MBA-III SEMESTER

MF0003 – TAXATION MANAGEMENT

1. Following are the taxable income of Sri. Akash for the previous year 2008-09

1. Income from salary accrued in India and received in India 75,0002. Dividend income declared in United States but received in

India50,000

3. Income from long term capital gains in India 30,0004 Interest on debentures of a company at Paris, received in

India10,000

5. Royalty received in Paris for technical fee provided for a business carried on in London.

15,000

6 Interest received from Vivek, a non-resident on the loan provided to him for the business carried on in India.

6,000

7. Profit from cloth business in Malaysia 85,000Compute Sri. Akash’s total income for the assessment year 2009-10 if he is (i) Resident, (ii) Not Ordinarily Resident (iii) Non Resident.

Ans. Computation of total income of Sri Akash for the Assessment year 2009-10 , if he is (1) Resident, (2) Not Ordinary Resident, (3) Non-Resident

Income Resident Not Ordinary Resident

Non Resident

Income from salary accrued in India and received in India

75,000.00 75,000.00 75,000.00

Dividend income declared in United States but received in India

50,000.00 50,000.00 50,000.00

Income from long term capital gains in India

30,000.00 30,000.00 30,000.00

Interest on debentures of a company at Paris, received in India

10,000.00 10,000.00 10,000.00

Royalty received in Paris for technical fee provided for a business carried on in London.

15,000.00 - -

Interest received from Vivek, a non-resident on the loan provided to him for the business carried on in India.

6,000.00 6,000.00 6,000.00

Profit from cloth business in Malaysia 85,000.00 85,000.00 85,000.00

Total Income 2,71,000.00 2,65,000.00 2,71,000.00

2. Compute income from house property from the following particulars for the assessment year 2009-10

I II III IVMunicipal Value 40,000 45,000 50,000 52,500Fair Rental Value 35,000 46,000 54,000 65,000Rent received 32,000 37,000 45,000 55,000Standard Rent 36,000 40,000 48,000 57,000Vacancy Period 3 months - - -Repairs 15,000 14,000 17,000 19,000Municipal Tax:

- Paid 6,000 3,500 - -- Due 1,800 2,400

The assessee had borrowed on 1.10.2002 Rs.3,50,000 at 14% for the construction of the second house which was completed on 31-12-2005. As on 1-4-2008 Rs.3, 00,000 was outstanding. In respect of the fourth house one month rent was unrealized. The claim was genuine and satisfied the conditions: and the recent received was for 10 months.

Ans.

Working note: Pre-construction period is from 1.10.2002 to 31.03.2005 i.e., 30 months (6+12+12) interest of PCP= 3,50,000/- X14/100/X30/12= Rs. 1,22,500/- 1/5 of Rs. 122,500/- = Rs.24,500/- allowed for 5 years (2005-06 to 2009-10 previous years)

Computation of Income from House property for the assessment year 2009-10

1 House

Expected Rent: 40,000/-

Actual Rent Receivable N.A.

Actual Rent Received 32,000/-

G.A.V. 32,000/-

Less: Municipal taxes paid 6,000/-

Annual Value 26,000/-

Less Standard Deduction 30% 7,800/- 18,200/-

2 House

Expected Rent 40,000/-

Actual Rent Received NA

Gross Annual Value 40,000/-

Less Municipal Tax 3,500/-

Annual Value 36,500/-

Less: Standard Deduction 10,950/- 25,550/-

3 House

Expected Rent 54,000/-

Actual Rent Received N.A.

Gross Annual Value (54,000- )

Less: Municipal Taxes paid Nil

Annual Value

Less: 1. Standard deduction 30%

2. Interest on Loan 66,500/-

(42,000+22,500)

4 House

Expected Rent 57,000/-

Actual rent received/receivable NA

Actual Rent received/receivable 55,000/-

Gross Annual Value 55,000/-

Less: Municipal taxes paid Nil

Annual Value 55,000/-

Less: Standard Deduction 16,500/- 38,500/-

Income from House Property

3. What is a Provident fund? Explain briefly various types of Provident Funds.

Ans.

The word provident means to provide for the future, hence this fund is to provide for the future. This fund is created by an amount deducted from the salary of the employee every month at a certain rate. The employer also makes his own contribution to this fund. These contributions are invested to earn interest, which is also credited to the employee’s provident fund account. When an employee retires from his service, he receives this amount in lump-sum along with interest on it and is a great help to him at that time, if unfortunately, the employee dies during the tenure of his service, the amount of this fund is received by his wife and children or legal heirs which is of great help to them

Provident fund are of four kinds:

1) Statutory Provident fund,

2) Recognized Provident fund

3) Unrecognized Provident fund

4) Public Provident fund

Statutory Provident fund:

It is that provident fund to which the Indian provident fund act 1925 applies, generally, this provident fund is maintained by government or semi-government offices, like local authorities, universities other recognized educational institutions, statutory corporations and nationalized banks etc

Recognized Provident fund:

It is a fund to which the provident fund Act 1952, applies. Under this scheme, any person who employ 20 or more employees is under an obligation to register his firm or organization under the provident fund Act, 1952, and start a provident fund scheme for the employees in his organization. It is after 3 years of its establishment, that the registration should be done under this Act. There is one more alternative also. The funds which are not established under E.P.F. Act of 1952 have to be expressly recognized by the chief commissioner or commissioner of Income Tax. The Chief commissioner or commissioner recognizes this fund only when he is satisfied that this fund fulfils certain conditions set-out in the income tax Act of 1961. generally this fund is maintained by scheduled banks, factories and several business houses.

Unrecognized Provident fund:

It is that provident fund which is neither statutory nor recognized. Any institution or organization can maintain this fund. It is approved by the P.F. commissioner but not by the commissioner of income tax.

Public Provident fund:

The Public provident fund scheme was started from 1st July, 1968 , under the provision of PPF Act, 1968. every individual can subscribe to this fund and amount not less than Rs. 500 and not more than Rs. 70,000/- in year. He can also deposit money in installment which cannot exceed 12 in a year, an individual can open a public provident fund account either on his own behalf or on behalf of minor aof whom he is the guardian. However, an individual can open only one account in his own name. an account under this scheme can be opened at a branch of the state bank of india or its subsidiaries or at a branch of any of the nationalized banks authorized for the purpose by the central government.

A withdrawal is permissible every year from the seventh financial year of the date of opening the account. Of an amount not exceeding 50% of the balance at the end of the 4th preceding year or year immediately proceeding the year of the withdrawal, whichever is lower , less the amount of loan if any PF scheme allows the assessee to withdrawal the entire amount at his credit, after adjustment of the dues if any to government, on completion of 15 years after the end of the year in which the account is opened.

The first loan can be taken in the third financial year, up to 25% of the amount at the credit at the end of the first financial year. This facility can be availed only before the expiry of 5 years from the end of the year in which the initial subscription was made. The loan is repayable either in lump sum or in convenient installments.