Tax Planning workbook

Tax Planning & Estate Planning Workbook (Assessment Year 2020-21) 1

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Exam Specification and Pattern As prescribed by FPSB 3

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Section – I: Contents 7 Section – I: Solutions ---------------------------------------------- 12 ---------------------------------------------- Section – II: ---------------------------------------------- 13 19 Section – II: Solutions ---------------------------------------------- 22 33 Section – III: ---------------------------------------------- 40 47 Section – III: Solutions ---------------------------------------------- 49 52 Section – IV: ---------------------------------------------- 53 Section – IV: Solutions ---------------------------------------------- Section – V: ---------------------------------------------- Section – V: Solutions ---------------------------------------------- Additional Practice Questions ---------------------------------------------- Additional Practice Questions Solution ---------------------------------------- 75 Solutions Additional Questions -------------------------------------------------- 77 6

Section - I One Mark Questions 1. Valuation date for computation of net wealth under Wealth Tax Act- 1957 for any assessment year is: a) 1st April of the AY b) Wealth Tax has been abolished. c) 1st Jan of the Calendar year d) 31st Dec of the Calendar Year 2. Income tax rates are fixed by: a) Finance Act b) Income Tax Act c) Ministry of Finance d) Central Board of direct Taxes 3. Payment of advance tax is compulsory for those whose annual tax liability is: a) ₹5,000/- or more b) ₹7500/- or more c) ₹10,000/- or more d) ₹2,500/- or more 4. How a person born on 30th March 1957 will be taxed for the Assessment year 2020-21 ? a) Normal Individual b) Sr. Citizen c) Super Sr. Citizen d) Age does not matter 5. Which of the following losses can be carried forward even if the return of loss is submitted after prescribed due date: a) Business loss (speculative or otherwise) b) Loss under the head Capital Gain c) Loss from the activity of owning and maintaining race horses d) Loss under the head “Income from House Property” 6. Belated Income tax return can be submitted within: a) One year from the due date of filing of return b) One year from the end of the relevant previous year c) One year from the end of the relevant assessment year d) Six months from the due date of filing of return 7

7. Which one of the following assessees is not chargeable under Wealth Tax Act: a) Wealth Tax has been abolished b) Individual c) Hindu Undivided Family d) Company 8. A tax payer can prefer appeal against the order of the commissioner of Income tax (appeals) with which of the following authority: a) Joint commissioners of Income tax b) Chief Commissioner of Income tax c) The Income tax Appellate Tribunal d) Director General of Income Tax 9. An Indian Citizen who is residing out of India for the last 4 years will be treated as resident if he stays in India during previous years for a minimum period of: a) 180 days b) 182 days c) 60 days d) 183 days 10. Maximum penalty that can be imposed for concealment of the particulars of income or furnishing inaccurate particulars of income is U/S 270A(1): a) 200% of tax sought to be evaded b) 200% of tax sought to be evaded to 500% of tax sought to be evaded c) 50% of tax sought to be evaded to 200% of tax sought to be evaded d) 10% of tax sought to be evaded to 100% of tax sought to be evaded 11. Central Board of direct Taxes, a body constituted under the Central Boards of Revenue Act, is empowered to issue: a) Orders for search and seizure b) Instructions and directions to the Courts dealing with disputes relating to income tax, c) General Instructions and directions to other Income Tax Authorities d) Instructions and orders to income tax authorities to make a particular assessment in a particular manner, 8

12. Rounding off of the Income and rounding off of the tax is done to the nearest multiple of: a) ₹100 b) ₹1/- c) ₹10/- d) Rounding off is not applicable 13. “Budget” which is presented by the Finance Minister in Parliament and signed by the President is known as: a) Income tax Act a) Finance Act b) Direct Tax code c) Goods and Services Tax Act 14. A simple interest is payable the by the income tax department under section 244A in the case of refund of advance tax or TDS to the assesse. The rate of interest so payable is: a) 0.5% per month (or part thereof) b) 1% per month (or part thereof) c) 1.5% per month (or part thereof) d) 2% per month (or part thereof) 15. The Maximum amount of interest a banking company can pay without deduction of TDS to a normal individual is: a) ₹5,000/- b) ₹40,000/- c) ₹NIL d) ₹10,000/- 9

Two Mark Questions 16. Your brother, a Senior Citizen has a fixed deposit of ₹4 Lakhs in a schedule bank. During the previous year, he is to get an interest of ₹80,000/- on that FD. He asks you the amount of TDS that will be deducted from the bank on this FD: a) ₹8,240/- b) ₹3,090/- c) ₹7,210/- d) ₹8,000/- 17. Mr. X, after about 30 years stay in India went to USA on January 29, 2019. He returns to India in June 2019 to join an American Company as its overseas branch manager. What will be his residential status for the assessment year 2020-21: a) Resident and ordinary Resident b) Resident and not ordinary resident c) Non-resident d) I do not attempt 18. Your friend Ram is a proprietor of firm carrying on business of trading of shoes. He has earned anet profit of ₹5,30,000/- during the PY 2019-20. He also has Income from other sources to the tune of ₹38,000/-. He wants to know from you (i) which Income tax return form will be applicable for him for filing of his return for the assessment year 2020-21 and (ii) The due date for filing of such return: a) ITR-2 form by 31st July 2020 b) ITR-2 form by 30th Sept-2020 c) ITR-3 form by 30th Sept-2020 d) ITR-3 form by 31st July 2020 19. Your client who is a Doctor is well known for Knee Surgery and whose clinic is in your neighborhood. During PY he had been frequently invited to US, UK and Japan by differentpatients for performing surgery there. He received US $18,000 in Japan, US $ 30,000 in UK and US $ 12,000 as fees for performing such surgeries there. His status in India during the PY is Resident but not ordinary resident. He wants to know from you the taxability of such amount during the AY: 10

a) Full US $ 60,000 in India b) US $ 18,000 in Japan, US $ 30,000 in UK and US $ 12,000 in USA c) Only US $ 30,000 is taxable in India and rest in the Country where he receive the same, d) He does not have to pay any tax as he is a Doctor, 20. Your client has estimated his total personal Income as ₹3 Lakh for the PY 2019-20 which includes ₹2.5 Lakh as his share of remuneration from the partnership firm where he is working a partner having 50% share. His partnership firm have already paid 1st installment of advance tax due to it before 15thJune 2019. He wants to know from you if any advance tax liability for the 1st installment is due to him also and if so then what is the percentage and the income on which it is payable. a) No, advance tax liability is not payable by him as his firm has already paid advance tax. b) No, advance tax liability is not payable by him as his income tax liability is less than ₹10,000. c) Yes, he also has to pay advance tax on his full income of ₹3 Lakh and percentage applicable is 15% d) Yes he also has to pay advance tax on his full income of ₹3 Lakh and the percentage applicable to him is 30% 11

Section – I: Solutions SOLUTION TO SECTION - I QUESTION NO. CORRECTOPTION 1B 2A 3C 4B 5D 6B 7A 8C 9B 10 A 11 C 12 C 13 B 14 A 15 B 16 D 17 A 18 D 19 A 20 B Solution to Ques 17: During PY 19-20 he is in India for more than 182 days. He is also Residentin India for 2 out of 10 years preceding to current previous years. He has also stayed for more than 730 days during 7 years preceding the PY. Solution to Ques 19: Full US $ 60,000 shall be taxable in India. This is so because in the case ofNOR, professional income is taxable in India if the profession is set up in India. [Proviso of Section 5(2)] Solution to Ques 20: Advance tax is payable when income tax liability is₹10,000 or more(Section208). In this instance case income tax is less than ₹10,000, thus no advance tax is payable. 12

Section - II One Mark Questions 21. An Investor holds shares in a company that is not listed. Such shares would qualify as long term asset if held for: a) More than 24 months b) More than 36 months c) More than 12 months d) More than 48 Months 22. In the case of Leave Salary, maximum amount specified by Government for exemption is: a) ₹3,00,000 b) ₹5,00,000 c) ₹10,00,000 d) ₹NIL 23. While computing house rent allowance, Salary includes: a) Basic Salary, DA if it forms part of calculation of retirement benefits &fixed amount of commission b) Basic Salary and DA only if it forms part of calculation of retirement benefits c) Basic Salary, DA if it forms part of calculation of all the retirement benefits & Commission based on fixed percentage of turnover d) Basic Salary, DA, and Commission & Bonus 24. Losses under the head “Income from other sources” can be carried forward for a period of: a) 4 Years b) 8 Years c) For indefinite period d) 0 years 25. While computing exempted portion of gratuity for the employees covered under the payment of gratuity Act, 1972, Salary is taken on the basis of: a) Average of last 10 months b) Last drawn at the time of retirement c) Average of last 6 months d) Average of last 3 months 13

Two Mark Questions 26. Tax rate applicable for an AOP for the assessment year 2020-21 where shares of members are determinate and income of one member falls under the tax bracket of 20%: a) 20% + SC + EC & SHEC b) 30% + SC + EC & SHEC c) 10% + SC + EC & SHEC d) As per rates applicable to normal individual 27. A Minor child who is expert in singing has earned ₹40,000/- during the PY by performing singing in religious concerts. For the purpose of income tax, this amount will be included in the hands of: a) His mother who loves him a lot b) His father whose income is higher than child’s mother c) In the hands of his grand father d) No it will not be included in any body’s hands 28. Ms Jaya is employed at Mumbai. Ms Jaya receives ₹48,000/- HRA for the PY along with her Salary. Her basic Salary is 15,000/- per month and DA ₹3,000 per month which forms part of her salary for calculation of all the retirement benefits. She pays rent of ₹30,000/- per year for the accommodation. Exempt portion of her HRA shall be: a) ₹48,000/- b) NIL c) ₹8400/- d) ₹1,08,000/- 29. Mr. Suraj takes a loan of ₹2,00,000 from his employer on 1st April 2019 for Medical treatment of his spouse. His employer does not charge any interest on the said loan. SBI personal loan rate is 10% p.a. Find out the amount of perquisite in the case of this interest free loan for the AY2020-21. Suraj has not repaid any amount until 31st March 2020: a) NIL b) ₹20,000/- c) ₹10,000/- being 50% of total interest d) ₹5,000/- being 25% of total interest, 30. Your client has taken a LIC policy on the life of his married daughter on 15th July 2019. Annual premium for the said policy is ₹20,000 and the Sum assured is ₹1,50,000/-. Your client wants to avail benefit u/s 80C and asks your opinion about same. What would be your advice to him: a) He cannot take the benefit u/s 80C as his daughter is not depended on him, 14

b) He can take the benefit and full premium of ₹20,000/- is available for deduction u/s 80C c) He can take the benefit but it will be limited to ₹15,000/- being 10% of Sum assured. d) He can take the benefit but for only half the premium paid. 31. Standard Deduction u/s 24 (a) for calculation of Income from House Property is: a) 30% of gross annual value of the House Property b) 30% of Net annual value of the house property c) 30% of actual rent received d) None of the above 32. Your client engaged in the business of manufacturing made cash payment of ₹30,000/- to one of his contractor for attending repairing of a machine on urgent basis. Amount disallowed u/s40A (3) while computing his taxable profit shall be: a) NIL b) ₹10,000/- c) ₹30,000/- d) None of the above 33. Employer’s contribution to Superannuation Fund for employee is: a) Fully taxable in the hands of employee b) Taxable in the hands of employee provided contribution to such fund exceeds ₹1.5 Lakh in a year c) Exempt to the extent of 12% of Salary d) Fully exempt without any limit, 34. Your client has accepted VRS proposal offered by his company on 1st January 2020 and has received ₹27,00,000/- lump sum as VRS compensation. The amount taxable during the AY2020-21 will be: a) ₹22,00,000/- b) ₹27,00,000/- c) ₹5,00,000/- d) None of the above 35. Your neighbor, aged 30 years, paid by cheque, during the previous year, ₹7,000/, health insurance premium on the health of himself, spouse and his dependent children, and ₹19,000/- for the health of his Senior citizen Parents. He has also spent cash ₹3,000/- on preventive health expenses for his family members. He has come to you to know the amount available for deduction u/s 80D for the AY: a) ₹22,000/- b) ₹25,000/- 15

c) ₹7,000/- d) ₹29,000/- Three Mark Questions 36. Mr. Amitabh owns a house property for which Municipal Value is ₹1,45,000, fair Rent ₹1,36,000 and Standard Rent ₹1,24,000. It is let out throughout the previous year, Rent being ₹8,000 per month up to 15th Nov 2019 and ₹14,000 per month thereafter. He sold his property on 31st Jan 2020. Find out gross annual value of the property for the AY 2020-21 in the hands of Mr. Amitabh: a) ₹1,24,000/- b) ₹1,03,333/- c) ₹1,23,000/- d) ₹95,000 37. Your client aged 47 years has received a total salary Income of ₹9,51,388 (after Standard deduction) for the previous year2019-20. He has Income from other sources of ₹95,000 (Interest from saving bank account ₹15,000 & Interest on FDs ₹80,000). He pays LIC premiums ₹37,000/- & Mediclaim premium₹21,000/-. He contributes ₹20,000/- to his own PPF account and ₹30,000/- to the PPF account of his spouse. Find his Tax liability for the PY 2019-20: a) 1,09,570/- b) 1,02,360/- c) 1,01,120/- d) 1,01,123/- 38. Mr. Ravi has inherited a property of market value of ₹60 Lakh from his grandfather on 1st Jan 2009. His grandfather had acquired this property on 1st Jan 2002 for ₹17 Lakh. Ravi sold this property for ₹78 Lakh in March 2020. Expenses on transfer incurred ₹38,000. Ravi wants you to compute his capital gain /loss rounded off to nearest thousand for the AY 2020-21. Cost inflation index for FY 2001-2002:100; FY 2008-09:137; FY 2019-20: 289 a) ₹31.38 Lakh b) ₹28.49 Lakh c) ₹31.76 Lakh d) ₹31 Lakh 39. Your Client has recently purchased a house worth ₹60 Lakh for self- occupation by availing a loan of ₹48 Lakh at 9.50% p.a. rate of interest. The tenure of loan is 15 years. He has ₹10Lakh financial asset at present. He is expected to save ₹25,000 p.m. beginning amonth from now in an instrument which is expected to provide a return of 10% p.a. What would be his net 16

worth five years from now? The value of the house which is for consumption purpose is not considered in the net worth so arrived. a) Negative ₹3.49 Lakh b) Negative ₹2.92 Lakh c) Negative ₹2.76Lakh d) Positive ₹1.62Lakh 40. Mr. Rohit had taken a FDR for ₹10 Lakh out of his own funds bearing interest @ 12% p.a. payable monthly. The FDR is taken in joint names, 1st holder being his wife Rajani so that the interest on this FDR is received by her every month. Rajani on the other hand put this monthly interest in a RD account of the same Bank. During the PY, Rajani received ₹1,20,000interest on FDR and ₹9,000 interest on RD account. The total amount that would be included in the hands of Mr. Rohit on account of Rajani’s income for the AY shall be: a) ₹NIL b) ₹1,29,000 c) ₹1,20,000 d) ₹9,000/- Four Mark Questions 41. Within 1.5 years of purchase of his flat, Yogesh entered into an agreement on 18/8/2019 to sell the same to Alok for ₹16 Lakh. Yogesh had bought the flat for ₹11 Lakh. Alok pays Yogesh earnest money of ₹1 Lakh in respect of the transaction with the balance money payable within 3 months. However for some avoidable reason, Alok could not make the rest of the payment. As per terms of the agreement, Yogesh forfeited the earnest money paid by Alok and subsequently within another 2 months, sold the flat to another buyer for ₹18 Lakh. Compute tax for Yogesh for the AY 2020-21 assuming he does not have anyother income during the PY. a) ₹72,100 b) ₹87,550 c) ₹75,400 d) ₹74,675 42. Dr. Rajeev aged 38 years purchased a flat for ₹30 Lakh some years back for his self-occupation. He took loan of ₹16 Lakh for acquiring this flat from a financial institution at fixed interest rate of 9% p.a. for tenure of 20 years. He started paying EMI from the month of April 2010. His earning during the PY 2019-20 is ₹14 Lakh. Municipal tax paid by him on the said property during PY is ₹36,000. During the previous year he has not invested in any tax saving instruments except paying health Insurance premium of ₹18,000 for self, spouse and his depended children and another ₹20,000 for his Senior citizen parents. Calculate his tax liability for the AY 2020-21. a) ₹1,76,050 17

b) ₹1,87,230 c) ₹1,99,020 d) ₹1,88,160 43. Your friend sold ₹90 Lakh worth of unlisted shares on 15th Jan- 2020. These shares were acquired in May 2010 for ₹3278780 Lakh. In Feb. 2020; he invested ₹35 Lakh from these proceeds in his 1st residential house to avail benefit under section 54F of the Income tax Act-1961. What approximate amount of bonds specified under section 54EC should he purchase and by what date so as to make his capital gains liability almost NIL towards these transactions. Cost inflation index for FY 2010-11: 167, 2019-20 :289 a) ₹27.76 Lakh, 14thJuly 2020 b) ₹20.33 Lakh, 14thJuly, 2020 c) ₹22.37 Lakh, 31stJuly 2020 d) ₹25.29 Lakh, 31stJuly 2020 44. Soumen, your neighbor, aged 45 years, owns a house property. It is used by him throughout the previous year 2019-20 as his own residence. Municipal value of the property is ₹1,66,000,where as fair rent is ₹1,76,000 and standard rent is ₹1,50,000. He incurred the following expenses on the property during the PY 2019-20: Repairs ₹20,000; Municipal Tax ₹16,000;Insurance₹2000; Interest on borrowed capital to construct the property ₹1,36,000 loan for which was taken on 1st sept. 2012. Soumen’s income from business during the PY is ₹7,72,500.On the occasion of Diwali, he also won a cash prize of ₹3 Lakh from lottery draw. No TDS was deducted on this prize. Soumen has come to youto calculate his tax liability for the AY 2020-21.You calculated the same as: a) ₹1,46,570 b) ₹1,46,569 c) ₹1,38,840 d) ₹1,34,990 45. Mr. Sumit, aged 35 years, who is unemployed at present invested ₹3 Lakh in Nifty Shares on13th May 2019. By October 2019 value of the shares practically doubled. On 17th Oct-2019 he sold all the shares in the market for a net consideration of ₹6,20,000/-. He has no other income except ₹8000/- interest from savings bank account. His friend suggested him to invest₹1 Lakh in PPF to save tax and on his advice he invested the same on 15th Nov- 19. He has come to you to know his tax liability for the AY 2019-20. a) ₹8650 b) ₹8240 c) ₹5665 d) Nil 18

Section – II: Solutions SOLUTION TO SECTION - II QUESTION NO. CORRECTOPTION 21 A 22 A 23 C 24 D 25 B 26 B 27 D 28 C 29 A 30 C 31 B 32 C 33 B 34 A 35 D 36 B 37 C 38 B 39 A 40 C 41 C 42 A 43 B 44 D 45 D 19

Suggested Solutions to 3-mark and 4-mark questions 36. MV, FR and SR up to 31st Jan-16 shall be: MV: 1,45,000 X10/12=1,20,833; FR:1,36,000X10/12=1,13,333; SR: 1,24,000X10/12=1,03,333. Therefore ER is 1,03,333. Actual rent (AR)is 8000X7.5+14000X2.5 = 95,000. GAV is higher of ER or AR= 1,03,333. 37. GTI: 9,51,388+95,000 = 10,46,388. Less u/s 80TTA ₹10,000, u/s 80C ₹87,000 (LIC ₹37,000+ Own PPF ₹20000 + PPF of spouse ₹30000) & u/s 80D ₹21,000 = Total deduction= 1,18,000. Net Income ₹10,46,388– 1,18,000 = 9,28,388 R/O = 8,65,890. Tax on this Income is ₹98,178 + EC@ 3% = 2945.34, Total tax = 1,01,123. R/O = 1,01,120/- 38. Sales consideration ₹78,00,000– Expenses on transfer ₹38,000 = 77,62,000 Less Indexed COA46,24,000 (1700000X272/100) =LTCG 31,38,000 R/O to 31.38 Lakh. 39. EMI for loan of ₹48 Lakh = 50,122.78 (n=15X12, i= 9.50%12, PV = = 48 Lakh, Use end, PMT?).Outstanding loan after 5 years = 38,73,550 ------(a)( n= 10X12, i=9.50%12, PMT= - 50122.78,PV?).Value of assets after 5 years = 35,24,545-------(b) (n= 5X12, i= Monthly APR of annual effective 10%i.e. 9.5690%12, PV = -10 Lakh, PMT = - 25,000, mode: end FV?). Net worth = Assets minus Liabilities i.e. b-a = 3524545-3873550=-(349005), R/O to 3.49 Lakh. Therefore is negative ₹3.49 Lakh. 40. As per clubbing provisions, income on the asset transferred to spouse is clubbed in the hands of transferor and not the income on the income in the hands of transferee. Interest of RD account is the income on income which cannot be clubbed. 41. COA = 11Lakh, STCG = 18Lakh – 11 Lakh = 7 Lakh. Amount forfeited ₹1 Lakh will be taxable as the income from other sources. Tax on ₹8 lakh as per normal tax rate comes to ₹72,500 and EC @3% = ₹2,550. Thus total tax is ₹74,675 (R/o 74,680). 20

42. EMI on loan of ₹16 Lakh @ 9% for 20 years = 14,395.61 (n=20X12, i=9/12, PV= 16 Lakh, PMT?Use End). Principal amt paid during 2019-20= 56,127, Interest = 1,16,620 out of total EMI of ₹1,72,747paid. (Use amortization where PM1 is 85, PM2 is 96, solve for Summation of Int and PRN.).Income from H/P = GAV: NIL Less MT NIL, less Interest on borrowed capital ₹1,16,620, Income from H/P = (1,16,620).GTI: Other Income ₹14,00,000 add Income from H/P (-1,16,620) = 12,83,380 Less 80C principal paid on homeloan ₹56,127= 12,27,253 Less u/s 80D ₹38,000= 11,89,253; R/O = 11,89,250. Tax on this amt as per normal tax rate is ₹1,74,353.25 R/O to ₹1,74,350 43. L.T. Gains = Sales ₹90,00,000 Less Indexed COA ₹56,73,953 (3278720 Lakh X 289 / 167) = ₹33,26,047 Less exemption u/s 54F ₹12,93,462 (36,59,810 X 3500000 / 9000000) = ₹20,32,585. This ₹20, 32,585 can be invested in REC/NHAI bonds for availing exemption u/s 54EC within 6Months from the date of transfer i.e. 14th July 2020. 44. Income from HP for self-occupied house: GAV NIL Less MT NIL, NAV = NIL Less Interest on borrowed capital ₹1,36,000= (1,36,000) + Business Income ₹7,72,500 = ₹6,36,500 which is the net taxable income before lottery income. Tax on this income is ₹39,800------ (a). Tax on Lottery Income of 3 Lakh@ 30% flat which is ₹90,000----- (b) = Total Tax = a + b = 129800 + 3% EC =1,34,992/- R/O-1,34,990 45. Other Income ₹8000 Less U/s 80TTA ₹8000 = NIL. STCG: Sales ₹6,20,000– COA ₹3,00,000 =₹3,20,000 Less exemption limit ₹2,50,000 = ₹70,000. STCG Tax @ 15% = ₹10,500 LESS rebate u/s 87A ₹10,500 Tax=Nil 21

Section - III One Mark Questions 46. Long Term capital gain tax rate on sale of units of debt based Mutual Fund Scheme is: a) 10% on sale value minus cost without indexation b) 10% on sale value Minus cost OR 20% of sale value minus indexed cost whichever is lower c) 20% on sale value Minus indexed cost d) NIL 47. For the previous year 2019-20 M/s Fashion Ltd, a domestic company, pays interim dividend in Oct. 2019 and Final Dividend in March 2020. The Dividend Distribution tax is payable on: a) Both interim and final dividend b) On neither the interim nor the final dividend c) Only on the final dividend d) Only on the interim dividend 48. Among the following taxes, which tax attracts surcharge, irrespective of who the payer of the tax is and without any condition: a) Securities Transaction Tax b) Income tax c) Wealth Tax d) Dividend Distribution Tax 49. Exemption u/s 10(10D) in respect of policies purchased in the PY 2019-20 is not available if the premium paid in any year during the term of the policy exceeds …………. Of sum assured: a) 20% b) 10% c) 5% d) 30% 50. Employer’s contribution to NPS account of an employee is deductible u/s 80CCD. Which of the following is true in this regard: a) Up to 10% of employee’s salary subject to the maximum combined ceiling limit of₹1,50,000 u/s 80C, 80CCC and 80CCD b) Up to 12% of employees Salary without any combined ceiling limit, c) Up to 10% employees Salary without any ceiling limit d) Up to 12% of employee’s salary subject to the maximum combined ceiling limit of₹1,50,000 u/s 80C, 80CCC and 80CCD. 22

Two Mark Questions 51. Which of the following types of income would not qualify as agricultural income: a) Income from sale of agricultural produce b) Income from renting out of agricultural land c) Any income derived by agriculture from land situated in India used for agricultural purposes d) Income from poultry farming 52. Pankaj invests ₹1,40,000 in an equity oriented MF scheme on 1st Feb 2019 and receives a dividend of ₹20,000 on 31st March 2019, the record date. The units were sold on 2ndJune2017 for ₹1,10,000. How much short-term loss, if any arising out of this transaction is allowable for set off in FY 2019-20: a) ₹30,000 b) ₹10,000 c) ₹20,000 d) NIL 53. Mr. Salman made a gift of house property to his spouse Rubia on April 1st, 2019. The value of the House Property as on the date of gift was ₹21,50,000. Ms Rubia in turn made a gift of that property to her daughter in-law Sufi on Oct-30, 2019. The value of the house on 31st March2020, the valuation date, was 24 Lakh. In whose net wealth for wealth tax purpose, this house property will be included for the AY 2020-21 assuming this was the 2nd house for all the parties involved. a) In the hands of Ms Sufi b) In the hands of MsRubia c) In the hands of Mr. Salman (Not Taxable as Wealth Tax is Abolished) d) In the hands of Mr. Salman 54. Mr. Sachin is Resident and Ordinary resident in India during the PY 2019-20. His Income is ₹8,86,000 from a business in India and ₹1,92,000 from a business in a Foreign Country with whom India has an ADT agreement. According to the ADT agreement, income is taxable in the country in which it is earned and not in the other country. However in the other country it can be included for the purpose of computation of tax rate. According to the tax laws of the foreign Country, business income is taxable @ 23%. Find out the tax liability for Sachin for the AY 2020-21 assuming that he has invested ₹1 Lakh in PPF for tax saving: a) ₹1,03,970 b) ₹1,11,340 c) ₹89,480 d) ₹1,11,343 23

55. Mohan purchased units of equity oriented mutual funds on 31st July 2019. The cost of the mutual funds was ₹1,00,000. The securities transaction tax that Mohan would be liable to pay would be: a) ₹250 b) ₹25 c) ₹zero d) ₹1 Three Marks Questions 56. Ms. Soma received the following gifts during the PY 2019-20: ₹1,30,000 from her elder sister,₹70,000 from the daughter of her elder sister on the occasion of her birth day and ₹1,25,000 from various friends on the occasion of her marriage on 10thMarch 2020.Calculate the amount of gift taxable in the hands of Soma. a) ₹1,95,000 b) ₹70,000 c) ₹2,00,000 d) ₹NIL 57. A salaried individual, aged 35 years, was awarded a car of market value of ₹4,50,000 by his credit card company in a draw on 4th November 2019. There was no TDS by the company. During PY 2019-20 he has taxable salary income of ₹9,92,500. He saved a total of ₹1,30,000 under different investment instruments eligible for exemption u/s 80C. On 13thMarch 2020, he has paid ₹18,000 towards his health insurance policy. Find out his tax liability for AY 2020-21? a) ₹2,25,060/- b) ₹2,21,965/- c) ₹2,22,892/- d) ₹2,16,400/- 58. A private sector employee aged 60 years has his retirement fund valued at ₹1.95 Crore. He is due to receive gratuity under the payment of Gratuity Act from his employer. He decides that he would commute one-third of his retirement account balance, the rest being utilised by his employer to pay him fixed immediate monthly annuity for 20 years through a pension product which gives an effective annual yield of 8%. What would be the amount of his after tax monthly income in the first year? a) ₹1,05,808 b) ₹1,24,318 c) ₹89,422 d) ₹1,96,640 24

59. A private sector employee aged 58 years has his retirement fund valued at ₹2.20 Crore. H ewill not receive any gratuity from his employer. He decides that he would commute 50% of his retirement account balance, the rest being utilised by his employer to pay him fixed immediate monthly annuity for 15 years through a pension product which gives an effective annual yield of8%. What would be the amount of his after tax monthly income in the first year? a) ₹87,056 b) ₹1,02,696 c) ₹1,22,888 d) ₹85,985 60. Your client aged 35 years had invested ₹1057132 Lakhs in 3 years closed ended debt based FMP of a Mutual fund which was purchased during PY 16- 17 He also invested ₹5 Lakhs in a bank FD on 10th July 2018. Maturity amount received during the PY towards FMP is ₹13,96,934 and that from bank FD is ₹5,45,000. TDS deducted on bank FD is ₹5,000 whereas No TDS was deducted on FMP. During the previous year 2019-20 his taxable salary income is ₹5,40,000. He has invested ₹88,000 in investment instruments eligible for section 80C and has paid by cheque an amount of ₹8000 towards health insurance policy. Calculate his tax payable for the AY2020-21. Cost inflation index for FY 2016-17: 264; 2019-20: 289. a) ₹56,980 b) ₹61,100 c) ₹51,970 d) ₹53,750 61. On May 10, 2019, Mr. Robin purchases, 1000 equity shares of ₹10 each in Fine arts Ltd @ ₹55.55. On October 20,2019, he transfers 800 equity shares @ 37 per share and remaining 200 shares are transferred on December 20, 2019 @ 20 per share. Fine Arts Ltd.declares 50% dividend, and declared Aug 3, 2019 as record date. During the previous year Robin has generated L.T. gain of ₹76,000 on sale of gold. Compute his net L.T. gain for the AY 2020-21. a) ₹57,050 b) ₹58,050 c) ₹76,000 d) ₹61,050 62. Your client during the PY 2019-20 purchased 2000 units of equity oriented MF on 13th April 2019@ NAV of ₹38. The fund declared 40% dividend in the same scheme and fixed record date as5th July 2019. He sold 1000 units on 30th Sept 2019 @ NAV of ₹32 and balance 1000 units were old on 10th March 2020 @NAV of ₹28. Compute his net STCG for the AY 2020-21 from the above transactions that can be set off against other income. 25

a) STCG Loss ₹12,000 b) STCG Loss ₹16,000 c) STCG Loss ₹2,000 d) STCG Loss ₹8,000 63. Generally X Ltd pays salary to its employees by crossed payee cheque. Salary for December 2019 is however paid to two employees A & B by bearer cheque, payment being ₹8,000 and ₹22,000 respectively. For the same month X Ltd also paid cash salary of₹26,000 to C to meet his emergency requirement of fund for his sons’ treatment. Find outthe amount that would be disallowed to X Ltd U/s 40A (3). a) ₹66,000 b) ₹48,000 c) ₹40,000 d) NIL 64. Your client is a partner in a partnership firm engaged in agriculture activities. During the PY2019-20, he has received, from his firm, an amount of ₹2,80,000 as his share of remuneration from the firm, ₹28,000 as interest from the firm on the capital standing to his credit computed@ 12% p.a. and ₹1,35,000 as his share of profit from the firm. Apart from this he has interest income of ₹60,000 from a bank FD. Find out his taxable income for the AY 2020-21. a) ₹60,000 b) ₹3,68,000 c) ₹5,03,000 d) ₹4,43,000 65. Your client Sohanlal who retired 6 years back is now of the age of 66 years. At the time of retirement he had a total corpus of ₹30 Lakh which he invested in an annuity for life giving him a fixed monthly income of ₹20,000. In other assets, he has only a house in which here sides. Value of his house in 2019 is ₹50 Lakh. Besides house he has neither any other asset or any other source of income. Due to inflationary pressures, now after 6 years of retire men then has started feeling shortage of income because ₹20000 is not sufficient enough to meet all his expenses now. He needs another ₹10,000/- per month additional income to lead his retirement life comfortably. His friend suggested him to avail reverse mortgage facility offered by many banks in which case he can have additional income without selling the house and without leaving the house. He approached a bank and mortgaged his house under reverse mortgage scheme to receive inflation linked monthly income of ₹10,000. As per reverse mortgage agreement, he will receive first income in the month of April 2019 thereafter every month till his life. However this income will increase every year by 8% which is assumed as inflation rate. He has come to you to know his tax liability for the AY 2020-21 as a result of such increased income. You calculated his tax liability to be: 26

a) ₹11,330 b) ₹16,480 c) ₹11,000 d) ₹NIL 66. Your client is a businessman. His wife is housewife. During the previous year 2019-20 his wife generated long term capital gain of ₹2, 90,000 by selling unlisted shares. She has FD interest of ₹60,000. Besides these, she does not have any other income. During the PY 2019-20 she has invested ₹1 Lakh in MF ELSS scheme to save tax u/s 80C. Your client has come to you to calculate tax liability that his wife may have for her income for the AY 2020-21. The same would be: a) ₹3,090 b) ₹2,575 c) nil d) ₹2,060 67. Your friend Anup aged 28 years borrows ₹20 Lakh at the rate of 8% per annum from a bank on18th April to invest in a public issue of 5 year 10% debentures of M/s Shriram Assets Ltd. Shriram Assets Ltd allots debentures on 30th April 2019. As per term of the allotment, interest is payable every year on 30th April. Anup has, during the PY 2019-20 earned interest of ₹6 Lakh on other debentures held by him as investments. During the year He has invested ₹50,000 in his PPF account and ₹15,000 has been paid by him as Mediclaim insurance premium. Anup wants you to calculate his tax liability for the AY 2020-21. His tax liability comes to: a) ₹8,245 b) ₹6,620 c) ₹8,490 d) nil 68. Ms. Sarita, aged 34 years, purchased 1200 shares of Britannia Ltd, a NSE listed company, on 10thJuly 2018 @ ₹200 per share, face value being ₹10. Company paid her a dividend @ 50% in the month July 2019. On 10th July 2018 she also invested ₹30 Lakh in a 3 year company FD at interest rate of 12% p.a. payable monthly. During the PY 2019-20, she invested ₹50,000 in shares of a PSU Navratna company to avail tax benefit u/s 80CCG (Rajiv Gandhi equity Savings Scheme). Besides this she does not have any other income. Calculate her tax liability for the AY2020-21. a) nil b) ₹4,720 c) ₹4,580 d) ₹12,160 27

69. Mr. Vineet has purchased 20000 equity shares of Earnest & Co Ltd, a listed Company on BSE, and on16th Aug-2018 @ ₹28 per share. On 14th Aug 2019, he sold all the shares to his friend at ₹48per share. On 31st December2019, he won ₹5 lakh in a lottery draw. He received full ₹5 Lakh without deduction of any TDS. During the PY 2019-20 he has invested ₹1 Lakh in his PPF account and ₹50,000 in a MF scheme eligible for deduction u/s 80CCG (Rajiv Gandhi Equity Saving scheme). Calculate his tax liability for the AY 2020-21. a) ₹1,60,680 b) ₹1,54,510 c) ₹1,57,080 d) ₹1,58,360 70. Your client has retired on 25th March-2019 at the age of 60 years. He received ₹40 lakh as retirement corpus. Out of this he invested ₹15 Lakh in PO Sr. citizen saving scheme that pays9% p.a. payable monthly and with balance he purchased a 15 years annuity from an insurance company that pays him 8% p.a. payable monthly. Assuming both the investments have been made on 1st April 2019, calculate his tax liability for the AY 2020-21. a) ₹6,160 b) ₹17,000 c) NIL d) ₹17,490 Four Mark Questions 71. Mr. Saket purchased a flat worth ₹80 Lakhs in Feb 2013 by availing a housing loan of ₹60Lakh for tenure of 20 years at the rate of 10% p.a. The value of his flat in Feb 2020 has been appreciated to ₹1.50 Cr. What approximate value of home equity can he consider in his flat towards his unencumbered interest after also setting aside 15% of the appreciation value towards taxes and other costs to be discharged on selling the unit? a) ₹89.06 Lakh b) ₹77.06 Lakh c) ₹57.79 Lakh d) ₹69 Lakh 72. Ashmita aged 30 years receives the following gifts during the previous year 2019-20: ₹2,90,000 from friends on the occasion of her marriage anniversary.₹1,70,000 from relatives on the occasion of her marriage anniversary. ₹1,05,000 from friends on her birthday ₹85,000 from her relatives on her birthday. Besides this, she has other income of ₹5,42,500 which includes interest of ₹18,000 from SBI savings account. During the year she has paid ₹12,000 28

Mediclaim insurance premium and spent ₹5,000 on preventive health checkup. During the year she also made a gift of ₹80,000to her cousin. Calculate her tax liability for the AY 2020-21. a) ₹45,320 b) ₹49,030 c) ₹98,380 d) ₹97,850 73. Your client’s commercial property (long term) was compulsorily acquired by the Central government in the year 2016 for a metro project and paid him compensation of ₹30 lakh.Your client feels he has been inadequately compensated as market value of his property is ₹50 Lakh. So he filed a suit in a Court of appropriate jurisdiction to enhance the compensation and incurred court expenses of ₹50,000. Court verdict came in the year 2019 and directed the government to pay your friend the following compensation: Total compensation for his property has been enhanced to ₹40 lakh as against ₹30 lakh paid by the government. Court has also directed the government to pay interest of ₹1Lakh for each year for the year 2017 and 2018. For the year 2019 no interest will be payable if the Government pays him the balance amount within 31st July 2019. Government has paid him full balance amount as per Court order on 30th June 2019.Your client aged 37 years has come to you to calculate his tax liability for the AY 2020-21 considering his other business income as ₹10 lakh and investment in PPF ₹1 lakh. You calculate the same as to be: a) ₹3,14,600 b) ₹3,24,450 c) ₹3,42,475 d) ₹3,42,480 74. Mr. Y purchased 2000 shares of a listed company at ₹135 per share on 28th Sept-2018. The company declared dividend of ₹10/- per share, the record date being 26th Dec-2018. He sold900 shares on 12th March-19 at a price of ₹117 per share & the balance 1100 shares were sold on 27th Aug-2019 at a price of ₹153 per share. He had no other transaction during the PY2019-20. What is the disposition of his sell transaction for AY 2020-21? a) ₹8,800 STCG b) ₹19,800 STCG c) ₹12,600 STCG provided he carried forward his short term capital loss during AY2019-20 in his IT return d) ₹7,200 STCG provided he carried forward his short term capital loss during AY 2019-20 in his IT return. 75. Mr. X, an individual purchased a site on April 21, 2009 for ₹2 Lakh. He completed the construction of a building thereon on April 21, 2011 at a cost of ₹10 Lakh. He sold the property on December 7, 2019 for ₹28 Lakh. He has 29

invested ₹1 Lakh in PPF account. He has come to you to know his tax liability considering the fact that he does not have any other income during the PY 2019-20:Cost inflation index for FY 2009-10: 148 and 2011-12:184, 2019- 20:289. a) ₹9,54,170 b) ₹1,22,470 c) ₹1,19,700 d) ₹54,930 76. Your friend Sumit born on 21st April 1972 receives the following gifts during the PY 2019-20:i) ₹1,75,000 in cash as a marriage gift from his grandfather on 13.2.2020. (ii) 1000 shares of B Ltd (fair market value being ₹612500 Lakh) on his birthday on 21st April, from his friend (iii) ₹51,000 from his sister living in UK on Sept 11,2019.(iv) He gets a watch, value being ₹60,000from his friend on December 1,2019. Assuming he does not have any other income, find out his tax liability for the AY 2020-21. a) ₹42,000 b) ₹53,560 c) ₹41,200 d) ₹36,400 77. Your client, a resident individual &self-employed industrial designer furnishes you the following information and wants you to compute his tax liability for the AY 2020-21 (i) Gross total Income₹10 lakh (ii) Housing loan principal repayment for a property under construction at Jaipur ₹1,00,000. (iii) Principal repayment of housing loan taken from a relative for self- occupied property situated at Jodhpur ₹50,000 (iv) He deposits ₹20,000 per month into his NPS account. a) ₹84,980 b) ₹76,740 c) ₹79,690 d) ₹75,400 78. Mr. Amit aged 35 years own a house in Delhi which has been let out at ₹5000 per month. He received rent for 10 months only as the house remained vacant for 2 months. Municipal tax of₹1200 was paid by the tenant. Amit paid interest of ₹14,000 on capital borrowed to buy that house. For the PY 2019-20, Amit has taxable salary income of ₹7,80,000 and agriculture income of ₹1,10,000. Compute his tax liability for the AY 2020- 21. a) ₹94,700 b) ₹97,540 c) ₹92,770 d) ₹1,04,240. 30

79. Mr. Aloke bought 3500 units of an equity oriented mutual fund on 28th Nov 2016 @ a NAV of ₹28 per unit. The fund declared 20%, 30% and 40% dividend on 28th September every year in2017, 2018 and 2019 which he reinvested. Ex-dividend NAV on the respective dates was ₹31.45, ₹36.90 &₹42.30 per unit. Aloke sold all the units on 15th March 2020 at a NAV of₹45 per unit. Cost inflation index for FY 2016-17: 264, for 2017-18: 272 for2018-19: 280& 2019-20:289. NAV as on 31st Jan 2018 was 38.6 Calculate his capital gains for the AY 2020-21: a) LT gain 26,280 & ST gain ₹1030 b) LT gain ₹30,920 & ST gain ₹2500 c) LT gain ₹21,720 & ST gain ₹10,120 d) LT gain ₹21,650 & ST gain ₹12,260. 80. A company engaged in Power generation purchased turbine for its plant at a total cost of ₹8.75 Cr. In June 2017, the depreciation which can be claimed in the books of account asper Companies Act is prescribed at 20% on straight line method. The depreciation as perIncome Tax Act for such item is 60% on WDV basis. What deferred tax liability would stand in the company’s books of account as on 1st April 2020? a) ₹1,49,88,560 b) ₹90,84,600 c) ₹97,96,445 d) ₹1,54,68,905 81. Mr. A bought 1000 units of ANG mutual fund, face value being ₹10, on Oct 1, 2018, at a NAVof ₹23 per unit. On December 5, 2018, mutual fund declared bonus in the ratio of1: 2 i.e. one unit for every 2 units held and fixed December 10, 2018 as record date. Mr. A transfers 700original units on March 20, 2019 at NAV of ₹14 per unit. During PY 2019-20, he transfers 400Bonus units on at NAV of ₹13 per unit. Compute capital gain/losses for Mr. A on the above transaction for the AY 2020-21. a) ST gain ₹5200 b) S.T. gain ₹160 c) L.T. gain ₹5200 d) L.T. gain ₹160 82. Mr. Z holds 1000 equity shares in Ipro Ltd since 1998, cost of acquisition ₹10,000, FMV on1stApril 2001, ₹16,000. Ipro offer 2 rights shares for every 1 share held, of face value of ₹10each to Z on May-1, 2019 at a premium of ₹50 per share. Z subscribes 800 rights shares & renounced rights of 1200 shares in favour of Y for a total consideration of ₹4800.Mr. Z sells all the 1800 shares on March-30, 2020 @ ₹240 per share. Y also sells his 1200 shares @ ₹211per share on 31st March 2020. Both the sale transactions have taken place in stock market. Calculate capital gain chargeable to tax in the hands of both Mr. Z and Mr. Y for the AY 2020-21: 31

a) For Z -STCG is ₹1,38,300& for Y -STCG is ₹1,66,500 b) For Z -STCG is ₹1,44,000& for Y- STCG is ₹1,81,200 c) For Z -STCG is ₹1,48,800,LTCG is ₹1,93,760 & for Y-STCG is ₹1,76,400 d) For Z -STCG is ₹98,000 and for Y-STCG is ₹1,07,000 83. Mr. X was allotted 1000 partly convertible debentures of PNY Ltd @ ₹200 per debenture, face value being ₹100, in a public issue of the company on 16th May 2007. As per terms of the allotment, PNY Ltd converted 60% portion of each debenture into 2 equity shares of face value of ₹10 on July 1, 2011. On September 10, 2017, Mr. X sold 2000 equity shares of PNY on are cognized stock exchange @ ₹300 per share and 1000 NCD @ ₹310 per debenture. Assuming he does not have any other income calculate STT that would have been paid and L.T. gain tax payable for the AY 2018-19 on the above transactions. Cost inflation index for FY 2007-08:129, 2011-12: 184, for 2017-18: 272. a) ₹STT ₹600 & Income tax ₹6,180 b) ₹STT ₹750 & Income tax ₹3090 c) ₹STT ₹750 & Income tax ₹6180 d) ₹STT ₹600 & Income tax ₹NIL 84. Mr. X is a musician deriving income of ₹1,75,000 from concerts performed outside India. Tax of ₹25,000 was deducted at source in the country where the concerts were performed. India does not have any double tax avoidance treaty with that country. His income in India amounts to ₹4,25,000. Compute the tax liability of Mr. X for the AY 2020-21 assuming he has deposited ₹50,000 in PPF & paid medical insurance premium of ₹20,000 for his father who is 69 years of age. a) ₹19,060 b) ₹12,770 c) ₹6,280 d) ₹38,110 85. Your client had invested ₹30 Lakh in a Debt scheme of ANG Mutual fund on 10th Sept 2013 and has chosen growth option at NAV of ₹24 per unit. On 1st April 2019 he switched all the units of debt fund into an Equity Fund-Growth option of the same fund house. NAV of switch out-scheme is ₹42 and that of switch-in-scheme is ₹220. He redeemed all the units of equity fund on 28th March 2020 at NAV of ₹288. Compute his tax liability for the AY 2020-21 assuming he does not have any other income during the year. Cost inflation index for the PY 2013-14:220 & 2014-15: 240 and for 2019-20: 289. a) ₹7,20,130 b) ₹4,73,440 c) ₹2,97,830 d) ₹3,90,650 32

Section – III: Solutions QUESTION NO. CORRECTOPTION 46 C 47 A 48 D 49 B 50 C 51 D 52 B 53 C 54 C 55 C 56 B 57 A 58 C 59 A 60 A 61 B 62 D 63 B 64 A 65 D 66 C 67 D 68 A 69 C 70 C 71 A 72 C 73 A 74 C 75 B 76 D 77 D 78 C 79 A 80 B 81 B 82 C 33

83 D 84 B 85 B 34

Suggested Solutions to 2 mark, 3-mark and 4-mark questions 54. Net Indian Income ₹886000 Less PPF ₹100000= ₹7,86,000 Plus Foreign Income ₹1,92,000 =Total Income ₹9,78,000. Tax as per Indian tax on this income = ₹1,11,343. R/O= ₹1,11,340. Average rate of Tax =11.38% (1,11,340/9,78,000 X100). Therefore Tax to be charged on Indian Income shall be ₹89,820 ( 11.384% of ₹7,86,000). 55. No STT is applicable on purchase of MF units. 56. Gift received from relative is exempt. Gift received on the occasion of marriage of anindividual is exempt. Daughter of Sister does not comes under the definition of relative hence ₹70,000received from such person is taxable. 57. Income from Salary = 9,92,500 Less 80C ₹1,30,000 = ₹8,62,500 Less 80D ₹18000 = ₹8,44,500. Tax on this Income as per normal slab = 81,400. ----(a) Tax on award income of ₹4,50,000 is flat 30% which comes to ₹1,35,000------(b).Total tax payable = a + b = ₹81,400+ ₹135,000 = ₹2,16,400 + 4% EC ₹8656 = ₹2,25,056/- or r/o ₹2,25,060 58. When gratuity is received, 1/3rd of the pension is exempt from tax. So pension exempt from tax is₹65 Lakh (1.95 Cr/3). Balance amount left for purchase of annuity is ₹1.95 Cr Less ₹65 Lakh =₹1.30 Cr. Annuity from ₹1.30 Cr = ₹1,05,808-------(a) [n= 20X12, i= 7.7208/12 (APR of 8% for monthly compounding), PV = -1,30,00,000, With beginning mode, PMT?]. Now annual income is ₹12,69,696 (105808 X 12). Tax on annual Income for of ₹12,69,700 for Sr. citizen= ₹1,96,640. Therefore monthly tax = ₹16,390------(b) (1,96,640/12) Now after tax monthly Income = a – b = ₹1,05,808–₹16,390= ₹89,422. 59. Similar to sum no. 58 above. When gratuity is not received then commuted pension exempt from tax is 50%. With this exempt pension is ₹1.10 Cr. And fund available for purchase of annuity is also₹1.10 Cr. Annuity from ₹1.10 Cr = ₹1,02,696-------(a) [n= 15X12, i= 7.7208/12 (APR of 8% for monthly compounding), PV = 1,10,00,000, With beginning mode, PMT? ]. Now annual income is ₹12,32,352. Annual tax is 1,87,670. Monthly tax is 15,640. Monthly income after tax = 87,056 i.e.1,02,696-15,640) 60. GTI= Salary ₹5,40,000 + Interest from Bank FD ₹50,000=₹5,90,000 Less 80C ₹88,000= ₹5,02,000 Less 80D ₹8000 = ₹4,94,000. Tax on this Income as per normal slab is ₹12,200-- -----(a)LTCG on FMP: Sales ₹13,96,934 less Indexed COA ₹11,57,240 (10,57,132 X289 / 240)=₹2,39,694. LTCG tax @ 20% on this = ₹47,393------(b).Total Tax = a + b = ₹12,200 + ₹47,393 = ₹59,593 + 4% EC ₹2,384 = ₹61,977 Less TDS₹5000 = ₹56,977.1R/O ₹56,980. 61. S.T. gains on 800 shares: Sales Consideration 800 X ₹37 = ₹29,600 Less COA ₹44,440 (800X ₹55.55) =₹(14,840). Dividend Received on 800 shares ₹4000. Since shares have beenpurchased within 3 months of record date and also sold before expiry of 3 months from record date hence provision of dividend stripping applies here. Therefore loss allowed is 35

₹14,840–₹4000 =₹10,840 ………. (a)S.T. gain on 200 shares: Sales consideration 200 X ₹20= ₹4000 Less COA ₹11,110 (200 X₹55.55), = ₹(7110) ……… (b). These shares being sold after 3 months from the record date hence dividend stripping provisions do not apply here hence full loss is admissible. Net L.T. gain: LTCG on gold ₹76,000 Less ST Losses ₹17,950 (a + b) = ₹58,050. (S.T losses can be adjusted against LTCG.) 62. On sale of first 1000 Units: sales 1000 X ₹32= ₹32,000 Less Purchase 1000 X ₹38 = ₹38,000=₹(6000). Dividend on 1000 units @₹4 per unit = ₹4000. Since Units were sold within 3 months from the record date hence provision of dividend stripping applies. Hence loss admissible is ₹(6,000) -₹4,000= ₹(2000).On sale of Next 1000 Units: Sales ₹1000 X ₹28 = ₹28,000 Less Purchase 1000 X ₹38 = ₹38,000 =₹(10000). Dividend earned on these 1000 units@ ₹4 per unit = ₹4000. Sincethese units were sold within 9 months from record date hence dividend stripping provision applies here also. Hence loss admissible is ₹(10000) –₹4000 = ₹(6000). Therefore total loss available for set off against other income is ₹(2000) + ₹(6000) = ₹(8000). 63. Payment in excess of ₹10,000 made in cash to a single person in a single day is notallowed as business expenditure. Payment by bearer cheque is also considered as payment made in cash. Therefore disallowed expenditure u/s 40A (3) is ₹22,000 + ₹26,000 = ₹48,000. 64. Income received by a partner from a firm engaged in agriculture activities as remuneration, interest and share of profit is considered as agriculture income hence exempt from tax. Therefore only interest on FD is only taxable income for him during PY. 65. Income received under reverse mortgage is exempt from tax. His present annual income of ₹2,40,000 ( ₹20,000 X 12) is within the exemption limit, hence no tax liability. 66. Income from other source ₹60,000 Less u/s 80C ₹60,000= NIL (Deduction cannot exceed the income. Moreover deduction u/s 80C to 80U is not allowed from LTCG). Therefore taxable income is only LTCG of ₹2,90,000. Benefit of exemption limit is however available from LTCG if there is no other income. Therefore taxable LTCG is only ₹40,000 (₹2,90,000–₹2,50,000). LTCG tax on this @ 20% = ₹8,000, Less rebate u/s 87A ₹8,000= nil 67. Interest @ 8% on ₹20 Lakh from 18th April-17 to 31st March-18 for 348 days comes to ₹1,52,548.-----------(a)(₹160000 x 348/365). This interest will be available as expenditure to be deducted from the interest income of other debentures. Income from other Debentures is ₹6,00,000---------(b)Therefore taxable income is (b-a) = ₹6,00,000 - ₹1,52,548= ₹4,47,452 Less u/s 80C ₹50000= ₹3,97,455 Less u/s 80D ₹15,000 = ₹3,82,452.Income R/O ₹3,82,450. Tax on this Income as per normal slab is ₹6,622.50 less rebate u/s 87A ₹ 6,622.5 =nil. 68. To avail the benefit of section 80CCG individual should be NEW INVESTOR during the PY. Since Sarita is not a new investor she will not get benefit of section 80CCG. Also, deduction under section 80CCG is NOT ALLOWED in PY 2018-2019.Dividend Income @ ₹5 per share on 1200 shares = ₹6,000 is exempt income. APR of 12%p.a. for monthly 36

payment = 11.3866% (on FC 200V calculator, CNVR, n= 12, I=12, APR:?). Full years interest on ₹30 Lakh FD = ₹3,41,598= R/O ₹3,41,600. Tax on this as per normal slab comes to ₹4,580 less tax credit u/s 87A ₹4,580 = nil.Benefit of 80CCG is not available to her. 69. STCG= ₹48 - ₹28/= ₹20 X 20000= ₹4,00,000 Less u/s 80C ₹1,00,000 =₹3,00,000. Tax on this as per normal rate = ₹2,500 …….. (a) *Since no STT is paid onthis off market transaction, hence this STCG is chargeable to tax at normal rate]. Lottery Income = ₹5 Lakh. Tax on this @ 30% = ₹1,50,000 ……. (b) Total tax = a + b = ₹2,500 + ₹1,50,000 = ₹1,52,250 + 3% EC ₹4,575 = ₹1,57,075 (1,57,080). 80CCG is not available w.e.f. AY 2020- 21. 70. APR of 9% p.a. payable monthly is 8.6488% and that for 8% = 7.7208%.Annual Income from PO Sr. citizen savings scheme= ₹1,29,732 less deduction u/s 80ttb ₹50000------ (a).Monthly annuity will be ₹23,340 (n= 15X12, I= 7.7208%/12, PV = -2500000, Mode beginning, PMT=?).Annual Income from annuity = ₹23,340 X12= ₹2,80,080------(b).Total Income a + b = ₹79,732 + ₹2,80,080 = ₹3,59,812 less u/s 80C ₹1.5 Lakh = ₹2,09,812. R/O = ₹2,09,810 (investment inPO Sr. citizen is eligible for deduction u/s 80C).Tax on ₹2,09,810 at normal rates for Sr. citizen= NIL. 71. Appreciation in value is ₹70,00,000 (₹1,50,00,000 –₹80,00,000). 15% of appreciation = ₹10,50,000. Home Equity after taxation= ₹1,50,00,0000– ₹10,50,000 = ₹1,39,50,000------ (a)EMI on loan of ₹60 Lakh @ 10% p.a. for 20 years = ₹57,901.30 (N=20X12; i= 10%/12; PV=50Lakh, PMT?). Outstanding loan after 7 years is ₹50,44,334------(b) (n= 13X12, i= 10%/12, PMT = –57,901.30, PV=?). Home equity towards unencumbered interest is a – b = ₹1,39,50,000–₹50,44,334 = ₹89,05,666 i.e. ₹89.06 Lakh. 72. GTI=₹5,42,500+Gift by friends on marriage anniversary ₹2,90,000 + Gifts by friends on Birthday₹1,05,000= ₹9,37,500 Less 80TTA ₹10,000 = ₹9,27,500 Less 80D ₹17,000 = ₹9,10,500.Tax on ₹9,10,500 as per normal tax slab = ₹94,600 + EC @4% ₹3,784 = ₹98,384= ₹98,380(Round Off). 73. Business income ₹10 Lakh + Interest on enhanced compensation ₹2 Lakh= ₹12 Lakh Less Standard deduction of 50% on interest on enhanced compensation ₹1 Lakh= ₹11,00,000 Less u/s 80C ₹1,00,000 = ₹10,00,000. Tax on ₹10 lakh is ₹1,12,500.-----(a)Enhanced compensation of ₹10 Lakh will be treated as capital gain in the year of receipt and litigation expenses are allowed. So total taxable LTCG will be ₹10,00,000 Less ₹50,000 = ₹9,50,000. LTCG tax @ 20% on it is ₹1,90,000 ……… (b).Therefore total Tax liability= a + b = ₹1,12,500 + ₹1,90,000= ₹3,02,500 + 4% EC ₹12,100 = ₹3,14,600. 37

74. For AY 2019-20: Sale of 900 shares = 900 X ₹117 = ₹1,05,300 Less purchase cost of 900 shares @₹135, ₹1,21,500 = ₹(16200). Dividend received on 900 shares @ ₹10 per share ₹9000.Since shares have been sold within 3 months of the record date hence provision of Dividend stripping applies and loss to the extent of dividend will not be allowed. Therefore allowed loss shall be ₹(16,200) –₹9000 = ₹(7200). For AY 2020-21: Sale of 1100 shares @ ₹153 per share = ₹1,68,300 less purchase cost of 1100shares @ ₹135 per share ₹1,48,500 = ₹19,800 Less carried forward loss of previous year ₹7200 = ₹12,600. Therefore STCG is ₹12,600 provided he carries forward his earlier year loss of₹7200. Dividend of ₹11,000 on 1100 shares will be his exempt income in this year. 75. Sales consideration ₹28,00,000--------(a). Indexed COA of land ₹2,00,000 X 289/148 =₹3,90,540--------(b). Indexed cost of improvement of construction: ₹10,00,000 X 289/184 = ₹15,70,652-------(c). LTCG=a-(b+c)=₹28,00,000–(₹3,90,540+₹15,70,652) = ₹8,38,808. R/O to ₹8, 38,810. Deduction u/s 80C is not allowed from LTCG. However benefit of exemption limit is available. Therefore net taxable LTCG after exemption limit will be ₹5,88,810 (₹8,38,810- ₹2,50,000). LTCG tax @20% = ₹1,17,762 + EC @4% ₹4,710 = ₹1,22,472 R/O to ₹1,22,470. 76. (i) Gift on the occasion of marriage is exempt. (ii) FMV of shares is taxable gift (iii) Gift from relative is exempt (iv) Watch is not a specified property hence is exempt. Therefore tax on ₹612500 Lakh comes to ₹36400. 77. (I) Repayment of housing loan for a property under construction; repayment of housing loan to relative are not eligible deduction u/s 80C. Now GTI is ₹10,00,000 Less deduction u/s 80CCD(i)contribution to NPS account limited to 20% of GTI for self-employed persons ₹2,00,000 but cannot exceed 1,50,000,80CCE Less(50000 u/s80CCD [IB]) ₹8,00,000. Tax on ₹8,00,000 as per normal slab comes to ₹75,400. 78. Income From house property: AR ₹5,000 X 10 = ₹50,000. GAV = ₹50,000 Less Municipal tax ₹NIL= ₹50,000 Less Standard deduction @ 30% ₹15,000 = ₹35,000 Less Interest on borrowed capital ₹14,000 = ₹21,000-------(a). Income from salary is ₹7,80,000.------(b) Therefore total Non-agri-income = a + b = ₹21,000 + ₹7,80,000= ₹8,01,000. Agricultural Income is ₹1,10,000. Since agri income exceeds ₹5000 and Non-agri income exceeds exemption limit, scheme of partial integration applies here. Step 1: Non-Agri + Agri Income = ₹8,01,000 + ₹1,10,000 = ₹9,11,000. Tax on this as per normal slab before education cess = ₹94,700. Step-2: Agri income + Exemption Limit = ₹1,10,000 + ₹2,50,000 = ₹3,36,000. Tax on this income before education cess is ₹5,500--- (n). Net tax payable m-n = ₹94,700 – ₹5,500 = ₹89,200 + EC @ 4% ₹3568 = ₹92,768 R/O =₹92,770. 79. LT Units: Original Units 3500, ------ (a), COA is ₹28X3500= ₹98,000. On 28.09.2017, Dividend @ 20% = ₹7000, No of units @ ₹31.45 = 222.5755----- (b) 38

On 28.09.2018 Dividend @ 30% =₹11,167.71, No of units @ ₹36.90 = 302.64-----(c) Total number of LT units = a+b+c= 3500+222.5755+302.64= 4025.21 Total LT Gain under grandfathering (3500+222.5755)*(45-38.6)=23824.48 LT gain under 112A= 302.64*(45-38.6)=2451.384 total LTCCG=26275.86 r/o26280 S.T. Units: On 28.09.2019, dividend ₹1,6100.89, No. of units @ ₹42.30 = 380.635 Sales Consideration for ST Units = 380.65 X ₹45 = ₹17,128.575 Less COA ₹16,100.89 = ₹1027.685, STCG R/O =₹1030. 80. a) Depreciation @ 20% on ₹8,75,00,000 asset value as per straight line method will be fixed ₹1,75,00,000 ---------(a) for all the year. b) Depreciation @ 60% as per WDV Method shall be as follows: Asset value as on 31st March 2018 is ₹8,75,00,000; depreciation @ 60% on this is ₹5,25,00,000--------- (x). Asset value as on 31st March 2018 will be ₹8,75,00,000 – ₹5,25,00,000 = ₹3,50,00,000 Depreciation @ 60% on this will be ₹2,10,00,000---------- (y). Asset value as on 31stMarch 2020 will be ₹3,50,00,000 –₹2,10,00,000= ₹1,40,00,000 depreciation @ 60% on this will be ₹84,00,000---------(z) Calculation of Deferred Tax liability: As on 31.3.2018: Difference of Depreciation between the two method is (x-a) i.e. ₹5,25,00,000 – ₹1,75,00,000 = ₹3,50,00,000; Tax @ 30.9% = ₹1,08,15,000---(p). As on 31.3.2019: Difference of depreciation between the two method is (y-a) i.e. ₹2,10,00,000 – ₹1,75,00,000 = ₹35,00,000; Tax @ 30.9% = ₹10,81,500 (q) As on 31.3.2020: Difference of depreciation between the two method is (z-a) = ₹84,00,000–₹1,75,00,000 = ₹(91,00,000); Tax @ 30.9% = ₹(28,11,900)-----(n) Total Deferred tax liability as on 1.4.2020 = P + q + n = ₹90,84,600/- 81. Oct 1, 2018 Buy 1000 Units @ ₹23, December 10,2018 is record date, March 20,2019- sale of 700original units @ ₹14, May-1, 2018 sale of 400 Bonus Units @ ₹13. AY 2019-20 (PY 2018-19): Sale consideration of 700 Units @ ₹14 = ₹9,800 Less COA for 700 units@ ₹23 ₹16,100 = ₹(6,300) -----ST loss. Since the sale of original units has happened within 9 months from the date of record date hence loss incurred will be treated as cost of acquisition for bonus units as per the provisions of bonus stripping. Total Bonus units allotted for holding of 1000 units is 500. Therefore COA of bonus units will be ₹6300/500 = ₹12.6. FOR AY 2020-21 (PY 2019-20): Sale consideration for 400 bonus units = 400 X ₹13 = ₹5,200 less COA for 400 bonus units @ ₹12.6, ₹5040 = ₹160 (STCG). 82. For Mr. Z: Sale of original 1000 shares @ ₹240 = ₹2,40,000 less ICOA ₹16000X289/100 =46,240 = ₹1,93,760 LTCG(a) Sale of 800 shares of rights@ ₹240 = ₹1,92,000 less COA for 800 shares @ ₹60 : ₹48,000 =₹1,44000 ---- (b) S.T. gain Sale of Rights entitlement ₹4800, Less COA: Nil = ₹4800 ----------(c) S.T. Gain Total STCG = b+c = ₹1,44000 + ₹4800 = ₹1,48,800. For Mr. Y: Sale of 1200 shares @ ₹211 = ₹2,53,200 Less COA ₹72000 + ₹4800 (₹60X1200+₹4800)= ₹76,800 = ₹1,76,400. STCG. 39

83. Total cost of 1000 partly convertible debentures is @ ₹200 = ₹2,00,000. 60% portion is converted in 2000 equity shares. Therefore cost of acquisition for 2000 equity shares is ₹1,20,000 (60% of ₹2 Lakh). Cost of acquisition for 1000 non-convertible portion of debentures therefore remained ₹80,000(₹2,00,000–₹1,20,000). CG for Shares: Sales consideration for 2000 shares @ ₹300 = ₹6,00,000 less indexed COA :₹120000X272/129, ₹1,68,682 = ₹4,31,318. This is LT gain on which STT is paid hence exempt from tax. Amount of STT @ 0.1% on ₹6,00,000 = ₹600. CG for Debentures: sales consideration for 1000 debentures @ ₹310 = ₹3,10,000 Less COA for1000 debentures ₹80,000 = ₹2,30,000. (Indexation benefit is not available on listeddebentures and LT gain tax on listed debenture is 10% + Education cess). Therefore LT gain from debentures is₹2,30,000. LTCG tax on this NIL as he has no other income. 84. GTI = Income in India ₹4,25,000 + Foreign Income ₹1,75,000 = ₹6,00,000 Less deduction u/s80C ₹50,000 = ₹5,50,000 less U/s 80D ₹20,000 = Net Income ₹5,30,000 Tax on net income as per normal Indian tax slab + education cess = ₹19,055 (x); Average rate of tax on Indian Income = ₹19,055 X 100/₹530000 = 3.59%---(a) Average rate of tax on foreign income = ₹25,000 X100/₹175000 = 14.29%----(b) Rate of rebate u/s 91 on doubly taxed income = either (a) or (b) whichever is lower i.e. 3.59% Double taxed income is ₹1,75,000 ; Rebate @ 3.59% is ₹6,282.50 -(y) Therefore tax payable is ₹X-y = ₹19,055 -₹6,282.50 = ₹12,772.50 (12,770). 85. a) For Debt Scheme: No. of units allotted = ₹30,00,000/24= 125000. L.T. gain on Debt scheme: Sales consideration of 125000 units @ ₹42 = ₹52,50,000 less indexed COA ₹3000000X289/220₹39,40,909 = ₹13,09,091, R/O ₹13,09,090; LTCG Tax on this @ 20%after giving the benefit of exemption limit is ₹2,11,818 + EC @ 4% ₹8473 = R/O ₹2,20,290. b) For Equity Scheme: Number of units allotted on ₹52,50,000 @ ₹220 = 23863.6364. ST gain on equity units: Sales consideration of 23863.6364 units @ ₹288 = ₹68,72,727 less COA₹52,50,000 = ₹16,22,727 = R/O = ₹16,22,730. Tax rate for STCG where STT is paid 15% + EC @4% Therefore STCG tax on ₹16,22,730 = ₹253145.41; R/O to ₹2,53,150----(b) Total tax liability a + b = ₹2,20,290 + ₹2,53,150 = ₹4,73,440. 40

Section - IV One Mark Questions 86. As per the Hindu Succession Act, 1956, the following person is not considered as Class-I heir of the person who dies intestate: a) Mother b) Son of son living c) Son of pre-deceased son d) Widow of pre-deceased son 87. Which of the following statement is true about a will a) A will comes into effect as soon as it is written by the testator b) A will cannot be modified once it is written c) A will can be modified as many times as the testator wants d) 1st will is always a valid will 88. When a person dies after making a will, it is known as: a) He died testate b) He died intestate c) He died willfully d) He died peacefully 89. The document issued by the Court containing the name of the legal heirs of the person died without making a will is called: a) Probate b) Trust deed c) Succession Certificate d) Inheritance deed 90. The parties to a power of attorney is known as: a) Trust or and Trustee b) Settl or and beneficiary c) Executor and beneficiary d) Donor and Donee 41

Two Mark Questions 91. As per Hindu succession Act, when a Hindu person dies intestate leaving behind him only a married son, the property of the person will be treated as: a) The property of the son in individual capacity b) The property of the son’s HUF as joint property c) The property will be joint property of his son and grandson excluding son’s wife d) The property will be joint property of his and grandson, granddaughter excluding son’s wife 92. Mr. Mohan owns a small business worth ₹5 Crore. How should life insurance be held if wishes his minor grandson to benefit with the insurance policy: a) A revocable life insurance trust should be established for the grand child b) The grand child should be made the nominee c) An irrevocable trust should be set up with the grand child as beneficiary d) Mr. Mohan’s spouse should be the owner 93. Mr. Pintu’s father has given him general power of attorney. What does that mean? a) He has disinherited Pintu, but Pintu has the right to decide who will inherit his fathers estate b) Pintu has been given the immediate right to make decisions in all matters and take action on his father’s behalf. c) Pintu got the right to appoint himself as the sole beneficiary of his father’s estate d) His father has given Pintu the right to make all decisions on his behalf after he becomes incompetent 94. Which of the following is not essential for a trust deed to claim income tax exemption: a) The property from which income is derived should be held under a trust or other legal obligation b) No part of the income should ensure, directly or indirectly, for the benefit of the settler or other specified person c) The property should be held wholly for charitable purposes d) The trust should be created for a particular religious community or caste, 95. Which of the following is a valid condition for registration of trust: a) Trust should establish as to how the trust or the institution seeking the registration would apply the income of the trust b) The accounts should be maintained and audited as per the relevant section, c) Trust should show the proof that they will get the donations d) Trust should need to disclose the names and address of all the donors, 42

96. A trust would be classified as a charitable trust if its objects fall within the definition of the term “charitable purposes”. Which of the following do not fall within the definition of the term charitable purposes: a) Promotion of family planning b) Promotion of sports and games c) Preservation of environment including watershed, forests and wildlife d) Preservation of monuments or places or objects of artistic or historic interest, 97. Exemption status of an income of a registered charitable trust established after 1st April 1962gets forfeited in the event of the following: a) When 15% of the income is set aside for future application b) When income set apart is invested in approved instruments c) When income is used for private religious purposes d) When income is fully utilized for the charitable purposes 98. You have advised Gita, a sole guardian for two minor daughters pursuant to her recent divorce, to do Estate Planning. According to you, what should be the most preferred way for her Estate Planning? a) She should prepare a will naming her children as the sole beneficiaries as well as designate one or more guardians with their prior consent, b) She should devolve all of her personal properties to her personal HUF, c) She should prepare a will naming her children as the sole beneficiaries in the same, d) She should transfer all of her existing properties in the names of her children and nominate both children equally in all her legal documents, 99. Bimal’s father has made a will deed for distribution of his Assets. Bimal discusses with you regarding probate process, as per you, which is not a feature of Probate process? a) The assets are gathered, applied to pay debts, taxes and expenses of administration and distribute to those designated as beneficiaries in the will b) Executor or personal representative named in the will is in charge of this process, c) All legal heirs will receive notices from the Court to file objections, d) The Court will give orders to distribute the assets to the heirs as per intestate succession Act 100. Why is estate planning an important component of financial planning? a) It focuses on how a client’s assets after death are distributed? b) It ensures that clients have a large accumulation of wealth when they die c) It requires the advisor to introduce other professionals into the financial planning process d) It is the part of a client’s plan that can be addressed once a client is deceased 43

Three Mark Questions 101. Piyush has made a will in which he has given only one instruction that his cherist collection goes to his favoured nephew. The will is correctly signed and witnessed by the testator. Hundreds of thousands of Rupees of other assets of Piyush are not mentioned. What legal status of the will can be? a) The Will may be challenged claiming testamentary capacity did not exist, given the assets that were not mentioned b) The will may be challenged as there is no residuary clause that would dispose of the assets mentioned, c) Both A and B d) The Will is valid, as the testator knew he was making a will and it was properly witnessed, 102. MsSonali, aged 42, having twins Rishi and Ritu of age 12 years, is an Executive Director in a Private Bank. She has been recently divorced by his Industrialist husband Mr. Ronald. Ms. Sonali wants to create a private trust in the name of her children to pass on her all the property which includes immovable property to them. According to you, which of the followings are true for the type of trust she wishes to set up: (i) A trustee shall be any known person (ii) A trust has to be declared by a deed in writing and must be registered. (iii) Income of the trust would be taxed in the hands of trustee as representative assessee, (iv) The author of the trust can be the trustee himself, a) (III) and (IV) b) (II) and (III) c) (II), (III) and (IV) d) (I), (II) and (IV) 103. A trust is created by a son, the Settlor, for the survival expenses of his retired parents each having equal beneficial interest. Both his Mother and Father have separate fixed pension income of ₹35,000 per month and ₹30,000 per month respectively. The trust property has generated a net annual income of ₹5,12,000 in the previous year 2019-20. The trustee as well as the Settlor is in the 30% tax bracket. Find the tax payable by the trustee as representative assessee. a) ₹72,180 b) ₹82,810 c) ₹1,05,470 d) ₹15,350 44

104. After the amendment of Hindu Succession Act 2005, the position of daughter’s share in joint family property is as follows: a) Daughter’s have equal right in the father’s share in the joint family property along with mother and brothers as successor of her father, b) Daughter’s have equal right in the joint family property as coparceners along with her mother and brothers c) Daughter’s have full right in the mother’s share received by her upon death of her husband as her successor to the exclusion of brothers, d) Only unmarried daughters’ have equal right in the joint family property as coparceners along with that of brothers 105. The son has transferred a division of his business into a trust and appointed Mr. A as its trustee declaring that income of such trust will be used for the survival expenses of his parents in exactly the equal ratio. Both his mother and father are Sr. citizen and have pension income₹8000 per month and ₹15,000 per month respectively. During the PY 2019-20, the trust earned a net profit of ₹5,10,000 from its business. Find the tax payable by the trustee: a) ₹52,530 b) ₹29,460 c) ₹39,760 d) ₹1,81,230 Four Mark Questions 106. Your client, a businessman has house worth ₹2.5 Crore and a farm house worth ₹90 Lakh. His business is worth ₹12 Crore as per last balance sheet. His brother and wife (who isqualified and working lady) are also partners in the said business, each having 25% stakes. In his personal account he has purchased a car at ₹10 Lakhs last year whose depreciated value this year is ₹8.5 lakh. He has two Demat accounts. The shares in the account where he is the1st holder are worth ₹80 lakhs and where his wife is the 1st holder is ₹1.70 crore. The business has taken a key man’s insurance on his life for a value of ₹2 Crore. You evaluate his life’s estate in case of any exiquency with his life as: a) ₹12.99 Crore b) ₹10.29 Crore c) ₹11.29 Crore d) ₹4.29 Crore 107. Mr. Arijit settled 1/4th share of his property under a trust for the education and maintenance of his minor daughter Shruti and appointed his uncle Ranjit as its trustee. Under the terms of the deed, the income accruing to the trust after meeting the expenses of maintenance and education of Shruti was to be accumulated and paid over to her on her attaining majority. During previous year the income to the trust from that 1/4th share of property is ₹4 45

Lakh. Out of which ₹75,000 is spent by the trust for education and maintenance of Shruti. Remaining amount was accumulated to be handed over to her only on attaining her majority. Calculate the amount that may be included in the hands of Mr. Arijit, the settlor of the trust? a) Full ₹4,00,000 b) Yes, ₹73,500 c) Yes ₹3,98,500 d) Yes ₹75,000 108. Your client has come to you for your advice on the following matter. Your client’s brother was depended on his father’s income so his father has made him a beneficiary in a trust which he has declared through a will in writing. This trust was the only trust so declared by his father. The trust has come into existence upon his father’s death on 1stApril 2014. During the PY2019- 20 the trust earned a net profit of ₹4 Lakh out of the business transferred by his father to the trust. Your client being trustee for this trust wants to know from you the tax liability on this trust income for the AY 2020-21. a) ₹NIL b) ₹1,42,140 c) ₹15,450 d) ₹7,800 109. Your client has just retired from a Private Service. He has the following assets and borrowings: PPF account ₹32 Lakh, Mutual fund equity schemes ₹14 Lakh, Mutual fund Debt units ₹46 Lakh. He has a house worth ₹70 Lakh which was purchased by him 5 years back at ₹30 Lakh with borrowed money against which he is paying an EMI of ₹18,600 p.m .The tenure of the loan was 15 years and fixed interest rate on the loanamount was 9% p.a. He has a term insurance policy on his life S.A. ₹20 lakh. He has two ULIP policies fund value of each of them on date is ₹3 Lakh (SA ₹2.5 Lakh) and ₹5 lakh (SA ₹4 Lakh) respectively. He also has a bank FD of ₹10 lakh from SBI at an interest rate of10% p.a. which will mature soon. Calculate his approximate life’s estate in case of any exiquency with his life. The same will be: a) ₹1.89 Crore b) ₹2.07 Crore c) ₹1.85 Crore d) ₹1.83 Crore 46

110. Your client has come to you to know the benefits of creation of trust for his minor children. He is in business and earns around ₹50 lakh per year. He has heard that if he transfers a part of this income to trust where his minor children are beneficiaries then he will save tax on that part of the income which is transferred to trust. Moreover in thehands of the trust also the income will be taxable at much lower rate. He has two children; a son aged 3 years and a daughter aged 5 years. If he transfers ₹10 Lakh of such income every year to a trust where his minor children are beneficiary then he can achieve twin objective of tax savings on his business income as well as securing the financial future of his children. He wants to know from you about the truthness of this. You advise him: a) Yes, it is true and you can do it immediately because trust is the best way of estate planning with tax efficiency b) No because although a trust is best way of estate planning but when it includes business income it is taxed at full rate of 30% plus education cess c) No, because you cannot save tax on your business income because a trust is created when a property is transferred and income from the trust property will be taxed in the hands of trust, d) Yes it is true because trust income is not business income hence will be taxed at lower rate, and you will save tax in your business income too. 47

Solutions to Section –IV SOLUTION TO SECTION - IV QUESTION NO. CORRECTOPTION 86 B 87 C 88 A 89 C 90 D 91 A 92 C 93 B 94 D 95 B 96 A 97 C 98 A 99 D 100 A 101 C 102 C 103 A 104 B 105 D 106 C 107 B 108 D 109 A 110 C 48

Suggested Solutions to 3-mark and 4-mark questions 103. For a determinate trust, income of the trust is taxable in the hands of the trustee as representative assessee but at the rate applicable to it after adding the individual share of the beneficiaries. MOTHER: Total other income for 12 months @ ₹35,000 = ₹420,000 + 50% share of income from trust ₹2,56,000 = Total Income ₹676,000. Therefore ₹176,000 of trust income is taxable @ 20% and balance ₹80,000 at the rate of 5%, tax on which comes to₹39,200--------(a) FATHER: Total other income for 12 months @ ₹30,000 = ₹360,,000 + 50% share of trust income ₹2,56,000 = ₹616,000. Here ₹116,000 will be taxable @ 20% and balance ₹140,000 @ 5%, tax on which comes to ₹30,200---(b) Total tax payable by trustee is a + b = ₹39,200 + ₹30,200 = ₹69,400 + 4% EC ₹2,776 =₹72,176; R/O to ₹72,180. 105. Entire Income of determinate trust that includes business income is taxable at maximummarginal rate applicable to an individual i.e. 35.535% for AY 2018-19. Hence full income of ₹5,10,000 is taxable @ 35.353% which comes to ₹1,81,228. 106. House ₹2.5 Cr + Farm House ₹0.9 Cr + 50% of business (₹12 Cr + ₹2 Cr) ₹7 Cr +depreciated value of car ₹0.085 Cr + Demat holding where he is primary holder ₹0.8 Cr =₹11.285 Cr. R/O to ₹11.29 Cr. 107. In the case of trust, the Settlor is liable to be taxed on income from the settled property to the extent it is for the immediate or deferred benefit of beneficiaries under the Indian Trust Act. In this case ₹75,000 has been used for the benefit of beneficiary hence included in the hands of Settlor for tax purpose. However beneficiary being minor in this case, Settlor is entitled to exemption of ₹1500; hence income included in his hands will be ₹73.500/-. 108. When the trust is declared by a will for a dependent relative for his support and maintenance then the income of the trust is chargeable as if it is the income of an individual even if it includes business income. Hence tax on ₹4 Lakh as per normal income tax slab is ₹7,500 + EC @ 4% ₹300 = ₹7,800. Credit u/s 87A is not available to trust. It is available only to resident individuals. 109. PPF ₹32Lakh + MF Equity ₹14 Lakh + MF debt ₹46 Lakh + House ₹70 lakh + Term Life₹20 Lakh + ULIP ₹3Lakh + ₹5Lakh + Bank FD ₹13,31,000= ₹2,03,31,000 Less outstanding loan ₹14,68,315 = ₹1,88,62,685 R/O ₹1.89 Crore (Total estate). Outstanding loan amount ₹14,68,315 (n= 10X12, i= 9%/12, PMT -18,600, PV=?)Maturity amount of SBI FD = ₹13,31,000 (n =3, i=10%, PV -10,00,000, FV:?, Mode beginning) 49

Section - V One Mark Questions 111. What is meant by settled property as regards to trusts? a) The property which is transferred by the Settlor to the trust, b) A property which is settled by a settlement, c) The income left over after spending on the objects of the trust d) Income of the trust generated from the property held under trust 112. Whether mutation is equivalent to transfer of property? b) Yes it is same c) No it is not same d) Yes there is no difference between mutation and transfer e) Not known 113. Which of the following is not an essential element of a trust: f) Trustee g) Personal obligation h) Beneficiary i) Administrator 114. A person who creates the trust is known as: j) Executor k) Testator l) Grantor m) Trustee 115. The person/or persons who accepts the property on trust is/are known as: n) Testators o) Trustees p) Settlors q) Administrators 116. When can a trust created by a will be revoked? r) A trust once created cannot be revoked s) It can be revoked at the pleasure of the testator during his lifetime t) It can be revoked only after its purpose is fulfilled u) It can be revoked only with the permission of Court, 50