Deduction under-income-tax

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Deduction under Income Tax Chapter VI-A

Business Accounting & Taxation Program

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Case Studies on Deductions

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Case 1 – Deduction u/s 80C

Mr. N is employed at a gross salary of Rs.8,00,000. He gets Rs.15,000 interest on bank deposit. Hehas made the following investment/deposit during the year 2013-2014. Besides, interest of Rs.1,632on NSC-VIII, (purchased during the year 2008-2009) has been credited on them during the year2013-2014. Compute deduction u/s 80C for the Assessment Year 2014-2015.

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Case 1 – Deduction u/s 80C (Solution)

Computation of Deduction u/s 80C of Mr. N for the Assessment Year 2014-2015

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Case 2 – Deduction u/s 80D

Mr. C, manager of L Ltd., has paid Rs.38,000 during the Previous Year 2013-2014 by way of medical insurance under GIC approved medical policies. The details are given as below:

For himself Rs.6,000

For Mrs. C, a Canadian citizen, resident in Toronto and not dependent on him Rs.5,000

For B, married son living with him and dependent on him Rs.3,000

For D, minor son resident in Toronto and not dependent on him Rs.3,000

For Mrs. B, daughter-in-law, dependent on him Rs.5,000

For E, a minor grandson dependent on him Rs.3,000

For K, father, 67 years, resident and dependent on him Rs.3,000

For M, mother, 66 years, resident in Toronto and dependent on him Rs.6,000

For Grandfather, dependent on him, 95 years of age and resident in India Rs.4,000

C has earned gross salary of Rs.2,50,000 during the year and also earns Rs.95,000 as interest from 7% Capital Investment Bonds, purchased on 31 May 2004. Compute his eligible deduction u/s 80D for the Previous Year 2013-2014 assuming the following situations:

I. Premium is paid by cheque from his salary income.

II. Premium is paid in cash from his salary income. He holds a valid receipt for cash payment.

III. Premium is paid by cheque out of interest from 7% Capital Investment Bonds, acquired on 31-5-2004.

IV. Premium is paid in cash out of interest from 7% Capital Investment Bonds, acquired on 1-6-2004.

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Case 2 – Deduction u/s 80D (Solution)

Computation of Deduction for Medical Insurance Premium u/s 80D

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Case 2 – Deduction u/s 80D (Solution) … contd.

Notes:

Medical insurance premium on spouse’s health is always eligible irrespective of whether the spouse is dependent on the assessee or not. The condition of dependency applies only in case of children and parents.

Medical premium on health of grandson, grandparents, daughter-in-law or son-in-law are not eligible for deduction u/s 80D.

Only the premium on health of dependent father will qualify for relaxation as a senior citizen. Since dependent mother is non-resident and, therefore, outside the purview of being a “senior citizen”. However, the premium for health of mother will qualify for the normal limit irrespective of the residential status.

Any premium paid in cash or by cheque or out of exempted income does not quality for deduction u/s 80D.

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Computation


Computation

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Income Head Particulars

Income from Salary

Income by way of allowance

Taxable value of perquisite

Less: Allowances / Taxes

Taxable income under the head "Salaries"

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Computation

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Income from house property

Adjusted net value

Less:Deduction under section 24

Taxable income under the head "Income from House Property"

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Computation

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Profits and gains of business or profession

Net profit as per P & L a/c

Add:Amounts which are not allowed

Taxable under the head "Profit and Gains of Business or Profession"

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Computation

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Capital gains

Amount of gains

Less:Amount exempt under sections 54

Taxable under the head "Capital Gains"

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Computation

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Income from other sources

Gross income

Less:Deductions under section 57

Taxable income under the head "Income from Other Sources"

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Computation

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Particulars Amount

Tax on net income xx

Add:Surcharge xx

Tax and surcharge xx

Add: Education cess and secondary and higher education cess xx

Less:Rebate under sections 86, 89,90, 90A and 91 (xx)

Less: Pre-Paid Taxes (xx)

Less: Tax deducted or collected at source (xx)

Less: Tax paid in advance / Advance Tax (xx)

Less: Tax paid on self assessment (xx)

Tax to be paid / (refund) xx

Particulars Amount

Total Gross Income (i.e. 1+2+3+4+5) xx

Less:Deductions under Sections 80C to 80U (xx)

Total income or net income liable to tax xx


Case Studies on Total Income Computation


Case 1 – Total Income Computation

R borrowed a sum of Rs.25,00,000 from the State Bank of India @ 12% p.a. on 1.5.2013 and purchased a house property for Rs.36,00,000 on the same day. He does not own any residential house property on the date of taking the loan. He has been using the house property for his own residence since its acquisition.

Compute the total income of R assuming he has salary income of Rs. 9,60,000 and he deposited Rs.1,30,000 in PPF during the previous year 2013-14.

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Case 1 – Total Income Computation (Solution)

Computation of total income of R for Assessment Year 2014-15

Note:

Total interest @ 12% on Rs.25,00,000 for 11 months

= 25,00,000 × (12/100) x (11/12)

= Rs.2,75,000

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Case 2 – Comprehensive Problem on Total Income

M, resident in India, furnishes the following particulars of his receipts and outgoings during the Previous Year 2013-2014.

Receipts:

I. Income from Salary Rs.2,00,000

II. Income from House Property Rs.3,00,000

III. Gross winning from crossword puzzle Rs.3,50,000

Outgoing :

I. Term deposits for a fixed period of 5 years with a scheduled bank Rs.15,000

II. Medical insurance premium:

a) For himself Rs.4,000

b) His wife, not dependent Rs.3,000

c) Mother, non-resident, 67 years, dependent Rs.5,000

III. M had borrowed a sum of Rs.2,00,000 in 2003 @ 9% interest to complete his B.Tech. degree from Delhi University. In March 2014, he repaid a sum of Rs.75,000 (including Rs.20,000 interest)

Students are required to compute Total Income of M for the Assessment Year 2014-2015

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Case 2 – Comprehensive Problem on Total Income (Solution)

Computation of Total Income for AY 2014-2015

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Deduction under-income-tax

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