Tax

Less: Expenses - Less: CoA (2,00,00) 2,00,000 STCG/(STCL) 4,00,000 Illustration-14 What will be your answer in case jewellery was purchased by Mr. Chacha on 15.11.09 instead of 15.11.16? Solution: Particulars ₹ AY 2018-19 Nature: 15.11.2009 – 28.11.2017 LTCA FVC 6,00,000 Less: Expenses - Less: ICoA (2,00,00) x 272 / 148 3,67,567 LTCG/(LTCL) 2,32,433 Illustration-15 Mr. H has acquired a residential house property in Delhi on 1st April, 2001 for ₹22,00,000 and decided to sell the same on 3rd May, 2004 to Mrs. P and an advance of ₹70,000 was taken from her. The balance money was not paid by Mrs. P and hence, Mr. H has forfeited the entire advance sum. In April, 2017, he once again entered into negotiations for sale of the said property to Mr. Y, and received ₹2 lakh as advance, but the transfer did not materialize and hence, the advance was forfeited. On 3rd March, 2018, he finally sold this house to Mr. S for ₹95,00,000. In the meantime, on 4th February, 2018, he had purchased a residential house in Faridabad for ₹28,00,000 and made full payment for the same. However, Mr.H does not possess any legal title till 31st March, 2018, as such transfer was not registered with the registration authority. Mr. H had purchased another old house in Madurai on 14th October, 2017 from Mr. X, an Indian resident, by paying ₹25,00,000 and the purchase was registered with the appropriate authority. Determine the taxable capital gain arising from above transactions in the hands of Mr. H for AY 2018-19. Solution: ₹ Particulars AY 2018-19 240

Nature: 01/04/2001 – 03/03/2018 LTCA FVC 95,00,000 Less: Expenses Less: ICoA (22,00,00 – 70,000) x 272 / 100 - LTCG/(LTCL) 57,93,600 Less: Exempt u/s 54 37,06,400 LTCG/(LTCL) 28,00,000 9,06,400 Special provision for full value of consideration in certain cases – Section 50C 1. In case capital asset being immovable property (i.e. land &/or building) is transferred below the stamp duty value (in short SDV, also called area rates or circle rates), then SDV on the date of transfer shall be deemed to be the FVC. 2. But assessee may challenge before the AO that the FMV is less than the SDV, and in that case AO shall refer the case to VO (valuation officer). In case VO says that the FMV is less than the SDV, then the FMV as computed by VO shall be the FVC. 3. It may be noted that, CoA in the hands of purchaser shall be the actual purchase price. Illustration-16 Assessee sold a house property for ₹10,00,000. But ―stamp valuation authority‖ levied stamp duty on the value of ₹14,00,000. What shall be the full value of consideration in the hands of assessee? Solution:14,00,000 Illustration-17 What shall be your answer in case AO, on claim by the assessee, has referred the valuation of property with Valuation Officer and the valuation officer valued the property at (i) ₹11,00,000 (ii) ₹17,00,000? Solution:11,00,000/14,00,000 Illustration-18 Mr. X purchased a House Property on 1.1.89 for ₹2,00,000. He constructed a room on the same on 1.1.98 for ₹50,000. He forfeited advance money of ₹10,000 on 1.1.07. He got constructed another room for ₹65,000 on 1.1.12. He forfeited advance money of ₹14,000 on 1.1.09. On 1.1.2018 he sold the same for ₹20,00,000 on which date FMV was ₹24,00,000. Buyer paid stamp duty of ₹1,50,000 at the rate of 6%. FMV on 1.4.2001 was ₹2,40,000. Compute capital gains for AY 2018-19. 241

Solution: ₹ Particulars LTCA AY 2018-19 25,00,000 Nature: 01/01/1989 – 01/01/2018 FVC - Less: Expenses 6,52,800 Less: ICoA (2,40,000 – 10,000 – 14,000) x 272 / 100 Less: ICoI (65,000 x 272 / 184) 96,086 LTCG/(LTCL) (17,51,114) Special provision for full value of consideration for transfer of assets other than capital assets in certain cases – Section 43CA 1. If immovable property is SIT for the seller (i.e. business of real estate), then section 50C shall not apply but section 43CA shall apply 2. In case immovable property is transferred below the SDV, then SDV on the date of transfer shall be deemed to be the sale consideration u/h PGBP 3. But assessee may challenge before the AO that the FMV is less than the SDV, and in that case AO shall refer the case to VO. In case VO says that the FMV is less than the SDV, then the FMV as computed by VO shall be the sale consideration u/h PGBP 4. Here one more option is provided to the assessee. Assessee may claim that SDV on the date of agreement may be considered for the purpose, if part consideration has been received by him on or before the date of agreement by any mode other than cash. Note: Such option is not available in case of section 50C. Illustration-19 Case Date of Tfr. of Actual SDV on the SDV on the FVC date of regn. 120 land/bldg. Consideration date of 210 210 held as SIT agreement (01/05/2017) 100 210 (01/05/2017) 1 01/05/2017 ( ₹10 lacs recd. 120 by cheque on (01/09/2015) 31/08/2015) 100 2 01/05/2017 ( ₹10 lacs recd. 120 by cash on (01/09/2015) 31/08/2015) 242

100 3 31/03/2017 (Full amt. 120 210 210 100 recd. on the (01/05/2017) (31/03/2017) date of regn.) 100 4 01/05/2017 ( ₹10 lacs recd. 90 210 (01/05/2017) by cheque on (01/09/2015) 31/08/2015) TAXATION OF GIFTS Relevant Provisions u/h Capital Gains Section 47 – Transactions not regarded as transfer Gift made by any person to any person shall not be regarded as transfer whether made between relatives or not. Further gift implies nil consideration. In this case no capital gains shall be computed in the hands of transferor. Section 55 read with section 49 – Cost of Acquisition in the hands of person receiving the gift CoA to the assessee shall be the CoA to the previous owner. If previous owner has acquired the property before 01/04/2001, then CoA to the assessee shall be the CoA to the previous owner or FMV as on 01/04/2001 whichever is higher. While computing the CoA, advance money forfeited by the previous owner shall not be subtracted from CoA/FMV. Section 55 – Cost of Improvement CoI incurred by previous owner can be claimed by the assessee while computing capital gains. But CoI incurred before 01/04/2001 shall be ignored totally. Section 2(42A) – Period of holding In determining POH for the purposes of LTCA/STCA, POH of previous owner shall also be included. Section 48 – Indexation of CoA & CoI ICoA = CoA x CII of the year of transfer CII of year in which asset was first held by the assessee or FY 2001-02, whichever is later Indexation of CoA, as determined above, shall be from the date first held by the assessee, and not from the date first held by the previous owner. (Debatable issue, as per recent high court decision, indexation shall be done from the back date i.e. first held by the previous owner) 243

ICoI CII of the year of transfer = CoI x CII of the year in which the improvement to the asset took place Indexation of CoI shall be from the date of improvement, even if incurred by previous owner. Relevant provisions u/h Income from Other Sources and corresponding provisions u/h Capital Gains Section 56(2)(vii) If an individual or a HUF receives from any person or persons - (a) money aggregating more than ₹50,000, then whole of the amount shall be treated as income u/h IOS. (b) specified movable property (shares and securities; jewellery; archaeological collections; drawings; paintings; sculptures; any work of art; or bullion) (i) Without consideration, whose aggregate FMV is more than ₹50,000, then whole of the FMV shall be treated as income u/h IOS. (ii) At less than FMV, and the aggregate difference between FMV & acquisition price is more than ₹50,000, then such difference shall be treated as income u/h IOS. (c) immovable property- (i) Without consideration, whose SDV is more than ₹50,000, then the SDV shall be treated as income u/h IOS. (ii) At less than SDV, and the difference between SDV & acquisition price is more than ₹50,000, then such difference shall be treated as income u/h IOS. Notes: 1. In case of immovable property, if receiver/purchaser claims that the FMV is less than the SDV, AO shall refer the case to the VO. In case VO says that the FMV is less than the SDV, then such FMV shall be considered for the purposes of calculation of income u/s 56(2)(vii). 2. Further, assessee may claim that SDV on the date of agreement shall be considered for the purpose, if part consideration has been paid by him on or before the date of agreement by any mode other than cash. 244

3. Gift of movable & immovable property shall be taxable in the hands of receiver only if same has been received as capital asset by the receiver. If the same is SIT for the receiver, then there shall be no treatment u/h IOS. 4. Nothing shall be taxable u/s 56(2)(vii), if money/property received (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the donor; or (e) from any local authority, university, educational institution, hospital or medical institution; or (f) from any religious trust or charitable trust registered u/s 12AA. 5. Relative means: (i) in case of an individual – (A) spouse; (B) brother or sister; (C) brother or sister of the spouse; (D) brother or sister of either of the parents; (E) lineal ascendant or descendant; (F) lineal ascendant of the spouse; (G) spouse of the person referred to in items (B) to (F); and (ii) in case of a HUF, any member of HUF; Consequences u/h Capital Gains: In case any property gift becomes taxable u/s 56(2)(vii) u/h IOS, then following consequences will follow for the receiver of the asset: 1. CoA shall be the FMV/SDV considered as above. 2. CoI of previous owner shall not be considered. 3. POH shall be counted from the date of gift only. 4. Indexation of CoA shall be from the date of gift only. 245

Illustration-20 Mr. Gain acquired a house property on 12.7.88 for ₹2,00,000. He gifted the same to his son Mr. Cain on 13.4.06. Mr. Cain constructed a further floor costing ₹1,50,000, construction of which was completed on 11.12.2010. Throughout the period, Mr. Cain used the same for his residential purposes. On 13.1.18 he sold the same for ₹20,00,000. For transfer purposes, he incurred expenses amounting to ₹45,000. Compute the Income u/h capital gains for AY 2018-19 in the hands of Mr. Cain assuming FMV of house property was ₹4,00,000 on 01.04.2001. Solution: ₹ Particulars AY 2018-19 LTCA Nature: 12.07.1988 – 13.01.2018 20,00,000 FVC Less: Expenses 45,000 Less: ICoA (4,00,000 x 272 / 100) 10,88,000 Less: ICoI (1,50,000 x 272 / 167) 2,44,311 LTCG/(LTCL) (6,22,689) Illustration-21 What shall be your answer in Question above in case property was gifted on (i) 13.4.2000 (ii) 02.05.16? Assume improvements were made by previous owner, if required. Solution: Same Illustration-22 Mr. Jaj purchased a residential house property on 04/04/1982 for ₹6,00,000. Later on he incurred expense of ₹3,00,000 on 05/05/1994 on account of improvement. He further incurred ₹4,00,000 on 06/06/2006 as improvement. He forfeited advance money of ₹40,000 in the month of July 2009. Later on (07/07/2015), he gifted the same to his son Mr. Baj on which date FMV was ₹30,00,000. Mr. Baj, following the footsteps of his father, incurred ₹5,00,000 on improvement on 08/08/2009 and forfeited advance money of ₹70,000 on 09/09/2013. At last (on 11/11/2017), while shifting to America, Mr. Baj sold the property for ₹2,00,00,000 to Mrs. Saj on which date SDV was ₹2,25,00,000. For the purposes of transfer, Mr. Baj incurred expenses of ₹2,00,000. Compute income u/h capital gains in the hands of Mr. Jaj & Mr. Baj for 246

various assessment years assuming FMV of the property on 01/04/2001 was ₹8,00,000. Solution: Mr. Jaj – no tax implications Mr. Baj Particulars ₹ AY 2018-19 Nature: 04.04.1982 – 11.11.2017 LTCA FVC 2,25,00,000 Less: Expenses Less: ICoA (8,00,000 – 70,000 x 272 / 100) 2,00,000 19,85,600 Less: ICoI (4,00,000 x 272 / 122) 8,91,803 Less: ICoI (5,00,000 x 272 / 148) 9,18,919 LTCG/(LTCL) 1,85,03,678 Illustration-23 Mr. Hari, a property dealer, sold a building in the course of his business to his friend Rajesh, who is a dealer in automobile spare parts, for ₹90 lakh on 1.1.2018, when the stamp duty value was ₹150 lakh. The agreement was, however, entered into on 1.7.2017 when the stamp duty value was ₹140 lakh. Mr. Hari had received a down payment of ₹15 lakh by cheque from Rajesh on the date of agreement. Discuss the tax implications in the hands of Hari and Rajesh, assuming that Mr. Hari has purchased the building for ₹75 lakh on 12th July, 2016. Would your answer be different if Hari was a share broker instead of a property dealer? Solution: Mr. Hari – Property Dealer PGBP – 140 lakhs less 75 lakhs = 65 lakhs Mr. Hari – Share Broker Capital Gains – STCG – 150 lakhs less 75 lakhs = 75 lakhs Mr. Rajesh IOS – 140 lakhs less 90 lakhs = 50 lakhs Taxation of Gift in the Hands of firm/company – Section 56(2)(viia) If a firm or a closely held company (e.g. private limited company) receives shares of closely held company from any person or persons: 247

(i) Without consideration, whose aggregate FMV is more than ₹50,000, then whole of the FMV shall be treated as income u/h IOS. (ii) At less than FMV, and the aggregate difference between FMV & acquisition price is more than ₹50,000, then such difference shall be treated as income u/h IOS. Taxation of Issue of Shares in the Hands of Company – Section 56(2)(viib) If a closely held company issues shares to resident at issue price more than face value of the shares, then difference between issue price & FMV shall be treated as income u/h IOS for issuing company. Illustration-24 The following are the details of the shares issued by Ray (P) Ltd. Discuss the applicability of provisions of section 56(2)(viib) in the hands of the company: Case Face Value FMV Issue Price IOS A 100 120 150 30 B 100 120 110 - C 100 80 120 40 D 100 40 90 - Insurance Claim – Section 45(1A) 1. In case of insurance claim, date of destruction shall be treated as date of transfer (i.e. indexation & POH shall be done till this date only). 2. Claim received by the assessee shall be treated as FVC (if claim is received in the form of assets, then FMV of such assets shall be treated as FVC). 3. But capital gains shall be taxable in the year in which claim is actually received. 4. If there is no insurance or no insurance claim is received from the insurer, then loss on account of damage or destruction shall be a dead loss which shall have no tax treatment. Illustration-25 Mr. A purchased a Jewellery on 12.3.2009 for ₹2,00,000. Said jewellery was destroyed by fire on 13.3.2017 and he received insurance claim of ₹5,00,000 on 29.3.17. Compute taxable capital gains for various assessment years. What shall be your answer in case insurance claim was received on 4.4.17? Solution: 248

Particulars ₹ AY 2017-18 Nature: 12.03.2009 – 13.03.2016 LTCA FVC 5,00,000 Less: Expenses Less: ICoA (2,00,000 x 264 / 137) - LTCG/(LTCL) 3,85,401 *It claim is received on 4/4/17, answer will be same but LTCG shall 1,14,599 be Taxable in AY 2018-19 Transfer by Way of Compulsory Acquisition – Section 45(5) 1. Act of compulsory acquisition shall be treated as transfer (i.e. indexation & POH shall be done till this date only). 2. Compensation fixed by the Government shall be treated as FVC. (also called initial compensation) 3. Capital gains shall be taxable in the year in which first instalment of initial compensation is actually received by the assessee. FVC shall be the whole amount of compensation whether received or not in full. 4. Compensation enhanced by the court shall be taxable in the year of actual receipt (if it is received in instalments, then shall be taxable in instalments). Nature of such enhanced compensation shall be the nature of initial compensation. CoA & CoI shall be nil for such compensation. Legal expenses incurred to obtain such compensation shall be allowed from such compensation. 5. Interest, if any, received on initial &/or enhanced compensation shall be taxable u/h IOS in the year of actual receipt. From such interest, a flat deduction of 50% shall be allowed. 6. Compensation received in pursuance of interim order shall be treated as income of the PY in which final order is made by such court. Illustration-26 Mr. Dukhi purchased a residential self-occupied house property comprising of four floors on 10.12.2007 for ₹10,00,000. On 11.12.2010 Govt. compulsory acquired the property and fixed compensation at ₹14,00,000 whereas FMV on that date was ₹30,00,000. He received ₹9,00,000 on 4.4.11 and the balance on 5.5.12. On appeal for the same (paid ₹1,50,000 to a lawyer), Court enhanced the compensation by 249

₹8,00,000 on 2.1.14. He received ₹5,00,000 on 8.5.16 and the balance on 9.6.17. Compute taxable capital gains for various assessment years. Solution: Particulars ₹ AY 2012-13 Nature: 10.12.2007 – 11.12.2010 LTCA FVC 14,00,000 Less: Expenses - Less: ICoA (10,00,000 x 167 / 127) 12,94,574 LTCG/(LTCL) 1,05,426 AY 2013-14 Nil AY 2017-18 LTCA Nature 8,00,000 FVC 1,50,000 Less: Expenses Less: ICoA Nil LTCG/(LTCL) 6,50,000 Conversion of Capital Asset into Stock-in-trade – Section 45(2) 1. In case capital asset is converted by the assessee into SIT of his business, then FMV on the date of conversion shall be treated as FVC. 2. Act of conversion shall be treated as transfer, but capital gains shall be taxable in the year in which transfer of SIT takes place. (i.e. indexation & POH shall be done till this date only) 3. It means that in year of sale of SIT, there will be two profits viz., capital gains & PGBP. Illustration-27 Mr. Prakash Chand, owner of P C Jewellers, purchased a diamond ring for his personal use on 15.7.2013 for ₹50,000. On 15.3.16, he brought the same into his business as stock-in-trade and recorded the same at ₹4,00,000. On the said date FMV of ring was ₹3,70,000. On 11.11.20117 he sold the ring for ₹5,00,000. Compute the impact of above transaction for various assessment years. Solution: 250

Particulars ₹ AY 2018-19 Nature: 15.07.2013 – 15.03.2016 STCA FVC 3,70,000 Less: Expenses Less: CoA - STCG/(STCL) 50,000 PGBP (5,00,000 – 3,70,000) 3,20,000 1,30,000 Illustration-28 What shall be your answer in case he had purchased the ring on (i) 15.7.2008 (ii) 15.7.98 and FMV of ring as on 01.04.2001 was ₹55,000? Solution: Particulars ₹ AY 2018-19 Nature: 15.07.2008 – 15.03.2016 LTCA FVC 3,70,000 Less: Expenses - Less: ICoA (50,000 x 254 / 137) 92,700 LTCG/(LTCL) 2,77,300 PGBP (5,00,000 – 3,70,000) 1,30,000 Particulars ₹ AY 2018-19 Nature: 15.07.1998 – 15.03.2016 LTCA FVC 3,70,000 Less: Expenses Less: ICoA (55,000 x 254 / 100) - LTCG/(LTCL) 1,39,700 PGBP (5,00,000 – 3,70,000) (2,30,300) 1,30,000 Capital Gains on Transfer Listed Equity Shares &Units of Equity Oriented Fund Following provisions are applicable on sale of listed equity shares and units of equity oriented fund, provided sale is made through stock exchange and at the time of sale STT is paid. 251

LTCG (Section 10(38)) – fully exempt for all assessees. STCG (Section 111A) – taxable at 15% flat rate of tax for all assessees. Notes: 1. No deduction under chapter VI-A is allowed from LTCG taxable @ 20% and STCG u/s 111A taxable @ 15%. 2. Further, while calculating tax liability on total income, slab rates shall be applied on other incomes excluding such 2 incomes. 3. In case other incomes fall short of maximum amount which is not chargeable to tax (i.e. ₹2,00,000 or ₹2,50,000 or ₹5,00,000), then in case of Resident Individual and Resident HUF, such shortfall may be adjusted from such 2 incomes. In case of other assessees, this adjustment is not allowed. Illustration-29 Ms. Priyanka purchased 10,000 equity shares of JP Ltd. @ ₹130/share on 12.2.17 and paid STT of ₹0.50/share. She sold 6,000 shares on 11.12.17 through recognized stock exchange for ₹180/share and paid STT of ₹0.60/share. She sold balance 4,000 shares on 20.3.18 through recognized stock exchange for ₹200/share and paid STT of ₹0.65/share. Compute capital gains taxable in the hands of Ms. Priyanka. Solution: Particulars 6000 4000 Assessment Year 2018-19 Nature STCA LTCA FVC 6000 x 180 = 10,80,000 Exempt Less: Expenses Less: CoA/ICoA - STCG/LTCG 6000 x 130 = 7,80,000 3,00,000 Illustration-30 What will be your answer in case asset has been preference shares instead of equity shares? Solution: 6000 4000 Particulars STCA LTCA Assessment Year 2018-19 6000 x 180 = 4000 x 200 = Nature FVC 10,80,000 8,00,000 252

Less: Expenses - - Less: CoA/ICoA 6000 x 130 = 4000 x 130 x 272 / STCG/LTCG 7,80,000 / 264 = 5,35,758 3,00,000 2,64,242 Illustration-30 Compute tax liability in both the Questions above assuming her income u/h PGBP is ₹4,20,000/ ₹2,20,000/ ₹27,000 and she contributed ₹45,000 towards PPF during the year. Solution: Particulars ₹ ₹₹ Income u/h PGBP 4,20,000 2,20,000 27,000 STCG u/s 111A 3,00,000 3,00,000 3,00,000 LTCG Exempt Exempt Exempt GTI 7,20,000 5,20,000 3,27,000 Less: Deduction u/s 80C 45,000 45,000 27,000 TI 6,75,000 4,75,000 3,00,000 Tax on normal income 6,250 - - Tax on STCG u/s 111A @ 15% 45,000 33,750 7,500 51,250 33,750 7,500 Less: Rebate u/s 87A 2,500 - 33,750 5,000 Add: Cess @ 3% 51,250 1,012.50 Total tax payable 1,537.5 150 Particulars 52,790 34,760 5,150 Income u/h PGBP ₹ ₹ ₹ STCG 4,20,000 2,20,000 27,000 LTCG 3,00,000 3,00,000 3,00,000 GTI 2,64,242 2,64,242 2,64,242 Less: Deduction u/s 80C 9,84,242 7,84,242 5,91,242 TI 45,000 45,000 TI (R/o) 9,39,242 45,000 5,46,242 9,39,240 7,39,242 5,46,240 7,39,240 Tax on normal income 47,500 11,250 1,600 253

Tax on LTCG @ 20% 52,848 52,848 52,848 1,00,348 64,098 54,448 Less: Rebate u/s 87A - - - Add: Cess @ 3% 1,00,348 64,098 54,448 Total tax payable 3,010.44 1,633.4 1,03,360 1,923 56,080 66,020 Transactions Not Regarded as Transfer – Section 47 Following transactions shall not be regarded as transfer: (i.e. in following cases capital gains shall not be computed) 1. Partition of HUF 2. Gift 3. Will 4. Inheritance 5. Transfer by holding company to subsidiary company or vice-versa, if (i) Subsidiary company is wholly owned subsidiary (ii) Transferee company is an Indian Company 6. Transfer by amalgamating company to amalgamated company in case of amalgamation, provided amalgamated company is an Indian company 7. Transfer by a shareholder of shares held in amalgamating company in lieu of shares of amalgamated company, provided amalgamated company is an Indian Company. Notes: (a) In this case CoA of shares of amalgamated company shall be equal to CoA of shares of amalgamating company. (b) Further, old POH shall also be counted for the purpose of determining LTCA/STCA. (c) But indexation shall be done from the date of allotment of shares of amalgamated company. 8. Transfer of work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum. 254

9. Conversion of sole-proprietorship into company Following conditions need to be fulfilled: (a) All the assets & liabilities of the sole-proprietorship become assets & liabilities of the company. (b) Sole-proprietor does not receive any consideration from the company except shares of that company. (c) His voting power shall be atleast 50% and shall continue as such for next 5 years. 10. Conversion of partnership firm into company Following conditions need to be fulfilled: (a) All the assets & liabilities of the partnership firm become assets & liabilities of the company. (b) All the partners shall become shareholders of the company in the same ratio as that of their capital account balance in the partnership firm. (c) All the partners do not receive any consideration from the company except shares of that company. (d) Their cumulative voting power shall be atleast 50% and shall continue as such for next 5 years. 11. Conversion of private limited company or unlisted company into LLP; and transfer of shares by shareholder of such company Following conditions need to be fulfilled: (a) All the assets & liabilities of the company become assets & liabilities of the LLP. (b) All the shareholders shall become partners of the LLP. Their capital contribution ratio & profit sharing ratio shall be in the same ratio as that of their shareholding in the company. (c) All the shareholders do not receive any consideration from the LLP except capital contribution and profit sharing ratio. (d) Their cumulative profit sharing ratio shall be atleast 50% and shall continue as such for next 5 years. (e) Turnover of the company in the preceding 3 years shall not exceed ₹60,00,000pa. (f) LLP shall not distribute accumulated profits of the company amongst partners in next 3 years. 255

Note: In all the above cases, provisions of taxability of gift regarding CoA, POH, shall apply equally & in the same manner. 12. Transfer of capital asset in a scheme of reverse mortgage.  Transaction of reverse mortgage shall have no implication under the Income-tax Act.  Reverse mortgage is a kind of mortgage in which loan is taken by mortgaging house property. A transaction of loan is not treated as income.  Money received by the individual shall not be treated as income.  Property mortgaged to the bank shall not be treated as transfer. 13. Transfer of Government Security carrying a periodic payment of interest, (a) made outside India through an intermediary dealing in settlement of securities, (b) by a non-resident to another non-resident Same has been provided to facilitate listing & trading of Govt. Securities outside India Fair market value deemed to be full value of consideration in certain cases – Section 50D In case FVC is not ascertainable or determinable, then FMV on the date of transfer shall be deemed to be the FVC. e.g. purchaser agreed to provide taxi services for next 10 years without any charges and without any limitations, instead of any consideration on the date of purchase. Transfer of securities through depositories – Section 45(2A) In case securities are transferred through depositories (i.e. demat account), then FIFO method shall be applied to identify the securities which are transferred. Illustration-31 Compute capital gains from the following DEMAT account assuming all the sales were made privately: Date of Particulars No. of entry shares 04/08/2008 Acquired shares directly in Demat form @ ₹25/share 1,000 20/06/2009 Acquired shares in physical form on 08/11/1986 2,000 @ ₹6/share Fmv on 01-04-2001; ₹50/ share 256

18/12/2010 Acquired shares directly in Demat form @ ₹55/share 3,000 4,000 15/03/2015 Acquired shares in physical form on 24/10/1968 @ ₹2/share. FMV as on 01/04/2001 was ₹ ₹50/share 1,400 4,800 20/05/2017 Sale @ ₹200/share 18/08/2017 Sale @ ₹225/share Solution: 1400 shares 4800 shares Particulars 1000 400 1600 3000 200 POH 04/08/2008 – 08/11/1986 08/11/1986 18/12/2010 24/10/1968 Nature 20/05/2017 – – – – FVC 20/05/2017 18/08/2017 18/08/2017 18/08/2017 Less: ICoA LTCA LTCA LTCA LTCA LTCA LTCG 1000 x 200 = 400 x 200 = 1600 x 225 3000 x 225 200 x 225 = 2,00,000 80,000 = 3,60,000 = 6,75,000 45,000 1000 x 25 x 400 x 50 x 1600 x 50 x 3000 x 55 x 200 x 50 x 272/ 137 = 272 / 100 = 272 / 100 = 272 / 167 = 272 / 100 = 49,635 54,400 2,17,600 2,68,743 27,200 1,50,365 25,600 1,42,400 4,06,257 17,800 Slump Sale – Section 50B Slump sale means transfer of an undertaking by an assessee for a lump sum consideration in which individual values are not being assigned to each & every asset separately. Computation of capital gains in case of slump sale 1. Capital gains shall be computed assuming undertaking as a single capital asset instead of calculating capital gains on every asset separately. 2. POH = for determining long-term or short-term, period of holding of undertaking shall be considered. If it is more than 36 months, then it shall be LTCA, otherwise it shall be STCA. 3. In case of LTCA, benefit of indexation shall not be allowed. 4. CoA & CoI shall be the net worth of the undertaking. 5. Net Worth = value of assets appearing in books (including debtors, SIT, bank balance, etc.) less: value of liabilities appearing in books (including creditors, bank loan, etc.) 6. Value of assets & liabilities 257

 Depreciable assets - WDV as per Income-tax Act  Other assets - Book value  Liabilities - Book value 7. In case WDV as per Income-tax is not available in examination, then consider book value for the purposes of net worth. 8. Any revaluation made in books shall be totally ignored for the purpose. Illustration-32 Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on 01-04- 2017 his unit 1 by way of slump sale for a total consideration of ₹25 lacs. The expenses incurred for this transfer were ₹28,000. His balance Sheet as on 31-03-2017 is as under: Liabilities Total Assets Unit 1 Unit 2 Total ₹ ₹ ₹ ₹ Own Capital 15,00,000 Building 12,00,000 2,00,000 14,00,000 3,00,000 1,00,000 4,00,000 Revaluation Reserve (for 3,00,000 Machinery bldg. of unit 1) 1,00,000 40,000 1,40,000 1,50,000 60,000 2,10,000 Bank loan (70% for unit 1) 2,00,000 Debtors 17,50,000 4,00,000 21,50,000 Trade creditors (25% for 1,50,000 Other unit 1) assets Total 21,50,000 Total Other information: (i) Revaluation reserve is created by revising upward the value of the building of unit 1. (ii) No individual value of any assets is considered in the transfer deed. (iii) Other assets of unit 1 include patents acquired on 01-07-2015 for 50,000 on which no depreciation has been charged. Solution: ₹₹ Particulars 25,00,000 FVC 28,000 Less: Expenses 12,50,625 Less: CoA (net worth – working note) 12,21,375 Capital Gains 258

Net Worth 9,00,000 14,28,125 Assets: 3,00,000 Building 1,00,000 1,77,500 Machinery 12,50,625 Debtors 28,125 Patents (50,000 less 2 year depreciation) 1,00,000 Others Liabilities: 1,40,000 Bank Loan 37,500 Trade Creditors 2.4.3. Netting Rules and Carry Forward of Capital Losses Discussed in detail along with sub-section 5. 2.4.4. Exemptions in Capital Gains Section 54 54B 54EC 54EE Assessee Individual or Individual or Any assessee Any assessee HUF HUF Transfer Residential Urban Any capital asset Any LTCA of House Property Agricultural Land Nature of Long-term Short-term or Long-term Long Term Capital Long-term Gains New Asset One Residential Agricultural Subscription to Long Term House Property Land bonds of NHAI specified Asset in India or RECL OR IRFC Other  Purchase –  Old  Subscription  6 Months conditions within 1 agricultural year before land has must be or 2 years been used after the by the made within date of assessee or 6 months from the date of transfer of 259

transfer of his parents old asset old asset or HUF for  Exemption  50 lakh last 2 years  Constructio shall be n– for completed maximum within 3 agricultural ₹50 lacs purposes years after  Purchase – the date of New asset transfer of purchased old asset within 2 years from the date of transfer of old asset Exemption Amount of Amount of Amount of Amount of investment in investment in investment in Investment new house new bonds agricultural land CGAS Yes Yes Not available NA option Any If new asset is If new land is  If bonds  Asset violation in future transferred transferred transferred Acquised & impact thereof within 3 years within 3 years within 3 should not from the date of from the date of years from be acquisition of acquisition of the date of transferred new asset, then new land, then acquisition, within 3 CoA of new CoA of new then capital years asset (for land (for gains computing computing exempted capital gains on capital gains on earlier shall new asset) shall new land) shall be deemed to be reduced by be reduced by be the the amount of the amount of income exemption. exemption. (LTCG) of Capital Gains of Capital Gains of the previous such asset shall such land shall year in which always be short- always be such transfer term (because short-term took place. It transferred (because shall be in 260

within 3 years) transferred addition to within 3 years) capital gains arising on transfer of bonds (LTCG or STCG)  If bonds mortgaged within 3 years from the date of acquisition of bonds, then capital gains exempted earlier shall be deemed to be the income (LTCG) of the previous year in which such mortgage took place. Capital Gains Account Scheme (CGAS) In case assessee is not able to investment the desired amount in the new asset on or before the due date of return of income for the year in which capital gains are taxable, he may deposit the same in CGAS by such due date of return of income. In that case, in this year he will be eligible for exemption. In case, later on, he utilises the money within the time limits prescribed, then no consequence shall follow. In case he is not able to utilise the whole amount within the time limits, then capital gains in relation to such unutilised amount shall be deemed to the income of the previous year in which such time limit expires. Nature of such income shall be either LTCG or STCG, depending upon the nature it had before deposit in CGAS. Exemptions in Case of Compulsory Acquisition – Section 54H 261

In case of capital gains arises on account of compulsory acquisition, time period prescribed under various sections shall start from the date of receipt of money and not from the date of compulsory acquisition. Similar provision shall apply in case of conversion of capital asset into SIT i.e. time period shall start from the date of transfer of SIT and not from the date of conversion. Illustration-33 Mr. X purchased a residential house for ₹11,24,000 on 1.1.2007. He made an addition of a floor on 1.1.2009 by incurring expenditure of ₹3,51,000. On 1.1.2015 he further constructed a floor incurring ₹78,500. On 1.1.2018, he sold the house for ₹65,00,000. Expenses on transfer were ₹1,00,000. He invested ₹10,00,000 on purchase of a new residential house on 20.2.18. Compute capital gains taxable for various assessment years. Solution: ₹ Particulars LTCA AY 2018-19 65,00,000 Nature FVC 1,00,000 Less: Expenses 25,05,967 Less: ICoA (11,24,000 x 272 / 122) Less: ICoI (3,51,000 x 272 / 137) 6,96,876 Less: ICoI (78,500 x 272 / 240) 88,967 LTCG/(LTCL) Less: Exempt u/s 54 31,08,190 LTCG/(LTCL) 10,00,000 21,08,190 Illustration-34 What shall be your answer in case: (a) Mr. X had purchased the old house on 13.5.2014 (ignore improvements prior to this date) and he purchased a new house for 10 lakh. Solution: Particulars ₹ AY 2017-18 Nature STCA FVC 65,00,000 Less: Expenses 1,00,000 262

Less: CoA/ICoA 11,24,000 Less: CoI/ICoI - Less: CoI/ICoI STCG 78,500 Less: Exempt u/s 54 49,97,500 STCG/LTCG - 51,97,500 Illustration-35 Ms. Y sold a residential house for ₹28,00,000 on 5.5.16 which was purchased for ₹4,63,000 on 02.02.08. She deposited the desired amount in capital gains accounts scheme on or before due date of return for relevant previous year. She constructed residential house, construction expenses being ₹12,00,000 (whole amount withdrawn from scheme), construction completed on 30.9.2017. She sold the new house on 27.11.17 for ₹18,00,000. Compute capital gains taxable for AY 2018-19 in the hands of Ms. Y. Solution: Particulars ₹ AY 2018-19 Nature STCA FVC 18,00,000 Less: Expenses - Less: CoA (12,00,000 – 12,00,000) - STCG 18,00,000 Working Note: 28,00,000 AY 2016-17 9,47,535 FVC 18,52,245 Less: ICoA (4,63,000 x 264 / 129) 12,00,000 LTCG 6,52,245 Less: Exempt u/s 54 LTCG AY 2016-17 12,00,000 Deposit in CGAS 12,00,000 Less: Utilised LTCG NIL 263

Section 54F 54G/54GA Assessee Individual or HUF Any assessee having Transfer of Any capital asset other than industrial undertaking residential house property Land, Building, Plant & Machinery, Furniture of industrial undertaking Nature of Long-term Short-term or Long-term Capital Gains Residential House Property Land, Building, Plant & New Asset Machinery, Furniture for industrial undertaking Other  Purchase – within 1 year  Section 54G – Shifting of conditions before or 2 years after the date industrial undertaking Exemption of transfer of old house from urban area to rural  Construction – completed area within 3 years after the date of  Section 54GA – Shifting of transfer industrial undertaking  Assessee does not own more from urban area to SEZ than 1 house property on the  Purchase or construction – date of transfer of old asset within 1 year before or 3 years after the date of transfer of old assets Proportionate capital gains – in Amount of investment in new proportion to amount invested vs. asset + expenditure incurred net sale consideration on shifting the industry CGAS option Yes Yes Any violation  in future & If new house is transferred If new asset is transferred impact thereof within 3 years from the date of within 3 years from the date  acquisition of new house, then of acquisition of new asset, capital gains exempted earlier then CoA of new asset (for shall be deemed to be the computing capital gains on income (LTCG) of the new asset) shall be reduced previous year in which such by the amount of exemption. transfer took place. It shall be Capital Gains of such asset in addition to capital gains shall always be short-term arising on transfer of new (because transferred within 3 house (STCG) years) If one more house is acquired 264

within the period specified above, then capital gains exempted earlier shall be deemed to be the income (LTCG) of the previous year in which such transfer took place. Illustration-36 Sumit purchases 2,500 (non–listed) shares in Amit Ltd. on August 16, 2004 for ₹16,632. On May 17, 2007, he gets 500 bonus shares. On October 20, 2014, he acquires 1,500 right shares at the rate of ₹17.48 per share. He sells 4,500 (non-listed) shares in Amit Ltd. on February 12, 2018 at the rate of ₹150 per share (brokerage on sale: 2 per cent). He owns one residential house property. He purchases a residential house on June 29, 2018 for ₹3,50,000. Ascertain the amount of capital gains chargeable to tax for the assessment year 2018-19. Solution: Computation of Capital Gains for the A.Y. 2018-19 Particulars 2500 500 1500 original bonus right shares shares shares Gross Sale consideration @ ₹150 per share 3,75,000 75,000 2,25,000 Less: Expenses on transfer (Brokerage @ 2%) 7,500 1,500 4,500 Net Sale consideration 3,67,500 73,500 2,20,500 Less: Indexed cost of acquisition (Note 1) 40,035 Nil 29,709 Long-term capital gain 3,27,465 73,500 1,9,791 Long-term capital gain as percentage of net sale 89.10% 100% 86.50% consideration Order of preference for claiming exemption u/s 54F 213 Exemption u/s 54F (Note 2) 2,46,378 73,500 Nil Long term capital gain 81,087 Nil 1,90,791 Taxable Long Term Capital Gain 2,71,877 Notes: 1. Indexed cost of acquisition is computed as follows: 265

Original Shares (Non-Listed) = ₹10,000 x 272/113 ₹40,035 Right Shares (Non-Listed) = ₹1,500 x 17.48 x 272/240 ₹29,709 2. The amount of exemption is determined as under – Particulars Investment utilized Exemption for claiming exemption Bonus shares [ ₹73,500 x ₹73,500 / ₹73,500] 73,500 73,500 Original shares [ ₹2,76,500 x 3,27,465/ 2,76,500 2,46,378 3,67,500] Total [any other order of preference will give 3,50,000 3,22,582 lower exemption] Illustration-37 Mrs. Malini Hari shifted her industrial undertaking located in corporation limits of Faridabad, to a Special Economic Zone (SEZ) on 1.12.2017: The following particulars are available: ₹ (a) Land: Purchased on 20.01.2006 4,83,915 Sold for 23,85,000 (b) Building [Construction completed on 14.03.2010] WDV of building as on 01.04.2017 8,20,000 Sold for 11,39,000 (c) WDV of cars as on 01.04.2017 7,40,000 Sold for 6,00,000 (d) Expenses on shifting the undertaking 1,15,000 (e) Assets acquired for the undertaking in the SEZ (on or before 25.06.2018): (i) Land 3,00,000 (ii) Building 4,00,000 (iii) Computers 1,00,000 (iv) Car 3,20,000 (v) Machinery (Second hand) 2,00,000 266

(vi) Furniture 50,000 There is no intention of investing in any other asset in this undertaking. Compute the exemption available u/s 54GA for the assessment year 2018-19. Solution: Where an assessee shifts an existing undertaking from an urban area to a SEZ and incurs expenses for shifting and acquires new assets for the undertaking in the SEZ, section 54GA comes into play. The capital gain, short-term or long-term, arising from transfer of land, building, plant and machinery in the existing undertaking would be exempt u/s 54GA if the assessee, within a period of one year before or three years after the date on which the transfer took place, (i) acquires plant and machinery for use in the undertaking in the SEZ; (ii) acquires land or building or constructs building for the business of the undertaking in the SEZ; (iii) incurs expenses on shifting of the undertaking. Computation of capital gain: 23,85,000 11,25,000 (a) Land: 12,60,000 Sale price Less: Indexed cost of acquisition 4,83,915 x 272/117 11,39,000 Long-term capital gain 8,20,000 3,19,000 (b) Building: Sale value 6,00,000 Less: Opening WDV 7,40,000 Short-term capital gain u/s 50 (-)1,40,000 1,79,000 (c) Plant: Car 14,39,000 Sale value Less: Opening WDV Short term capital loss u/s 50 Net short term capital gain ( ₹3,19,000 – ₹1,40,000) Total capital gain (LTCG+STCG) i.e. ₹12,60,000 + ₹1,79,000 Exemption u/s 54GA is available in respect of the following assets acquired and expenses incurred: 267

Land ₹ Building 3,00,000 Plant: 4,00,000 Computers Car 1,00,000 Machinery 3,20,000 Expenses of shifting 2,00,000 Total Exemption 1,15,000 14,35,000 Notes: 1. The total exemption available u/s 54GA is the lower of capital gains of ₹14,39,000 or the amount of investment which is ₹14,35,000. Hence, the amount of exemption available u/s 54GA is ₹14,35,000. 2. Furniture purchased is not eligible for exemption u/s 54GA. 3. There is no restriction regarding purchase of second hand machinery. 4. Computers and car would constitute Plant. Section 54GB Assessee Individual or HUF Transfer of Residential property (house or plot of land) Nature of Long-term Capital Gains Conditions 1. Invests net consideration in subscription of equity shares of eligible company on or before due date of ROI u/s 139(1) 2. Company in turn uses such net consideration for purchase of new asset within 1 year from the date of subscription. Exemption Proportionate capital gains – in proportion to amount ultimately invested in new assets vs. net consideration CGAS If company is not able to invest net consideration for purchase of Option new asset before the due date of ROI of assessee, then it may deposit under CGAS. If this amount not utilised within period of 1 year, amount exempted earlier shall become taxable in year in which 1 year expires in the hands of the assessee and nature shall be 268

LTCG. Any violation If shares/new asset is sold within next 5 years from the date of in future & acquisition, then capital gains exempt shall become taxable in the impact year of default in the hands of assessee (nature – LT). Capital gains thereof on transfer of shares/new asset shall be separately chargeable to tax in the hands of assessee/company (nature – LT/ST). Eligible company – (i) Company is incorporated between 1st April of the PY in which capital gain arises and due date of ROI of the assessee. (ii) It is engaged in the business of manufacture of an article or a thing; (iii) Assessee must have voting rights > 50% after subscription (iv) Company qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 \"new asset\" means new plant and machinery but does not include - (i) Second hand plant & machinery; (ii) P&M installed in office premises or residential accommodation; (iii) any office appliances including computers or computer software; (iv) any vehicle. Illustration-38 Mr. Akash sold his residential property on 2nd February, 2018 for ₹90 lakh and paid brokerage@1% of sale price. He had purchased the said property in May 2002 for ₹26,05,698. In June, 2018, he invested ₹75 lakh in equity of A (P) Ltd., a newly incorporated SME manufacturing company, which constituted 63% of share capital of the said company. A (P) Ltd. utilized the said sum for the following purposes – (a) Purchase of new plant and machinery during July 2018 – ₹65 lakh (b) Included in (a) above are ₹6 lakh for purchase of computers and ₹8 lakh for purchase of cars. (c) Air-conditioners purchased for ₹1 lakh, included in the (a) above, were installed at the residence of Mr. Akash. (d) Amount deposited in specified bank on 28.9.2018 – ₹10 lakh Compute the chargeable capital gain for the A.Y.2018-19. Assume that Mr. Akash is liable to file his return of income on or before 30th September, 2018 and he files his return on 29.09.2018. 269

Solution: Computation of taxable capital gains for A.Y.2018-19 Particulars ₹ 90,00,000 Gross consideration Less: Expenses on transfer (1% of the gross consideration) 90,000 Net consideration 89,10,000 Less: Indexed cost of acquisition ( ₹26,05,698 × 272/105) 67,50,000 21,60,000 Less: Exemption u/s 54GB ( ₹60,00,000 × ₹21,60,000/ ₹89,10,000) 14,54,545 Taxable capital gains 7,05,455 Deemed cost of new plant and machinery for exemption u/s 54GB Particulars ₹₹ (1) Purchase cost of new plant and machinery acquired in 65,00,000 July, 2016 Less: Cost of office appliances, i.e., computers 6,00,000 Cost of vehicles, i.e., cars 8,00,000 Cost of air-conditioners installed at the residence 1,00,000 15,00,000 of Mr. Akash (2) Amount deposited in the specified bank before the due 50,00,000 date of filing of return 10,00,000 Deemed cost of new plant and machinery for exemption u/s 60,00,000 54GB 270

SUMMARY 1. Section 45 – charging section – there must be capital asset and there must be transfer. 2. Section 2(14) – Capital Asset means property of any kind except stock-in-trade, personal effects and rural agricultural in India. But jewellery, drawings, paintings, sculptures, etc. are capital asset although they are personal effects. 3. Section 47 – in some circumstances, like gift, etc., capital asset is not treated as transfer, in which cases, CoA & POH shall be taken of that of previous owner. 4. Capital gains are chargeable in the year in which transfer took place. But in case of conversion of capital asset into stock-in-trade, insurance claim and compulsory acquisition, capital gains are chargeable in the year in which money if actually received. 5. Long-term capital asset (LTCA) if period of holding > 36 months, otherwise it shall be short-term capital asset (STCA). In case of listed securities & units of equity oriented fund, period of holding is > 12 months to make them LTCA. In case of un listed shares and Immovable property if Poh>24 months –LTCA. 6. Section 50C – In case of sale of land/building, stamp duty value shall be the full value of consideration if it is more than actual sales price. Similar provision is applicable u/h PGBP if land/building held as stock-in-trade – Section 43CA. 7. CoA of goodwill shall be nil in case of self-generated goodwill. 8. In case of LTCA, Cost of Acquisition shall be indexed from the year first held by assessee or FY 81-82, whichever is later. But in case of gift, etc. indexation shall be from the year asset held by current owner, and not from the year held by previous owner. 9. In case of LTCA, CoI shall be indexed from the date of improvement whether by current owner or previous owner. CoI incurred prior to 01/04/2001 shall be ignored. 10. If asset is acquired before 01/04/2001, then CoA shall be Actual CoA or FMV as on 01/04/2001, whichever is higher. 11. Advance money forfeited by current owner (& not by previous owner) shall be subtracted from CoA or FMV, and balance CoA shall be indexed. W.e.f. 01/04/2014, any advance money forfeited shall be treated as IOS. 12. Section 10(38) & 111A – if shares or units of equity oriented fund are transferred and STT is paid at the time of transfer, then LTCG is fully exempt & STCG is taxable @ 15%. 271

Taxation of Gifts 1. Following gifts received by an Individual or a HUF is taxable u/h IOS (a) Money without consideration aggregating > ₹50,000 (b) Specified movable property less purchase price > ₹50,000 (c) Immovable property Stamp Duty Value less purchase price > ₹50,000 2. If received from relatives, on occasion of marriage, etc. then nothing shall be taxable. 3. In case gift becomes taxable u/h IOS, then CoA in the hands of receiver shall be the FMV or SDV. POH shall start from the date of gift received. 272

PRACTICE QUESTIONS Question-1 Mr. ₹X‘ furnishes the following data for the previous year ending 31.3.2018. a) Equity Shares of AB Ltd., 10,000 in number were sold on 31.5.2017, at ₹350 for each share. b) The above shares of 10,000 were acquired by ₹X‘ in the following manner: (i) Received as gift from his father on 1.6.1999 (5,000 shares) the market price on 1.4.2001 ₹206.80 per share. (ii) Bonus shares received from AB Ltd. on 21.7.2003 (2,000 shares). (iii) Purchased on 1.2.2012 at the price of ₹208.48 per share (3,000 shares). c) Purchased one residential house at ₹14,87,500, on 1.9.2018 from the sale proceeds of shares. d) ‗X‘ is already owning a residential house, even before the purchase of above house. You are required to compute the taxable capital gain. He has no other source of income chargeable to tax. Question-2 Mr. Sunder furnishes the following particulars for the previous year ending 31.3.2018 and requests you to compute the taxable capital gain: (i) He had a residential house, inherited from father in 2002-03, the fair market value of which as on 1.4.2001 is ₹5 lakhs. (ii) In the year 2003-04, further construction and improvements costing ₹6 lakhs. (iii) On 10.5.2017 the house was sold for ₹50 lakhs. Expenditure in connection with transfer ₹50,000. (iv) On 20.12.2017, he purchased a residential house for ₹15 lakhs. Question-3 Arjun furnishes the following particulars and requests your advice as to the liability to capital gains for the assessment year 2018-2019. (i) Jewellery purchased by him on 10.03.2007 for ₹1,15,000 was sold by him for a consideration of ₹2,85,000 on 2.11.2017. (ii) He incurred expenses: a) At the time of purchase ₹750 273

b) At the time of sale (for brokerage) ₹4,000 (iii) He invested ₹1,20,000 in bonds with National Highway Authority of India out of sale consideration. On these facts: a) Compute the capital gains chargeable to tax. b) Whether Arjun would be entitled to any exemption? Question-4 A is a shareholder of X & Co. Ltd. holding 1,000 shares of the face value of ₹10 each, allotted at the time of the company‘s incorporation in May, 2003. The company made a right issue in the ratio of 1:1 on 15.7.17 at a premium of ₹40 per share. Instead of taking up the right, he renounced it in favour of ₹B‘ at a price of ₹10 per share. What is the capital gain chargeable in the hands of ₹A‘? What will be the cost of the shares in the hands of ₹B‘? Question-5 In April, 2010, S subscribed to the first issue of equity capital of a public limited company (face value of each share was ₹100) to the extent of ₹25,000.In 2013, the company converted the face value of its shares from ₹100 to ₹10 each. Half of the holding of the shares held by S was sold by him in October, 2017 for ₹50,000.S had to pay a brokerage of 2% on sale. What is the nature of gains realised and compute the same assuming share are listed but are sold outside the stock exchange. Question-6 Arjun was holding 3000 shares in White Light Limited purchased by him on 8th August, 2010 at ₹60 per share. He gifted these shares to his girlfriend Chitrangada on 10th February, 2011. Arjun married Chitrangada on 1st March, 2012.Chitrangada was allotted bonus shares by the company at the rate of one share for every three shares held on 10th September, 2017.Chitrangada sold all the shares including the bonus shares on 31st March, 2018 at ₹150 per share. State in whose hands capital gains on sale of shares is taxable. Also compute the capital gains. Question-7 Amin is the holder of 1,000 debentures of Amin Ltd. having a face value of ₹1,000 each. The company has offered an option to the debenture-holders either to redeem the debentures at ₹1,200 each or to convert the debentures into equity shares of equivalent value. The market value of the shares on the date of exercising the option is ₹1,200 per share (face value ₹1,000).What will be the tax consequences of the two options in the hands of the debenture- holder Amin? 274

Question-8 Mr. A. sold shares of a public limited company for ₹5,00,000 on 1.10.2017, which had been acquired by him in October, 2006 for ₹50,000. He wants to utilize the said amount of sale consideration for purchase or construction of a new residential house. He already owns one residential house at the time of sale of the shares i.e., on 1.10.2017. He has deposited ₹4,00,000 under the Capital Gains Deposit Account scheme with a specified bank on 30.4.2018. Ascertain the capital gain taxable in A‘s hands for Assessment Year 2018-2019 and advise him as to what further action he has to take to avail of the exemption. Question-9 Smt. Asha purchases 1,000 equity shares in Right Ltd. at a cost of ₹20 per share (brokerage @ 1%) in January, 1998. She gets 200 bonus shares in August, 2000. She again gets 500 bonus shares by virtue of her holding on February, 2008. Fair market value of the shares of Right Ltd. on April 1, 2001 is ₹30. In January 2018, she transfers all her shares @ ₹150 per share (brokerage @ 2%). Compute the capital gains taxable in the hands of Smt. Asha for the assessment year 2017-18 assuming: a) Right Ltd. is an unlisted company & securities transaction tax was not applicable at the time of sale. b) Right Ltd. is a listed company and the shares are sold in a recognized stock exchange and Securities transaction tax was paid at the time of sale. Question-10 Nakul acquired a plot of land on 8.7.2007 for ₹8,00,000, which was sold 28.2.2018 for ₹40,00,000. The expenses of transfer were ₹85,000. Nakul made the following investments on 10.3.2018 from the proceeds of the above plot: (1) Bonds of National Highways Authority of India redeemable after a period of 3 years ₹6,00,000. (2) Deposits under Capital Gain Scheme for purchase of a residential house as he does not own any house ₹15,00,000. Compute the capital gain chargeable to tax for assessment year 2018-19. Question-11 Following are the details of income provided by Mr. Ramaswamy for the year ending 31.3.2018: (i) Rental income from property at Chennai - ₹5,00,000, Municipal Value – ₹4,00,000; Standard Rent - ₹3,50,000, Fair Rent – ₹3,00,000. 275

(ii) Municipal tax paid to Municipality, Current year – ₹40,000, Arrears – ₹1,60,000. (iii) Interest on loan borrowed towards major repairs to the property – ₹1,40,000. (iv) Arrears of rent from property at Hyderabad which was sold on 10.04.2015 – ₹25,000. Mr. Ramaswamy furnishes the following additional information regarding sale of a property in Delhi: (i) Mr. Ramaswamy‘s father acquired a property in April 2003 for ₹73,906. Mr. Ramaswamy acquired this property by inheritance on 1st December 2003 after the demise of his father. (ii) Fair Market Value as on 01.04.20011 was ₹75,000. (iii) Fair Market Value as on 1.12.2003 was ₹90,000. (iv) Sale consideration received is ₹40,00,000. (v) Stamp duty value; 50,07,213. (vi) Mr. Ramaswamy has invested the sale consideration in a residential flat for ₹25 lakhs out of the sale proceeds. A sum of ₹20 lakhs was invested in Capital Gains Bonds issued by NHAI and Rural Electrification Corporation Limited. Compute the total income of Mr. Ramaswamy for the A.Y. 2018-19. Question-12 Ganesh sold a residential house on 30-9-2017 for ₹20,00,000. He had purchased this house on 15-11-2003 for ₹2,00,000 and had spent ₹50,000 on improvement of the house during the year 2004-05. He purchased a new house on 1-12-2017 for ₹5,00,000. He sold this house on 16-8-2018 for ₹8,00,000. He purchased another house on 1-12-2018 for ₹10,00,000. Compute his capital gains for the assessment years 2018-19 and 2019-20. Question-13 The house property of Charu is compulsorily acquired by the government for ₹15,00,000 vide Notification issued on 12-3-2014. Charu had purchased the house in 2003-04 for ₹5,00,000. The compensation is received on 15-4-2017. The compensation is further enhanced by an order of the court on 15-5-2018 and a sum of ₹4,00,000 is received as enhanced compensation on 21-10-2018. A wants to claim full exemption of the capital gains. Advise Charu in this respect. Compute the capital gain and determine the year in which it is taxable. Also specify the period upto which the investment in the new house should be made by the assessee. 276

Answer-1 ANSWERS 2,000 3,000 shares Shares shares 5,000 shares 7,00,000 10,50,000 Sale consideration (a) (2,000 x (3,000 x 350) 17,50,000 (5,000 x 350) 350) 9,24,560 NIL (3,000 x 208.48 x Less: Indexed Cost of 28,12,500 Acquisition (5,000 x 206.80 x 7,00,000 272/ 184) 1,25,440 Long-term Capital Gain / (Loss) 272/ 100) 100% (b) (10,62,500) I 12% II Ratio (b x 100 / a) -NA- 7,00,000 -NA- 94,080 Ranking -NA- NIL (1,25,440 x 2,08,445/ Exemption u/s 54F 10,50,000) Taxable long-term capital gains (10,62,500) 31,360 Total (10,31,140) Note: Exemption u/s 54F can be availed by the assessee subject to fulfilment of the following conditions – (a) The assessee should not own more than one residential house on the date of transfer of the long-term capital asset; (b) The assessee should purchase a residential house within a period of 1 year before or 2 years after the date of transfer or construct a residential house within a period of 3 years from the date of transfer of the long-term capital asset. In this case, the assessee has fulfilled the two conditions mentioned above. Therefore, he is entitled to exemption u/s 54F. Answer-2 Computation of taxable capital gains of Mr. Sunder for A.Y.2018-19 Net Sale consideration 50,00,000 Sale price 50,000 49,50,000 Less: Expenses on sale 277

Less: Indexed cost of acquisition (5,00,000 x 272/ 100) 1,36,000 Indexed cost of improvement (6,00,000 x 272/ 109) 14,97,248 28,57,248 20,92,752 Long term capital gain 15,00,000 Less: Exemption u/s 54 (Cost of purchase of new residential 5,92,752 house) Taxable long term capital gain Note: As per section 49(1)(iii)(a) read with section 55(3), the cost of acquisition of an asset which is inherited shall be the cost for which the previous owner acquired it. Where the cost to the previous owner is not known the fair market value on the date on which the previous owner acquired it shall be taken as the cost. In the given question, in the absence of the above information, it is assumed that the previous owner acquired it before 1.4.2001 and the cost of acquisition is taken to be the FMV on 1.4.2001 i.e. ₹5 lakhs Answer-3 Computation of capital gains chargeable to tax Particulars ₹ 2,85,000 Sale consideration of jewellery Deduct: Expenses on transfer 4,000 2,81,000 Less: Indexed cost of acquisition (1,15,750 х 272/122) 2,58,066 Long term capital gain Less: Investment u/s 54EC of the Act ₹1,20,000. Deduction limited to 22,934 Capital gains chargeable to tax 22,934 Nil Note 1: It is assumed that Arjun has invested ₹1,20,000 in bonds with NHAI within the specified time u/s 54EC i.e. within 6 months from the date of transfer. Note 2: Expenditures incurred at the time of purchase is included in the indexed cost of acquisition. Answer-4 ‗A‘ was offered 1,000 shares of X & Co. Ltd at a cost of ₹50 per share (face value ₹10 plus premium of ₹40).He renounced the rights at a price of ₹10 per share in favour of ₹B‘. The cost of acquisition of the right, in terms of section 55(2)(aa)(ii), will be Nil. Therefore, the entire amount of ₹10,000 received from B will be charged to capital gains tax. As the period of holding is less than 36 months, in respect of ‗right to subscribe for right shares‘, it will be treated as short-term capital gain. 278

The cost of acquisition of shares in the hands of ‗B‘ will be as under: ₹ 10,000 Particulars 50,000 Amount paid to ‗A‘ for acquiring right to subscribe for right shares 60,000 Amount paid to X & Co Ltd @ ₹50 per share for 1000 shares Cost of acquisition of 1000 shares Answer-5 It is assumed that the sale of shares is not exempt u/s 10(38). Asset held by the investor for more than 12 months. Hence, character of asset is a long term capital asset and any excess realisation will yield long term capital gains. In calculating such gains, the assessee will be entitled to refix the cost of acquisition by utilizing the cost inflation index. Cost of purchase ₹25,000 ₹100 Face Value 250 Hence no. of shares purchased Conversion resulted in the face value being reduced from ₹100 to ₹10 per share; hence the assessee‘s holdings of shares would have become 2500 shares of ₹10 each, since there has been no change in actual cost. Sale of half the holdings means, the investor had sold 1250 shares in October, 2017. Particulars ₹ Sale proceeds realised 50,000 Less: Brokerage paid at 2% 1,000 Net realisation 49,000 Cost of acquisition: 12,500 х 272/ 220 15,455 Capital gains - Long term 33,545 Tax rate on long term capital gain - 20% 6,910 The assessee may compute capital gain without indexation and it would be ₹36,500 in the above case. Tax thereon would be at 10% [Section 112(1)] Answer-6 Assuming the shares gifted by Arjun to Chitrangada are listed shares and the transfer is made by Chitrangada through recognized stock exchange and securities transaction tax is paid on such transfer, the entire capital gain is exempt u/s 10(38). Hence, the taxability of the gain does not arise. 279

If the shares are not listed and do not satisfy the conditions of section 10(38), then the computation of capital gain has to be made. As per section 64(1)(iv) of the Income-tax Act in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart. For applying this clubbing provision the marital status must exist-both at the time of transfer of asset and at the time of accrual of income. This view was taken by the Supreme Court in the case of Philip Johan Plasket Thomas v. CIT 49 ITR 97. Arjun gifted the shares to Chitrangada before marriage. Hence, section 64(1)(iv) shall not apply and capital gain on sale of shares is taxable in the hands of Chitrangada. Computation of Capital Gains Long-term Capital Gains (Original Shares) 3000 original shares are long-term capital assets, as they were held for a period exceeding 12 months before sale.Since shares were acquired by way of gift by Chitrangada, the period of holding of shares by Arjun shall be included in computing the period of holding of shares before sale by Chitrangada as per section 2(42A). Sale proceeds of 3000 shares 4,50,000 Cost of acquisition - 1,80,000 [Cost to Arjun shall be treated as cost to Chitrangada as per Sec 49(1)] Indexed cost of acquisition (1,80,000 х 272/ 167) 2,93,174 Long term capital gain 1,56,826 Short term capital gain (For Bonus Shares) As bonus shares were held for a period not exceeding 12 months before sale by Chitrangada, they are short term capital assets. Sale proceeds of 1000 bonus shares 1,50,000 Cost of bonus shares (Cost shall be deemed to be ‗Nil‘ as per section Nil 55(2)(aa)(iiia)) Short term capital gain 1,50,000 Total capital gain 2,65,670 Answer-7 The first option is redemption of debentures. 280

The second option is conversion of debentures into equity shares of the company. If the first option is exercised, it would result in the levy of capital gains tax. Redemption has not been defined under the Companies Act but in common parlance, it means buy back, recover or convert into cash. Debentures are capital assets within the meaning of section 2(14). The question for consideration is whether redemption results in ―transfer‖ as defined in section 2(47). Courts have held in the context of redemption of shares that it results in a transfer. Even if redemption is not considered as a sale, it will still result in the extinguishments of a right. The right in the debentures comes to an end on redemption. Hence there will be a capital appreciation of ₹2 lakhs which can be appropriately indexed for cost and the capital gains arrived at. By the second option, there will be no capital gain as section 47(x) covers conversion of debenture into shares as ‗not to be regarded as transfer‘. Answer-8 (a) Since Mr. A sold shares of public limited company, it would have been sold through stock exchange in India and securities transaction tax would have been paid on such transaction. In which case, the capital gain is exempt from tax u/s 10(38) of the Act. In such case, no further explanation / advise is required to be given to the assessee. (b) Assuming the assessee had not transferred the shares in a manner that securities transaction tax is paid / payable on such transaction and it is not exempt u/s 10(38), the following can be the basis for advise to the assessee. Computation of capital gains 5,00,000 1,11,475 Sale consideration 3,88,525 Less: Indexed cost of acquisition ( ₹50,000 x 272/122) 3,10,820 Amount of long term capital gain Less: Exemption u/s 54F (4,00,000 x 3,88,525/ 5,00,000) 77,705 Taxable long term capital gain Section 54F of the Income-tax Act, 1961 relates to capital gains arising from transfer of any long term capital asset, not being a residential house (called original asset) if the sale proceeds are utilized for purchase/construction of a residential house (called new asset) within the prescribed period and subject to fulfillment of conditions prescribed in the said section. The proviso to sub-section (1) of the section provides that the said exemption will be available in a case where the assessee owns only one residential house, other than the new asset, on the date of transfer of the original asset and does not acquire within one year or 281

constructs within three years any residential house other than the new asset. The assessee in the present case will, therefore, be entitled to get deduction u/s 54F of the Act. However, Mr. A should note that he should utilize the amount deposited in Capital Gains Accounts Scheme for purchase/construction of residential house before expiry of 3 years from the date of transfer of shares, failing which, tax on capital gains attributable to the unutilized amount will be charged to tax in the year in which the three year period expires. Answer-9 Computation of Capital Gains for the AY 2018-19 (a) Right Ltd. is an unlisted company: Particulars ₹ ₹ 1000 original shares 65,400 Sale proceeds (1000 x ₹150) 1,50,000 Less: Brokerage paid (2% of ₹1,50,000) 3,000 Net Sale consideration Less: Indexed cost of acquisition ( ₹30 x 1000 x 272/ 100) 1,47,000 Long term Capital Gain 81,600 200 bonus shares 30,000 Sale proceeds (200 x ₹150) 600 Less: Brokerage paid (2% of ₹30,000) Net Sale consideration 29,400 Less: Indexed cost of acquisition ( ₹30 x 200 x 272/ 100) (Note) 16,320 Long term Capital Loss 13,080 500 bonus shares Sale proceeds (500 x ₹150) 75,000 Less: Brokerage paid (2% of ₹75,000) 1,500 Net sale consideration 73,500 Less: Cost of acquisition Long term Capital Gain Nil Long term Capital Gains 73,500 (1,51,980) 282

Note: The assessee is allowed to opt for FMV as on 1.4.2001 for bonus shares allotted before 1.4.2001 but for bonus shares allotted after 31.3.2001 the cost of acquisition is NIL. (b) Right Ltd. is a listed company The Long-term Capital Gains on transfer of equity shares through a recognized stock exchange on which securities transaction tax is paid is exempt from tax u/s 10(38). Hence, the taxable gain is NIL & Losses are to be ignored. Answer-10 Computation of capital gain chargeable to tax for A.Y.2018-19 Particulars ₹ ₹ Gross sale consideration 40,00,000 Less: Expenses of transfer Net sale consideration 85,000 Less: Indexed cost of acquisition ( ₹8,00,000 x 272/ 129) 39,15,000 16,86,822 Less: Exemption u/s 54EC [Investment in bonds of National 22,28,178 Highways Authority of India] 6,00,000 14,53,709 7,74,469 Exemption u/s 54F for purchase of residential house 8,53,708 [Capital gain × Amount invested / Net sale consideration] (22,28,178 x 15,00,000 / 39,15,000) Taxable long-term capital gain Answer-11 Computation of Total income of Mr. Ramaswamy for the A.Y. 2018-19 Particulars Amount Amount ( ₹) ( ₹) Income from House Property 5,00,000 2,00,000 Computation of Gross Annual Value (GAV) ALV for the year = Higher of Municipal Value (MV) and Fair Rent (FR), but restricted to Standard Rent (SR) 3,50,000 Actual rent received or receivable for the period 5,00,000 GAV is the higher of the ALV and Actual rent received or receivable 5,00,000 Gross Annual Value (GAV) Less: Municipal taxes paid (Current year + Arrears) 283

Net Annual Value (NAV) 3,00,000 Less: Deduction u/s 24 90,000 2,30,000 (i) 30% of NAV i.e. 30% of ₹3,00,000 1,40,000 70,000 (ii) Interest on loan borrowed Arrears of rent received from property in Hyderabad 25,000 17,500 Less: Deduction u/s 25B – 30% of Arrears of rent 7,500 87,500 Income from House Property Capital Gains 50,07,213 Sale consideration as per section 50C (Note1) 1,84,426 Less: Indexed cost of acquisition (Note 2) 48,22,787 Long Term Capital Gains Less: Exemptions u/s 54 & 54EC 25,00,000 20,00,000 - u/s 54 – Residential Flat - u/s 54EC – NHAI & RECL bonds 3,22,787 Long term Capital Gains 4,10,287 Total Income 4,10,290 Total Income (R/o) Notes: 1. As per section 50C, where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both, is less than the valuation by the stamp valuation authority, such value adopted or assessed by the stamp valuation authority shall be deemed to be the full value of consideration. Hence, the value of house property sold by an individual shall be higher of (i) actual sale consideration & (ii) value applied for stamp duty. (a) Actual sale consideration = ₹40,00,000 (b) Value for stamp duty = ₹50,07,213 Therefore, the value for stamp duty i.e. ₹50,07,213 shall be taken as the sale consideration for the purpose of capital gain as per section 50C. 2. Indexed cost of acquisition = ₹73,906 x 272/109 = ₹1,84,426 284

Answer-12 ₹ ₹ Computation of Capital gains of Mr. Ganesh for the A.Y.2018-19 20,00,000 4,99,083 Particulars 1,20,354 6,19,437 Full value of consideration 13,80,563 Less: Indexed cost of acquisition (2,00,000 x 272/ 109) 5,00,000 8,80,563 Indexed cost of improvement (50,000 x 272/ 113) Long-term capital gain Less: Exemption u/s 54 – Amount invested ₹5,00,000 Taxable Long-term capital gain Computation of Capital gains of Mr. Ganesh for the A.Y. 2019-20 ₹ 8,00,000 Particulars Full value of consideration Nil Less: Cost of acquisition (5,00,000–Capital gain exempt u/s 54 i.e., 5,00,000) 8,00,000 Short-term capital gain Note: Exemption u/s 54 cannot be claimed in respect of house purchased on 1.12.16, since this exemption can be availed only in respect of long term capital gains. Answer-13 Although the house property is compulsorily acquired on 12-3-2009 the capital gain will arise in the previous year in which full or part of the compensation is first received i.e. previous year 2017-18. However, indexation will be done till the year of compulsory acquisition. Computation of Capital Gains for the Assessment year 2018 -19 ₹ 15,00,000 Full value of consideration 10,09,174 Less: Indexed cost of acquisition – ₹5,00,000 x 220/ 109 4,90,826 Long term capital gain The assessee should either invest at least ₹4,90,826 for the purchase/construction of a residential house property on or before 31-7-2018 (relevant due date) and/or deposit the amount under the capital gain scheme on or before 31-7-2018, to be utilised for purchase of house property by 14-4-2019 and/or construction of the house property by 14-4-2020. 285

Computation of Capital Gains for the Assessment year 2019-20 ₹ 4,00,000 Enhanced compensation Less: Cost/Indexed cost of acquisition Nil Long-term Capital Gain 4,00,000 The assessee should either invest at least ₹4,00,000 for the additional construction of the residential house property already acquired for claiming u/s 54 on or before 31-7-2019 (relevant due date) and/ or deposit the amount under the capital gain scheme on or before 31-7-2019 to be utilised for additional construction of the house property by 20-10-2021. Alternatively, in case of both the capital gains, he may invest whole of the capital gains in the bonds specified u/s 54EC within 6 months from the date of receipt of compensation. 286

Sub-Section 2.5 Income from Residuary Sources and Tax Calculation Rules Learning Objectives After studying this unit, you would be able to understand –  which are the income chargeable under the head ―Income from other sources‖  what is the rate of tax applicable on casual income  what are the admissible deductions while computing income under this head  what are the inadmissible deductions while computing income under this head  when clubbing provisions are attracted  when income of the spouse is clubbed with the income of the individual  when income of son‘s wife is clubbed in the hands of the individual.  that minor‘s income has to be clubbed in the hands of the parent  the nature of income of minor, in respect of which clubbing provisions are not attracted  when income of HUF is clubbed in the hands of a member of the HUF.  the methodology of set-off / carry-forward and set-off of losses  about inter-source adjustments and the cases where inter-source adjustment is not permitted  about inter-head adjustments and the cases where inter-head adjustment is not permitted  the conditions to be satisfied for carry forward and set-off of loss from house property  the conditions to be satisfied for carry forward and set-off of business loss and speculation business loss  the conditions to be satisfied for carry forward and set-off of business loss and unabsorbed depreciation in certain cases of amalgamation, demerger etc.  the manner of inter-source and inter-head set-off in case of capital losses  the maximum period for which different losses can be carried forward  treatment of unabsorbed depreciation and business loss, where there is a change in the constitution of the firm  treatment of unabsorbed depreciation and business loss in the case of closely held companies  the order of set-off of losses 287

 the types of deductions allowable from gross total income  what are the permissible deductions in respect of payments  what are the permissible deductions in respect of incomes  what is the deduction allowable in the case of a person with disability  Comprehend as to what is meant by total income  Identify the income earned in different capacities by an individual which are to be considered while computing his total income  Understand the steps involved in computation of total income and tax liability of an individual. 2.5.1. Income from Other Sources (1) Income from other sources (charging section) – Section 56(1) Income of every kind, which is not taxable under any of the other heads, shall be taxable under head IOS. (2) Winnings from lotteries, etc. 1. Following winnings shall be taxable u/h IOS: (a) Lotteries (b) Crossword puzzles (c) Races including horse races (d) Card games & other games (includes game show like KBC) (e) Gambling or betting 2. Such winnings are taxable at special rate of tax @ 30% - Section 115BB. 3. Gross amount of winnings is taxable. No expenditure is allowed from such income, even expenditure of lottery ticket on which assessee has won the winnings. 4. No loss can be set-off against such winnings. 5. Deductions u/c VI-A (Sections 80C to 80U) shall not be subtracted from such winnings. 6. Slab rates of ₹2,00,000, etc. cannot be adjusted from such incomes in case other incomes fall short of such limit. 7. In nutshell, if assessee has won (e.g.) ₹10,000, in any case he has to pay tax of ₹3,000 (± surcharge/rebate + cess). 288

8. There are TDS provisions on winnings from lotteries, etc. u/s 194B & 194BB, according to which TDS on such winnings shall be deducted @ 30%. While calculating IOS on account of such winnings, amount received by assessee net of TDS shall be gross up to get Income from winnings. Illustration-1 Mr. X won a lottery and received (i) ₹70,000 (ii) ₹7,70,000 net of TDS. Compute his income from winnings from lotteries. Solution: 1,00,000 11,00,000 Illustration-2 Mrs. A participated in KBC and received ₹2,80,000 (net of TDS). Her other incomes are ₹(i) 3,15,000 (ii) ₹1,10,000 (iii) ₹40,000. Compute her total income and net tax liability assuming she paid LIC premium of ₹55,000 for her life during the year. Solution: Other incomes 3,15,000 1,10,000 40,000 Winnings 4,00,000 4,00,000 4,00,000 GTI 7,15,000 5,10,000 4,40,000 Less: Deductions 55,000 55,000 40,000 TI 6,60,000 4,55,000 4,00,000 Tax on winnings 1,20,000 1,20,000 1,20,000 Tax on other incomes 500 - - Less: rebate u/s 87A 1,20,500 1,20,000 1,20,000 - - - Add: Cess @ 3% 1,20,500 1,20,000 1,20,000 Less: TDS 3615 3600 3600 Tax payable/(refundable) 1,24,115 1,23,600 1,23,600 1,20,000 120000 120000 3600 4115 3600 (3) Dividend – Section 2(22) Dividend includes:  Final Dividend (to equity or preference shareholders)  Interim Dividend (to equity or preference shareholders) 289