Q.

1) (A)
The dividend is the amount received by an investor, whether it's an individual or HUF, on account of
holding shares in a company. In simple words, it is the distribution of profits of the company to its
shareholders. This income falls under the Income from Other Sources (IFOS) section out of the 5
heads of income.
DIVIDEND RECEIVED FROM A DOMESTIC COMPANY
• In the scenarios where an individual receives dividend income in India from a domestic
company (Indian Company) in P.Y 2019-20, A.Y 2020-21, any such income received is fully
exempted.
• Where an Individual receives an aggregate sum of such dividends from a domestic company(s)
exceeding RS 10,00,000 (u/s 115BBDA), then such an amount exceeded is chargeable at 10 %,
adding to that health and education cess @ 4% and surcharge when applicable.
For example: Mr. Roy receives an aggregate amount of RS20 lakhs from domestic companies
as dividends. Here, the dividend value exceeds RS10 lakhs, where the exceeding amount of RS
5lakhs will be charged @ 10%. The tax payable now will be RS 50,000 (10% of RS 5lakhs).

DIVIDEND RECEIVED FROM A NON-DOMESTIC COMPANY

• Such an income received from a non-domestic company in the form of dividends is fully
taxable. The charging section for this income is under the head ‘income from other
sources’.
• Any dividend received from such a company is included in the total income of the assesse
and the resident is charged as per the tax slab they come under. For example, an individual
coming under the tax slab @ 15% with the cess applicable @ 4%.

• Dividend received from a foreign company gets taxed in India as well as in the country in
which the foreign company belongs. However, if the tax on a foreign company’s dividend
has been paid twice (i.e. paid in both the countries), then the taxpayer can claim double
taxation relief. The relief claimed can be either as per the provisions of the Double Taxation
Avoidance Agreement, if any, entered into by the government of India, with the country to
which the foreign company belongs, or he can claim relief as per Section 91 (in case no
such agreement exists). This means that the taxpayer does not have to pay tax on the same
income twice.
 DEEMED DIVIDEND
An amount towards a loan issued by a company towards a shareholder who holds substantial interest in
that company (equity holding more than 20%), that amount is considered as deemed dividend. This
dividend is fully exempt from tax in hands of assesse. (PY 2019-20, AY2020-21)

EXAMPLE: Mr. Jha, resident in India, aged 40 lives in Nagpur has the following dividend income
received in India in PY 2019-20, 2020-21.

Dividend received form a domestic company: Rs. 50,00,000

Dividend received for a non-domestic company: Rs. 10,00,000
Solution:

PARTICULARS AMOUNT (in Rs.)

Dividend received for a domestic company 50,00,000

Less: Exemption u/s 10(34) (10,00,000)

Dividend Income taxable u/s 115BBDA 40,00,000

Dividend Income received from non-domestic companies 10,00,000

Dividend Income taxable (for non-domestic companies) 10,00,000

Dividend of Rs. 25,00,000 is taxed at 10% along with cess and surcharge where necessary.
Dividend of Rs. 10,00,000 is taxed as per the income tax slabs.

(B)
Stamp duty value means the value adopted or assessed or assessable by any authority of a State Government
for the purpose of payment of stamp duty. Relevance of stamp duty value in reference to capital gains is as
such, that if the Stamp duty value of the capital Asset exceeds 105% of the sales consideration, then it is
considered as the sales consideration for the taxation purpose and it is known as the deemed sales
consideration.
Relevance of Stamp Duty Value (SDV) on transfer of house property:
• Sales consideration > Stamp Duty Value: Sales Consideration is considered as sale value.
• Sales Consideration < Stamp Duty Value: in such situation, 105% of Sales Consideration is compared
to the Stamp Duty Value. If the Stamp Duty Value exceeds 105% of Sales Consideration, it is
considered as the deemed sale value.

EXAMPLE:

For example, from the following information given below you are required to compute the taxable capital
gains/ losses for Mr. Shakti for P.Y. 2019-20, A.Y. 2020-21.
Date of acquisition: 1st SEPTEMBER, 1998.
Cost of purchase: Rs. 10,00,000
Date of transfer: 13th AUGUST, 2029
Sales consideration: Rs. 1,00,00,000
Brokerage on transfer of the asset: 1% of the sales consideration
Notes:
Fair market value as on 1st April, 2001 of the said property was 12,00,000. The stamp duty value of the
property on the date of the sale is Rs. 1,20,00,000.

Solution:
Computation of taxable capital gains/ loss in the hands of Mr. Shakti for P.Y.2019-20, A.Y. 2020-21.
PARICULARS AMOUNT(IN RS.)
SALES CONSIDERATION 1,20,00,000
(Working note-1)
--EXPENSES IN TRANSFER (1,00,000)
( working note -2)
NET SALES CONSIDERATION 1,19,00,000
LESS:
INDEXED COST OF ACQUISATION (34,68,000)
(Working note-3)

TAXABLE CAPITAL GAINS 984,32,000

➢ Working note-1:
Sales consideration= Rs. 1,00,00,000
105% of sales consideration= Rs. 1,05,00,000
Stamp duty value= Rs. 1,20,00,000
As stamp duty value is more than 105% of sales consideration, therefore, stamp duty value becomes the sales
consideration, that is called as deemed sales consideration for the computation of the capital gains.
➢ Working note-2:
Even though the stamp duty value become the deemed sales consideration, that is only for the taxation
purpose, whereas the brokerage will be calculated upon the actual sales consideration as for that is the amount
that has truly been paid.
Therefore, expenses in transfer= 1% of 1,00,00,000= Rs. 1,00,000.
➢ Working note-3:
Cost of Acquisition= 10,00,000
Fair Market Value as on 01-04-01= 12,00,000
Whichever value is higher becoming the deemed Coast of Acquisition that is Rs. 14,00,00 in this case.
P.Y./ C.I.I. Cost of Acquisition (in Rs.)
2001-02/100 12,00,000
2019-20/289 34,68,000

Q.2)
(A)
As per section 27, if an individual transfers a house property without adequate consideration to his/ her spouse
or his/ her minor child, the transferor is deemed as owner of the property. This rule is however, not applicable,
if an individual transfers a house property to his/ her spouse under an agreement to live apart or to his/her
minor married daughter.
Since, Ms. Kavita is Mr. Kavish’s wife and they are not under an agreement to live apart, Mr. Kavish will be
deemed as the owner of the property and hence, the selling of the house will form a part of ‘Income under the
head of Capital Gains’, under which Mr. Kavish will be charged.
Computation of taxable Capital Gains in the hands of Mr. Kavish for PY 2019-20, Ay 2020-21
PARTICULARS AMOUNT (INR)
Sales Consideration 6000000
Less: Expenses on Transfer -
Net Sales Consideration/ Capital Gains 6000000

As per section 64(1)(iv), if an individual transfer (directly or indirectly) his/her asset (other than house
property) to his or her spouse otherwise than for adequate consideration, then income from such asset will
be clubbed with the income of the individual (i.e., transferor). Hence, the rental income from the transferred
property will also be charged to Mr. Kavish, as he is the owner of the said property and the transferor of the
property to his wife.

B.)

Gold and Silver bars are considered as capital assets because they form a part of physical holdings in precious
metals. According to the definition of relative under Income Tax Act, 1961, Mr. Arnav is a relative of Ms.
Kaira, the amount of gold and silver bars received will not be considered under ‘Income from Other Sources’
in the hands of Mr. Arnav for PY 2019-20, AY 2020-21.
Any income that arises from the sale of a capital asset, irrespective of whether the asset was initially
purchased or inherited, would be considered as capital gains. Therefore, since, he sold these capital assets; it
will be considered under ‘Income from Capital Gains’ in the hands of Mr. Arnav for PY 2019-20, AY 2020-21
Q.3)
(Assumption: Since, there is no information regarding the exact location of the manufacturing unit, we will
consider that the manufacturing plant is not located in any notified backward area of Andhra Pradesh)

Computation of the allowances and disallowances for the firm of Jay & Pee manufacturers

for the P.Y. 2019-20 and A.Y. 2020-21.

Sr. Amount (in Rs.) Reason for disallowance

No.

Allowances Disallowances

1. 5,60,000 (interest 1,90,000 Certain Unpaid Liabilities till the

paid to PFI) + (interest to be return filing date are disallowed which
1,00,000 (interest paid to PFI). is on 10th May, 2020 as per section
paid and payable 43(B)
to Jayesh) =
6,60,000
2. 80,000 20,000 Cash or bearer cheque is disallowed if
it is paid to a single person, the
amount exceeds Rs. 10,000, on a
single day.
3. 3,70,000 4,40,000 Depreciation is permissible based
upon the provisions of Income tax
Act. (WN 1)

4. - - As the entry is not recorded in the

books of accounts there will be no
allowance or disallowance.
WN 1:

Computation of normal & additional depreciation for Jay & Pee Manufacturers for P.Y. 2019-20, A.Y. 2020-21

Particulars Amount (in Rs.) Amount (in Rs.)

Block 1 (Plant & Machinery @ 15%): -
D.V. as on April 1, 2019 600,000
+ Purchase of 2 New Machineries (Rs 8,00,000
8,00,000 & Rs 4,00,000
But only the machinery which is put to use
will be added in the block)
WDV as on March 31, 2020 14,00,000
Normal depreciation 2,10,000
(14,00,000*15%)
Additional depreciation 1,60,000
(8,00,000*20%)
Total depreciation 3,70,000

Note- Since the machinery with the valuation of Rs 4,00,000 is not used during the relevant previous year (beca
2020). Consequently, no depreciation will be available on it.

Q.4)

Mr. Bose, a salaried person is a resident, aged 40 years, residing in Delhi and is employed in a ABC pvt ltd.
since 31st January 2018. His salary structure since the time of her Appointment is as under:
Particulars Amount ( In Rs.)
Basic 80,000 per month
Dearness Allowance (100% forms part of all 60% of the basic salary
retirement benefits)
House rent Allowance 50% of the basic salary
Conveyance Allowance 5 % of the basic salary
Children Education Allowance 2% of basic salary

He stays in a rented premise and pays a rent of Rs. 20,000 per month. He has two children that study in a
CBSE school paying a tuition fee of Rs 100000. Professional tax of Rs. 2,500 was borne and paid by Mr
Bose for P.Y. 2019-20. For P.Y. 2019-20, Mr. Bose incurred and Rs. 30,000 for conveyance. Salary and
all the allowances become due on the last day of the same month and are paid on second day of the next
month. Compute the taxable salary for both the new and the old tax regime for the individual.
 Particulars Amount (in Rs.)
Existing Personal New Personal Tax
Tax Regime Regime
Inner Outer Inner Outer
Column Column Column Column

Basic salary (80000*12)

960,000 960,000
7
DA (80% of basic salary) z 7 576,000 576,000

House Rent Allowance (50% of 2

basic Salary) 2 480000 480000
Less: Exemption (WN1) (48,000) NIL
TOTAL HOUSE RENT
ALLOWANCE 177,000 480000

Conveyance Allowance (5% of

basic salary) 48,000 48,000
Less: Exemption (WN2) (30,000) (30,000)
TOTAL COVEYANCE
ALLOWANCE 18,000 18,000

Children Education Allowance(2%

of basic salary) 19,200 19,200
Less: exemption (WN3) (2400) NIL
TOTAL CHILDREN EDUCATION
ALLOWANCE 16,800 19,200

Deductions u/s 16
Standard deduction (50000) NIL
Professional tax (2500) NIL
Deduction u/s 80 C (tuition fee) (1,00,000) NIL

TOTAL TAXABLE SALARY 15,95,300 20,53,200

WN1: Computation of H.R.A. Exemption

Salary= basic salary+ D.A. (forming part of all retirement benefits) + Commission (% of turnover)
Salary= 80,000+ 80,000 = 160000 p.m.
1.) 50% of the salary (as he lives in Delhi): Rs. 80,000 p.m.
2.) House Rent Allowance received: Rs. 40,000 p.m. (50% of Basic Salary)
3.) Rent paid- 10% of salary: Rs. 20,000- Rs. 16,000= Rs. 4,000
Out of all the three above whichever is the lowest becomes the amount that gets exempted. In this case it is
the 3rd option that is Rs. 4,000
Total H.R.A. Exemption= Rs. 4,000*12= Rs. 48000
WN2:
Actual expenditure occurred or Amount received, whichever is lower will be exempt.

WN 3:
100*2*12= Rs 2400

Calculation of Tax Liability for Mr. Bose following the old regime
TAXABLE INCOME=15,95,300
Upto Rs 2.5 lakh NIL NIL
>Rs 2.5 lakh to Rs 5 lakh 5% Rs 12500
(5% of Rs 2.5 lakh)
>Rs 5 lakh to Rs 10 lakh 20% Rs 100000
(20% of Rs 5 lakh)
>Rs 10 lakh to Rs 15,95,300 30% Rs 1,78,590
(30% on Rs 5,95,300)
BASIC INCOME TAX - Rs 2,91,090
+ 4% H & EC - Rs 11,644
TAX LIABILITY (after - Rs 3,02,740
rounding off)

Calculation of Tax Liability for Mr. Bose following the new regime
TAXABLE INCOME=20,53,200
Upto Rs 2.5 lakh NIL NIL
>Rs 2.5 lakh to Rs 5 lakh 5% Rs 12500
(5% of Rs 2.5 lakh)
>Rs 5 lakh to Rs 7.5 lakh 10% Rs 25000
(10% of Rs 2.5 lakh)
>Rs 7.5 lakh to Rs 10 lakh 15% Rs 37500
(15% on Rs 2.5 lakh)
>Rs 10 lakh to Rs 12.5 lakh 20% Rs 50000
(20% on Rs 2.5 lakh)
>Rs 12.5 lakh to Rs 15 lakh 25% Rs 62500
(25% on Rs 2.5 lakh)
>Rs 15 lakh to Rs 20,53,200 30% Rs 1,65,960
(30% on Rs 5,53,200)
BASIC INCOME TAX - Rs 3,53,460
+ 4% H & EC - Rs 14138
TAX LIABILITY (after - Rs 3,67,600
rounding off)

We see that the tax liability while following the new regime is less than the tax liability while following the
old regime, therefore, Mr. Bose should follow the new regime so as to benefit from the same.