is transferred within 3 years of its acquisition, exemption will be taken back. For calculating capital gain or transfer of new asset; Cost of acquisition will be calculated as (original COA- Exemption given earlier u/s 54B)

  • Explain Sec 54D.

Ans.             Capital gains on compulsory acquisition of land and building forming part of industrial undertaking.

  • Who can claim exemption?

Any tax payer can claim exemption.

  • Which specific asset is eligible for exemption?

Land or building, short term or long term forming part of an industrial undertaking which is compulsorily acquired by the government and which is used 2 years for Industrial purposes prior to its acquisition.

  • Which asset, the tax payer should acquire to get the benefit of exemption?

Land/ Building for industrial purposes.

  • What is the time limit for acquiring the new asset?

Within 3 years from the date of receipt of compensation or deposit in CGDS.

  • How much is exempt?

Investment in the new asset/ capital gain whichever is low.

  • Is it possible to revoke the exemption?

If the new asset is transferred within 3 years of its acquisition, exemption will be taken back for calculating capital gains on transfer of new asset, COA will be calculated as (Original COA- Exemption given earlier u/s 54D)

  • Write a few lines on Sec 54EC

Ans.             Capital gains on transfer of any long term capital asset on the basis of investment in certain bonds.

  • Any tax payer can claim for exemption.
    • Any long term capital asset is eligible for exemption
    • Bonds of NHAI or REC Bonds should be acquired to get the benefit of exemption. Maximum investment in one financial year is Rs 5000000
    • The time limit for acquiring the new asset is within 6 months from the date of transfer.
    • Investment in the new asset or capital gain whichever is low, the new asset shouldn’t be transferred within 3 years. The new asset shouldn’t be transferred within 3 years. The new asset should not be converted into money/any loan or advance shouldn’t be taken on within 3years from the date of acquisition of the new asset.
    • Exemption can be revoked In the following cases and the amount of exemption given earlier will become long term capital gain of the year in which, the assesse commits the following default:
  • If the new asset is transferred within 3 years from its acquisition.
  • If the new asset is converted into money or any loan or advance is taken on the security of the new asset within 3 years from the date of its acquisition of the new asset.
  •  What is Sec 54F?

Ans.             Where a long term asset is transferred and sale price is reinvested in construction or purchase of a residential within 3 years or one year before or 2 years after sale, respectively, so much of capital gain shall be exempted as is in proportion of amount invested to net consideration. No exemption if assesse owns another house or acquire another house in one year before or 2 years after or construct house in 3 years.

  • Explain  Sec 54G.

Ans.             Incase assesse has to transfer his assets due to shifting of his factory from urban areas to non- urban areas and he purchases new machinery to plan, or acquired land or building or has incurred expenses or shifting within one year before 2 years after sale, the capital gain shall be treated as below ;

  • Difference between Capital Gain and cost of new asset is taxable u/s 45
  • If capital gain is less than cost of new asset fully exempted.
  • What does Sec 54GA state?

Ans.             In case an industrial undertaking transfers its assets with the intention of shifting its premises from an urban area to a special Economic Zone. Capital  gain arising from such transfer if invested within specified time frame to set-up an industrial unit in a Special Economic Zone. Capital gain so invested shall be exempted.

  • What does sec 64GB explain.

Ans.             An Individual or HUF is eligible.

          Conditions:

  • The residential property must be a house or a plot of  land;
  • Such residential property must be long term capital asset;
  • Such residential property must have been transferred on or after    1-4-2012 but on  or before 31-3-2017
  • There must be a long term capital gain on such transfer
  • The assessee utilised the net consideration for subscription in equity shares of an eligible company and
  • The company has within one year from the date of subscription on equity shares by the assesse, utilised this amount for purchase of new asset.

Amount of exemption

  • If net consideration > cost of new asset, then

Amount of exemption = LTCG x Cost of new assets/Net consideration

  • If net consideration < cost of the new asset, then whole amount of capital gain shall not be charged as the income of the previous year.
  •  What are the capital gains exempted from tax?

Ans.             The exemptions can be broadly classified into :

  • Capital Gain exempted u/s 10
  • Income from sale of shares in certain areas
  • Capital gain on compulsory acquisition of urban agricultural land.
  • Exemption of  long term Capital Gain
  • Income from transfer of asset of an undertaking engaged in the business of generation, transmission or distribution of power.
  • Capital Gains
  • Capital gain on transfer of long term residential house property.
  • Capital gain on transfer of self cultivated agricultural land in urban areas.
  • Capital gain on transfer of any long term capital asset
  • Capital gains on compulsory acquisition of land and buildings.
  • Capital gain on shifting of industrial undertaking from urban areas to non-urban areas.
  • State any 8 general incomes under Income from other sources?

Ans.  

  • Income derived by a coal mine owner from rent royalties are included in this head.
  • Income received by a professional man as a university examiner
  • Income received on sub-letting of the house
  • Tips received by a waiter or taxi driver, not being given his employer
  • Family pension received by leagal heirs of employee
  • Deemed incomes
  • Commission received by a director for standing as guarantor.
  • Gratuity received by a non-employee director.
  • What are specified incomes under Incomes from other sources?

Ans.            

  • Dividends[Except dividend covered u/s 115-0]
  • Any winnings from lotteries, crossword puzzels, races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. These can be called casual Incomes.
  • Any income by way of interest on securities if the income is not chargable to tax under the head profits and gains of business or profession
  • Any sum received under a keyman insurance policy including bonus if such a sum is not taxable as salary or business income
  • Any consideration received by a closely held company for issue of shares that exceeds the face value of such shares
  • Income by way of interest received on compensation or on enhanced compensation.
  • What is Casual Income? Give Examples.

Ans              Any winnings from lotteries, crossword puzzels, races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. These can be called casual Incomes.

  • What is tax treatment of dividends from Indian Companies?

Ans.             It can be received on equity or preference shares of  a company, units of  UTI or shares of a Cooperative Society. Following points are to be noted while treating dividend for tax purposes.

  • Dividend declared or distributed by an Indian company or by a mutual fund on its units is fully exempted with effect from 1-4-2003
  • Bonus shares allotted to preference share holders shall be deemed as dividend and their market price shall be fully taxable.
  • Deemed dividend as per(b) and (c) above is fully taxable.
  • Explain the term securities and the authorities who can issue securities?

Ans.             A security is a document acknowledging the debt taken by a specific  authority from general public. It may be named as debt, certificate, security, paper or debenture.

          The authorities who can issue securities are:

  • The central government
  • A state government
  • A local authority
  • A company or
  • A statutory Corporation
  •  How will you treat family pension under this act?

Ans.             Family pension means a regular monthly amount payable by an employer to the legal heirs of deceased employee. In case of income in the nature of family pension, a deduction of a sum equal to 331/2% of such pension or Rs 15000 whichever is less, shall be allowed.

  • Explain the bond washing Transactions?
  • In case a person sells his securities to another person a few days before the accrual of interest and purchases them back after the date of accrual, and assessing officer is satisfied that the transaction has been made with the intention of avoiding tax, such interest shall be deemed as income of the transferor and not transferee,
  • In case a person has any beneficial interest in any securities and as a result of some arrangement either no income is received by such person or the income received by him is lower than the amount which he would have received, the interest, which would have income of person making such arrangement.
  • The assessing officer may direct any person to furnish a detail of securities held by him by serving upon him a notice for not less than 28 days.
  • In case of dealer of securities, if there is a transaction of sale or purchase of securities and as a result the interest becomes receivables by him but is not deemed to be his income due to the above provisions, no account shall be taken of the transaction in computing profits arising from or loss sustained in the business.
  • How will you treat speculation Loss?

Ans.             Any loss computed in respect of speculation business carried on by assesse shall not be set off except against profits and gains, if any, of another speculation business. In other words, speculation business loss can be set off only against speculation business income . It can setoff  against non speculation business income. However, non speculation business loss can also be set off against speculation business income. Loss in trading in derivatives is to be treated as non speculation business loss and not as speculation loss.

  • Mention any 8 deductions which qualify tax deductions under Sec 80C.
  • Deposit made in provident funds
  • Payment of life insurance premium
  • Payment made towards group insurance
  • Payment for deferred annuity
  • Amount invested in National Savings Scheme
  • Amount deposited with national housing banks
  • Term deposits with banks.
  • Deposits made in unit linked insurance plan.
  • Explain Sec 80D.

Ans.             Deduction in respect of medical insurance premia, preventive health check ups and contribution made to central Govt. Health Scheme.

  • Deductions regarding health insurance is allowed to individuals and HUF’s
  • Medical Insurance Policy of individuals, spouse and dependent children and contribution made to CGHS.
  • Actual premium deposited in any mode other than cash regarding medical insurance policyor policies of assesse, his/her spouse and all dependent children put together and preventive health check up amount upto  Rs 5000 only and contribution made to CGHS.

OR

  • Rs.15000(incase of senior citizen 20000)
  • Medical Insurance Policy of parent or parents.

Least of 2 amounts shall be allowed as deduction.

  • Actual premium deposited in any mode of other than cash regarding medical insurance policy of parent/parents. Parents may or may not be dependent upon the assesse.

OR

  • Rs. 15000 (incase of senior citizen Rs 20000)
  • Incase of HUF, the amount of medical insurance premium paid in any mode other than cash on health of any member of HUF as does not exceed in the aggregate Rs. 15000 (Rs 20000 incase of senior citizen).
  • What does Sec 80 DD deal with?

Ans.             Deduction in respect of maintenance including medical treatment of a dependent that is person with disability (Sec80DD)

  • This deduction is allowed to an individual who is resident of India or HUF
  • The deduction is allowed if they have incurred.

Rate of deduction

  • The assesse shall be allowed a fixed deduction of a sum of 50000Rs. From his gross total income in respect of the previous year.
  • Where such dependent is a person with severe disability  the deduction will be allowed for Rs. 100000.
  • What does Sec 80DDB state?

Ans.             Deduction in respect of medical treatment

  • This deduction is allowed to an individual or HUF who is resident in India only.
  • The expenditure must be incurred for himself or a dependent, in case the assesse is an individual.
  • The expenditure may be incurred for any member of a Hindu undivided family, in case the assessee is HUF.
  • Explain Sec 80 E

Ans.             Deduction in respect of interest on loan taken for studies. Deductions will allowed if following conditions are fulfilled.

  • Assessee is an individual
  • Loan has been taken from any financial institution or an approved charitable institution.
  • Assessee has paid interest on such loan during the previous year.
  • Assessee has paid interest out of his taxable income.
  •  What is sec 80EE

Ans.             Deduction in respect of interest on loan sanctioned during financial year 2013-2014 for acquiring residential house  Sec 80EE

  • Eligible assesse : Only individual
  • Conditions:
  • The loan for residential house property has been sanctioned by the financial institution.
  • The loan has been sanctioned during the period beginning on 1-4-2013 and ending on 31-3-2014
  • The amount of loan does not exceed Rs. 25lakh
  • The value of residential property does not exceed Rs. 40 lakh
  • Amount of deduction for assessment year 2014-2015

Interest Payable

          OR

Rs 1 lakh

  • How ever where the interest payable for the previous year 2013-2014 is less than Rs. 1 lakh the balance amount shall be allowed as deduction in the previous year 2014-2015.
  • Write a few lines on Sec 80G

Ans.             Charitable institution deductions. Some of them are

  • National defence fund
  • Prime minister fund
  • National children fund
  • Rajiv Gandhi foundation
  • Indira Gandhi memorial trust
  • Jawaharlal Nehru Memorial Fund
  • What is Sec 80GG?

Ans.             This deduction is allowed to individuals only for rent paid. The assesse must be living in a rented house due to his employment, business or profession. He should not be getting any HRA. He or his spouse should not have any self-occupied house in India. He or his spouse, minor child or HUF do not own a house at the place where the tax payer resides.

  •  Explain sec 80GGA.

Ans.             Deduction in respect of any payment made to certain specific scientific institutions or an institution having rural developmental programme as its object any sum paid to research association, paid to university college for research purposes, for taxing people, National poverty fund.

  • What does sec 80GGB deal with?

Ans.             In case a company is donating or contributing any amount to any political party and electoral Trust, a deduction @ 100% of such donation shall be allowed. No deduction shall be allowed in case donation is given in cash. It is hereby declared for the purposes of this section the word ‘contribute’ with its grammatical variation, has the meaning assigned to it under section 293A of the companies act, 1956.

  • Explain sec 80GGC

Ans.             In computing total income of an assessee being any person except local authority and every artificial judicial person wholly or partly funded by the government, there shall be allowed as deduction of an amount of contribution made by him, in previous year to a political party and an electrol trust. No deduction shall be allowed if donation is made in cash.

  • Explain briefly the deduction under Sec 80U.

Ans.             Deduction in case of a person with disability. This deduction is allowed to an individual who is resident in India. Who at any time during the previous year is certified by the medical authority to be a person with disability. Rate of deduction fixed 50000 in case of disability in severe disability 100000 is fixed.

  • Write a few lines on filing of returns.

Ans.             Every person being a company or a whether it is a income or loss during previous year or not. Every  person other than a company or a firm whose total income exceeds the exempted limit. If gross total income shall file return before dude date.

  • What is a PAN?

Ans.             A partnership firm/LLP is required to have its own permanent account number (PAN) which will be different from PAN of partners. The PAN bears its name and is used for filing return on income of the firm. It is important to note that the  individual income of partners cant be clubbed with company’s income.

  • What is self assessment?

Ans.             Every  assesse liable to pay income tax is required to submit his return u/s 139, 142, 148, or u/s 153A.

  • What is best judgement assessment?

Ans.             Where in respect of an assessment year there is on the part of a firm any such failure as is mentioned in section 144 and such firm is subjected to best judgement assessment, the firm shall be assessed in the same manner as given below for firms which fail to fulfil conditions prescribed u/s 184 [sec 184(5)].

  • What is reassessment?

Ans.             Sec 147 – If the assessing officer has the reason to belive that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provision of sec148 to 153, assess or reassess such income which are chargeable to tax. It is also provided that the Assessing officer may assess, reassess such income other than income