1

RESIDENTIAL STATUS:

1. X (40 years), an Indian citizen, leaves India for the first time on October 10, 2015 for
employment outside India. Before this, he was never out of India since birth. During the
PY 2016-17 and 2017-18 he comes to India for 152 days (on April 2, 2016) and 195
days (on July 10, 2017), respectively. Find out the residential status of X for AY
2018-19. Does it make any difference if X comes to India on October 10,2017 (and not
on July 10, 2017)

2. X was born in Karachi on January 2, 1947. He has been staying in USA since 1986. He
comes to India on a visit for 200 days on October 10, 2017. Determine the residential
status of X for the assessment year 2018-19.

3. X (44 years) is a citizen of India. He leaves India for the first time on September 20,
2017 for the purpose of working on an overseas project for the employer; ABC Ltd, an
Indian company. He will return on October 10, 2018. Find out his residential status for
AY 2018-19 and 2019-20.

INCOME FROM SALARIES AND WAGES:

Computation of Gratuity

1. Ms. B, an employee of ABC Ltd. receives Rs.78,000 as gratuity. She is covered under
Payment of Gratuity Act, 1972. She retires on 12-12-17 after rendering service for 38yrs
and 8mths. Her last drawn basic basic salary is Rs.3,200 per month. Determine the
amount if exempt gratuity.

2. Mr. C, retires from XYZ Ltd. on January 15, 2017 after rendering service for 34yrs and
5mths. He is covered under Payment of Gratuity Act, 1972 and receives Rs.1,50,000 as
gratuity. His last drawn basic basic salary (basic + DA) is Rs.7,000 per month.
Determine the amount if exempt gratuity.

Pension

1. Mr. Y retires from SS Co. Ltd. on 31-08-2017. His monthly pension is fixed at
Rs.30,000. What is the taxable pension amount for AY 2018-19?

2. Mr. D works for Rajasthan Govt. He is receiving Rs.16,000 monthly pension. From
1-08-2017, he commutes Rs.4,000 of his pension for Rs.4,80,000. Calculate actual
value of commuted pension. (Hint: Actual value of commuted pension= Lump Sum
amount received * (Actual pension/ commuted portion of pension)

3. Mr. E commutes 35% of his pension for Rs.1,40,000. Calculate actual value of his total
pension.
 2

HRA

1. Mr. A who resides in Chennai gets Rs.60,000 p.a as basic salary. He receives HRA of
Rs.10,000 p.a. Rent paid by him is Rs.8,000p.a. Find out taxable HRA

2. Ms. B resides in Mysore and earns a basic salary of Rs.40,000 p.a. HRA received is
Rs.12,000 p.a but pays a rent of Rs.15,000 p.a. Calculate taxable HRA.

3. Mr. C resides in Delhi and earns a basic salary of Rs.55,000 p.a. HRA received is
Rs.15,000 p.a but pays a rent of Rs.18,000 p.a. Calculate taxable HRA

Provident Fund

1. Mr. X provides the following information. His basic salary is Rs.1,80,000; Employer
contributes Rs.30,000 to PF and the same is matched by Mr. X. Interest credited to PF
account on March 17, 2017 @14% to Rs.5,400. Find the taxable salary of Mr. X for AY
2018-19 if the PF is:
● Statutory PF
● Recognised PF
● Un recognised PF

2. Mr. X provides the following information. His basic salary is Rs.3,15,000; Employer
contributes Rs.42,000 to PF and the same is matched by Mr. X. Interest credited to
PF account on March 17, 2017 @13% to Rs.10,600. Find the taxable salary of Mr. X
for AY 2018-19 if the PF is:

● Statutory PF
● Recognised PF
● Un recognised PF

Combination Problem

1. Mr X (43 yrs) is an officer with ABC Ltd residing in Nasik. During the previous year, Mr X
received Rs.50,000 as monthly salary. Besides, he gets the following allowances:
● Transport allowance: Rs.1,800 per month (for commuting between office and
residence).
● Travelling allowance: Rs.3,000 per month (appx 75% used for official work)
● Research allowance Rs. 2,000 per month (nothing is spent)
● Helper allowance Rs.9,000 per month ((appx 80% utilised)
● HRA: Rs.17,000 per month (till May 2017, he resided in a rented apartment
and paid rent of Rs.6,000 per month). Thereafter, he takes a housing loan of
Rs.55,00,000 @9.5% interest rate.

Find the taxable income for Mr.X for AY 2018-19. Mr X annually deposits Rs.30,000
 3
to Public Provident Fund.

2​. Mr X (58 yrs) is an officer with Z Ltd residing in Pune. During the previous year, Mr X
received Rs.26,000 as monthly salary and commission as Rs.10,000 per month.
Besides, he gets the following allowances:

● HRA: Rs.8,000 per month

● Conveyance allowance: Rs.3,500 per month (appx 90% used for official work)
● Transport allowance Rs. 1,600 per month (from office to home, 50% utilised)

Additional information:

X pays mediclaim insurance premium of Rs.10,000 annually. This policy is taken on

the life of Mr. X’s father who, is not dependant on Mr. X. He pays tuition fees of
Rs.1,000 per month for his dependant child.

He deposits Rs.50,000 to PPF on January 1, 2017. Find the tax liability of Mr.X for
AY 2018-19.

Income from House Property

1. Mr. X owns a house at Delhi. During the previous year 2017-18, 3/4th portion of the
house is self-occupied for full year and 1/4th portion is let out for residential purpose on
a rent of 1,500 p.m. Municipal valuation of the house is 48,000 and fair rent 52,000. He
incurs the following expenditure in respect of the house property during the year:
Municipal taxes 6,000; Repairs 2,100; Fire Insurance Premium 3,700; Land Revenue
4,200; Ground Rent ​` ​300. A loan of ​70,000 was taken on 1-4-2009 @ 15% p.a. for
the construction of the house which was completed on 31-3-2012. Nothing has been
repaid on loan account so far.
Compute Mr. X’s income from house property and tax liability for the assessment
year 2018-19.
2.​ Mrs. X (age 40 years) owns two houses. The details of the two houses are as follows:

First House Second House

Municipal valuation 3,10,000 2,10,000

Fair rent 3,40,000 2,20,000

Standard rent 2,90,000 2,30,000

Annual rent received/ receivable ---- 2,07,600

Unrealised rent ---- 17,300

 4
The first house is used for her own residence while the second is let out. She paid ​20,000
as interest on loan taken for the construction of the first house. The second house
remained vacant for two months during the year 2017-18.
Expenses in respect of the second house for the said year were as follows:
Municipal taxes paid: 15,000; Land revenue due but unpaid: ​5,000; Interest on loan for
reconstruction of the house 20,000. Fire insurance premium paid 5,000. During the
financial year 2017-18, Mrs. X was employed in ABC Ltd. at a monthly salary of 25,200.
The company paid 2,500 as professional tax on her behalf. Compute total income of Mrs. X
for the assessment year 2018-19 assuming that she does not have any other income.

3. X owns a residential house property. It has two identical units – unit I and unit II. While
unit I is self-occupied by X and his family members, unit II is let out (rent being ​7,000 per
month, this unit remained vacant for one month during which it was self-occupied).
Municipal value of the property is 1,25,000. Standard rent is ​1,35,000 and fair rent is
1,50,000.Municipal tax is imposed @ 12% (on municipal value) which is paid by X. Other
expenses for the previous year 2010-11 being repairs ​` ​5,000 and insurance ​` ​6,000.
X borrowed `​ ​8,00,000 on 1-7-2007 from LIC @ 12% p.a. to construct the property.
Construction of the house was completed on June 30, 2009. The entire amount is still
unpaid.
Compute the income of Mr. X for the assessment year 2011-12 on the assumption that
income of X from other sources is ​`​3,00,000.

Income from Capital Gains

1. Mr. X purchased a house property for Rs.1,00,000 on 31st July 2013. He

constructed the first floor on the property for Rs.1,10,000 on March 10, 2014.
The property was sold for Rs.5,00,000 on April 1st, 2017. The expenses
incurred on the sale was Rs.10,000. Find the capital gain. Would it make
any difference if the property was acquired in July 2015?
2. A firm consists of 3 partners namely R, G and S.S retires from the firm on 15- 10-2008. His
capital balance and the profits till the date of retirement stood at Rs.15,00,000. The firm
transferred its land to S in settlement of his account. The market value of the land as on
that date was Rs.25,00,000. The land was acquired by the firm on 1-5-1996 for
Rs.5,00,000. Compute capital gain in the hands of the firm.
3. R bought 500 Listed shares in 1978 for Rs.15 per share. The market value of these shares
on 1.4.81 was Rs.25 per share.

● Compute the tax payable by R if the above shares were sold on 15.11.2008 to the
relatives without routing through the stock exchange, for: a) Rs.90,000 b) Rs.70,000.
● What shall be your answer if these shares have been sold through a recognised stock
exchange and it is subject to Securities transaction tax?
 5
Income from Capital Gains (Indexation)

1. Mr X (55 yrs) transfers the following capital assets during the previous year 2017-18:
● Transfer of 2,500 equity shares in A Ltd. by way of gift to a friend
● Transfer of residential house property for Rs. 47,80,000 to B (COA in 2004-05: Rs.
5,79,496, COI in 2010-11: Rs. 94,878. Stamp duty value during transfer: Rs. 6,02,000.
Other expenditure on transfer incurred by X and recovered from B: Rs.11,500)
● X owns a plant (rate of depreciation @15%). Depreciated value of the plant on April 1,
2017 is Rs.8,00,000. The plant is transferred on October 15, 2017 for Rs.26,00,000.
Expenditure on transfer of plant is Rs.24,000.
● Index numbers 2004-05:113, 2010-11:167, 2017-18:272. Determine Mr.X’s capital gains
for AY 2018-19.

2. X purchases gold for Rs. 6,30,000 on July 17, 2001. In 2006-07, gold is converted into
jewellery by spending Rs. 23,323. In July 2010, X starts a business of selling jewellery
owned by him by converting it into stock-in-trade (at the time of conversion, FMV of the
jewellery is Rs.18,69,000). 40% of the stock in trade is sold to Mr. Y on November 2017 for
Rs.30,000,000. Ascertain the income chargeable to capital gains in the above scenario.
Index numbers 2001-02:100, 2010-11: 167

3. X is a resident in India. He submits the following information pertaining to AY 2018-19.

❏ Income from house property: Rs.9,40,000.

❏ He receives a house property as a part of his father’s will in 2005-06. This house was
originally purchased by Mr. X’s father in the year 1976 for Rs. 96,000. Its fair market value
as on April 1, 2001 is Rs.3,50,000. In 2007-08, Mr X made improvement to the house
property for Rs.5,00,000. He sells this property on August 6, 2017 for Rs. 99,00,000.
Index numbers 2001-02: 100, 2007-08: 129.
❏ Ascertain the total income chargeable to tax for Mr. X

Income from Business and Profession

1. Mr. Y owns a rubber tyre manufacturing business. Details of his business income and
expenditure is given below. Ascertain his liability under the head ‘Income from Business
and Profession’ for assessment year 2018-19.

Particulars Amount Particulars Amount

Opening Stock 5,00,000 Sales 81,00,000

Purchase of rubber 55,00,000 Rent from staff quarters 37,000

Rail freight 6,00,000 Cash assistance from govt 20,000

Salaries and wages 14,50,000 Dividend from Indian Co’s 60,000

Wealth tax 10,000 Export Award 20,000

Legal expenses 40,000 Closing stock 7,00,000

 6
Repairs to plant and machine 14,000

Reserve for bad debt 5,000

Staff welfare expenses 10,000

Provision for income tax 50,000

General reserve 1,00,000

Additional Information:
● Legal expenses include 10,500 paid to a chartered accountant for conducting income tax
appeal and 2,000 in connection with prosecution of an employee for smuggling goods.
Profit of 20,000 was made on these smuggled goods which wasn’t brought to business.
● Staff welfare expenses include 4,000 paid as municipal tax for staff quarters.

2.​ Mr. A runs an advertising agency. His receipts and payments account is as under:

Receipts Amount Payments Amount

To Opening balance 5,000 By Salary to staff 24,000

To Advertising revenue 1,45,000 By Salary to self 60,000

To Advertising commission 22,500 By Office rent 12,000

received from L.I.C

To winning from lotteries 5,000 By Advertising expenses 12,000

To gift received from father 10,000 By Household expenses 9,000

By Telephone expenses 14,500

By purchase of furniture 18,000

By Life insurance for self 24,000

By advance tax 7,500

By balance c/d 6,500

Total 1,87,500 Total 1,87,500

Purchase of old typewriter for 6,500 has been wrongly included in household expenses.
Provide depreciation @ 10%. Calculate income from business/ profession.

3. Dr. D is a renowned medical practitioner who maintains books of account on cash basis,
 7
furnishes his Receipts and Payments Account for the financial year 2017-2018.

Receipts Amount Payments Amount

To Opening balance 14,000 By clinic rent 10,600

To Consultation fees 3,25,000 By electricity and water bills 12,000

To Sale of medicines 60,000 By purchase of surgical 16,500

equipment

To gifts 5,000 By salary to staff 25,000

To money received from 7,000 By life insurance premium 15,000

publication of article in
medical journal

To interest on saving bank 8,000 By purchase of motor car 2,55,000

account

By interest on loan 50,000

By income tax 11,900

By household expenses 10,000

By balance c/d 13,000

Total 4,19,000 Total 4,19,000

Compute his taxable Professional Income for the assessment year 2018-19 after taking
into account the following additional information:
(a) 1/3 of the use of car relates to his personal use.
(b) Depreciation on Motor Car Allowable is 20% and surgical equipment is 15%
(c) Gifts include 3,000 from patients in appreciation of his medical service and 2,000
received a Birthday Gifts.

Income from Other Sources

1. X is a resident of India and receives the following during the year:
● Royalty Income: Rs. 8,20,000
● Gift received in foreign currency: Rs.6,000
● Interest on 6.5 per cent ​(tax free) ​National Relief Fund bond
● Rent from letting out a house property in Delhi: Rs.40,000
● Painting received as gift from a friend. Market value of the painting is Rs. 65,000.
Compute income from other sources
 8
2. Mr. A (age 42 yrs) holds the following securities on April 1, 2017:
● Rs. 80,000: 9% (Non-listed) debentures of ABC Ltd. (dates of payment of interest is
June 1 and December 1 every year)
● Rs. 2,30,000: 6% Central Government securities (date of interest payment is February
28 every year)
● Rs. 4,90,000: 10% debentures of PQR Ltd. (dates of payment of interest is March 1
and September 1 every year)
● Gift received from Mrs. A (spouse) Rs. 1,50,000.
Calculate income from other sources

Clubbing of Income

1. X submits the following information:

● Son of X (date of birth: August 31, 2002) has a Fixed deposit of Rs.40,00,000 in PNB
(rate of interest 7% pa).
● Minor daughter of X owns a business. For the previous year, her income from business
is (70,000)
● Salary of X is Rs. 11,45,000
● Income of Mrs. X for the assessment year 2018-19 is Rs.3,00,000.
● Calculate the combined income of Mr.X

2. Following details of Mr. B are available for AY 2018-19

● Transfer of house property to Mrs. B for Rs.50,000. Fair market value of the house at
the time of transfer is Rs.82,00,000.
● Mr. B owns a cloth manufacturing business. The income generated from the business
during 2017-18 was Rs.11,00,000. Mrs. B is also an employee in the business and
receives an annual salary of Rs.1,35,000.
● Mr. B’s children (2 sons, both minors) hold 30% each stake in the business.
● Mr. B receives rental income of Rs.75,000 per year
● Calculate combined income of Mr. B.
 9
Total Income

1. Dr. Gurumoorthy, a resident individual at Madurai, aged 50 years is running a clinic. His
Income and Expenditure Account for the year ending March 31st 2018 is as under :

Expenditure Rs. Income Rs.

To Medicine consumed 8,40,000 By Consultation and Medical 21,00,000

charges

To Staff salary 4,25,000 By Income-tax refund 16,500

To clinic consumables 1,55,000 By Dividend 27,000

To Administrative expenses 1,20,000 By Winning from lottery 35,000

To Rent 3,00,000 By Rent 54,000

To Donation to approved 1,00,000

research

To Net Profit 2,92,500

22,32,500 22,32,500

(i) Rent paid includes 36,000 paid by cheque towards rent for his residence.
(ii)Clinic equipments are : 01.04.2017 Opening WDV 4,50,000
07.02.2018 Acquired (cost) 1,00,000
(iii) Rent received relates to property let out at Madurai. Gross Annual Value 54,000. The
municipal tax of 9,000, paid in January 2018 has been included in “administrative expenses”.
(iv) Dr. Gurumoorthy availed a loan of 5,50,000 from a bank for higher education of his
daughter. He repaid principal of 50,000 and interest thereon 5,000 during the year 2013- 14.
(v) He paid 6,000 as tuition fee to the university for full time education of his son. From the
above, compute the total income of Dr. Gurumoorthy for the A.Y.2018-19

2. Mrs. Deepali (aged 40 years), working with M/s Good Company Ltd.,has received the
following payments during the financial year 2017-18 from her employer: Basic salary 60,000
per month. Other allowance 40% of basic salary.

Her employer has taken on rent her Mrs. Deepali’s house on a monthly rent of 15,000 and the
same has been provided for residence of Mrs. Deepali. Company is recovering 2,000 per
month as rent of house. Mrs. Deepali has further furnished the following details:

(i) She has paid professional tax of 6,000

(ii)She is owning only one house and pays interest of 1,75,000 for housing loan taken for
purchase of house.

Mrs. Deepali was gifted a land by her father in December, 2001 at the occasion of her
marriage. The land was allotted to her father in November, 1991 at cost of 6 lac by MHADA for
commercial purpose. She set up a nursery on land, earns profit of 4 lacs during the year
2017-18 from seedlings growing in the nursery. Her expenses related to the nursery include
 10
40,000 paid for gardening equipment and 20,000 as cost of seeds. She pays a yearly salary of
45,000 to the gardener. Depreciation @10% needs to be charged on the garden equipment
which, was not recorded in the books. Compute the total income of Mrs.Deepali for
A.Y.2018-19

3.​Dr. S is running a clinic. His Income and Expenditure account for the year ending 31st
March, 2018 is given below:

Expenditure Amount Income Amount

To Staff Salary 4,30,000 By Fees Receipts 12,63,600

To Consumables 9,250 By Dividend 9,500

To Medicine consumed 3,64,800 By Winning from lotteries 28,000

To Depreciation 91,000 By IT refund 2,750

To Administrative Expenses 1,46,000

To Donation to Prime 15,000

Minister's National Relief Fund

To excess of income over exp 2,47,800

13,03,850 13,03,850
(i) Depreciation in respect of all assets has been ascertained at Rs.50,000 as per Income-tax
Rules.

(ii) Medicines consumed include medicine of (cost) 16,000 used for his family.

(iii) Fees Receipts include 14,000 honorarium for valuing medical examination answer books.

(iv) He has also received 90,000 on account of Agricultural Income which had not been
included in the above Income and Expenditure Account.

(v) He has also received 57,860 on maturity of one LIC Policy, not included in the above
Income and Expenditure Account.

(vi) He received 6,000 per month as salary from a City Care Centre. This has not been
included in the 'Fees Receipts' credited to Income and Expenditure Account.

(vii) He has sold land in June, 2017 for 6,00,000. The land was acquired by him in October,
1999 for 4,50,000.

(viii) He has paid premium of 12,000 for another LIC Policy which was taken on 1.04.2012
(sum assured 50,000).

(ix) He has paid 2,500 for purchase of lottery tickets.

From the above, compute the total income of Dr. S for AY 2018-19.
 11
4. ​Mr.A is an employee of Sun Pharma and retires on 30/11/2017 after working for 22 years
and 9 months His earnings from Sun Pharma are as follows:

● Basic Salary: 65,000 per month

● Travelling allowance: 1,600 per month
● HRA: 15% of basic (Mr.A lives in Pune and pays monthly rent of Rs.13,000)
● Pension: 26,000 per month
● Commuted pension: 7,00,000 (30% commuted as on 1/3/2018)
● Gratuity: 15,00,000

Mr.A sold a house property on 1/02/2018 at Rs.95,00,000. This property was received by
him as a part of his father’s will. The purchase price of this property in 1981 was
Rs.2,30,000. Fair market value of the same in April 2005 was Rs.20,00,000. The property
was renovated in December 2016 for Rs.4,00,000. Calculate total income of Mr.A for AY
2018-19. (Index 2005-06:117, 2016-17:264 ,2017-18:272

5. Mr. Pankaj, aged 58 years, who retired from the services of the Central Government on
30.6.2017, furnishes particulars of his income and other details as under:

♦ Salary @ 6,000 p.m. ♦ Pension @ 3,000 p.m. for July 2017 to Nov 2017. ♦ On 1.12.2017, he
got 1/3rd of his pension commuted for 1,20,000.

♦ A house plot at Nasik sold on 1.2.2018 for 5,00,000 had been purchased by him on
3.11.1979 for 10,000. The value of this house plot as on 1.4.1981 was 15,000

♦ Received interest on bank FDRs of 72,500, dividend on mutual fund units of 15,000 and
interest on maturity of NSC 50,000 Investment in purchase of NSC for 30,000

♦Payment of mediclaim insurance for self and wife of 12,500. Made investment in Tax
Magnum units of Mutual Fund of SBI of 80,000. Compute the total income of Mr. Pankaj for
A.Y. 2018-19.