Mf0003 Taxation Management Model Paper

MODEL PAPER TAXATION MANAGEMENT 1 What is the difference between tax avoidance and tax evasion? A. Tax avoidance is an offence and tax evasion is a crime B. Tax avoidance is innocent but tax evasion is intentional C. Tax avoidance leads to prosecution and tax evasion leads to warning D. Tax avoidance is criminal and tax evasion is an offence 2

What is tax planning? A. Planning the payment of tax in installments B. Planning for the purpose of calculating tax C. Arrangement of one's financial affairs, taking the advantage of legal provisions and minimize the tax liability D. Planning one's income only to minimize the tax 3 What is the rule under u/s 80E? A. Deduction towards interest on loan for higher education B. Deduction towards interest on loan taken for his/her education C. Deduction towards interest on loan taken for his/her higher education.

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D. Deduction towards interest on loan taken for higher education of his/her children . Government employees receive salary on due basis. What does it mean? A. It means that the Government is always due to pay salaries B. Salary of a month is paid in the same month C. Salary due for a month is paid in the following month. D. Salaries are paid but allowances are due What is the previous year for those employees receiving salary on payment basis? A. Year commencing from 1st January and ending by 31st Dec B. From Feb 1st of a year to Jan 31st of the following year C. From March 1st of a year to Feb ending of the following year D. From 1st April of a year to 31st March of the following year

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What is annual value of a building u/s 23 of Income tax Act? A. The actual rental value of the building B. The Municipal rental value of the building C. The fair rental value of the building D. The MV or FRV but not more than SRV. If ARV > SRV, Actual rental value is regarded as annual value If M.V is Rs.20,000; FRV is Rs.30,000 and SRV is Rs.34,000 and the house is self occupied. Find out the annual value A. Rs. 20,000 B. Rs. 30,000 C. Rs. Nil D. Rs. 34,000

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The income as per P&L a/c and income for income tax purposes are different because A. Several items of expenses and incomes included in P&L a/c are inadmissible B. P&L A/c is prepared for the business but not for income tax purpose C. P&L A/c is prepared on accrual basis but for income tax, income should be on cash basis D. P&L A/c is for owners but not for income tax purposes Compensation paid to an undesirable employee for the retrenchment of his services is A. Not admissible B. Illegal and so not admissible C. Admissible D. Admissible only if the court permits for retrenchment When do you call the following long term capital assets i) Share of a company; ii) A listed security; iii) Unit of UTI; iv) Unit of Mutual Fund A. They are regarded as LT capital assets if they are held for more than 36 months B. They are LT capital assets if they are held for less than 36 months from the date of transfer C. They are LT capital assets right from the date of the purchase D. They are LT capital assets, if they are held by the assessee for morethan12 months immediately preceding to the date of transfer

11 What is indexed cost of acquisition? A. Cost of acquisition raised to the cost inflation index

B. Cost of acquisition multiplied by the CII of the year of transfer C. (Cost of acquisition X CII for the year in which the asset is sold) / CII for the first year in which the asset was acquired D. Cost of Long Term asset raised to the Inflation Index value for the year of sale 12 What is bond wash transaction? A.It is a device to lessen the burden of tax. B.It is a plan to transfer securities before due date of interest to avoid tax C.It is a loss to transferer. D.It is a technique to make others rich 13 What do you understand by " Carry forward losses"? a. Losses of one year carried forward to succeeding years for set off. b. Losses of one year are accumulated and transferred to next years c. Losses of one head are carried forward to another head d. Losses of one business are carried forward to another business 14

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There is ST capital loss of Rs. 10,000; ST capital gain is Rs. 3,000 ; LT capital gain is Rs. 2,000. Can th balance of Rs. 5,000 be carried forward for set off against ? a. Next year salary income b. Best year business income c. Capital gains of the succeeding 8 years d. Can not be set off A senior citizen of 65 years or more is eligible for exemption for tax if his/her income does not exceed Rs. __________. a. 1,85,000 b. 2,00,000 c. 1,00,000 d. 1,35,000

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If income from salary is Rs. 3,20,000 ; Agricultural income is Rs. 25,000 ; securities find out the taxable income and tax payable with educational Cess. a. 53,500 b. 51,000 c. 52,020 d. None What is Minimum Alternative Tax? A. 10% of book profit + Sc + Education Cess B. 10% of total Income C. 10% of total income + SC + Education Cess

D. None of the above 18

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Employee's contribution to RPF collected by a company is shown as income of the company if A. The amount is not remitted to PF account B. Not remitted to PF A/c before 30th October C. Not remitted before 31st December to PF A/c D. Remitted partially before 31st July to PF A/c Sahyadri Co Ltd., has net profit of Rs. 12,30,000 after debiting the following: goods purchased from Y Co Rs.70,000 paid by bearer cheque, Closing stock Rs. 88,000 is over valued by 10%, Rs. 40,000 salaries paid outside India without deducting TDS, municipal taxes paid on worker's quarters Rs.15,000, Remuneration paid to Suhail, a contractor and son of Managing Director,Rs. 30,000 remuneration seems unreasonable. Find out the income from business A. Rs. 12,00,000 B. Rs.12,96,000 C.Rs.12,90,000 D. Rs. 12,90,600 A farm house situated within ____ from the local limit of a local authority is a capital asset. a. 10 km b. 15km c. 20km d. 25km

SECTION B- 2 MARKS 1 What is assessment year? A. Year in which assessment takes place. B. 12 months' period commencing from 1st of April and ending by 31st March of the following year C. 12 month's period of an year D. Year succeeding the previous year 2

If X has started his business on 1st July 2006, which are the first previous year and assessment year? A. PY is 2005-06; AY is 2006-07 B. PY is July 2006 to 31st March, 2007 AY is 2005-06 C. PY is 2006 and AY is 2006-07 D. PY is July 2006 to 31st March, 2007 : AY is 2007-08

3 What is the maximum limit of deduction towards Medi-claim insurance premium and under what section? A. Rs. 10,000 and for senior citizen Rs 15,000; 80D B. Rs.15,000 and Rs.20,000 for senior citizen; 80 DD C.Rs.10,000 to any person, 80 DDA D. Rs.10,000; Rs. 20,000 for senior citizen; 80D 4 Mr. Vasanth has income of Rs.5,00,000 from all sources except from business or profession. He has donated to Indian Statistical Institute Rs.25,000, to Bangalore University Rs. 15,000, to Rural Fund of central Government Rs.20,000. Can he claim deduction u/s 80 G and how much can he claim u/s GGA? A. Yes , Rs.60,000 B. Yes , Rs. 50,000 C. No, Rs.60,000 D. Partially, Rs.25,000 5 What is the difference between allowance and perquisite? A. Allowance is in cash termsand perquisite is in the form of kind or facility B. Allowance is taxable and perquisite is not all taxable C. Allowance is given to all employees and perquisites are given to selected employees D. Allowance is given uniformly to all employees and perquisites are given to selected employees at different rates 6

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Mr. X borrowed Rs. 3,00,000 on 1-8-2005 at 12% per annum for the construction of self occupied house property and the construction was completed on 30th June 2006. Find out theamount of interest allowable as deduction for the previous year 2007-08 if principal remains unpaid. A. Rs. 4,800 + 36,000 B. Rs. 24,000 + 36,000 C. Rs. 36,000 D. Rs. 24,000 For computing business income, i. Loss of stock by fire is ii. Payment of securities transaction tax A. Admissible and inadmissible B. Inadmissible and Admissible C. Admissible and admissible D. Inadmissible and inadmissible

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Mr.Raghu inherited a house properity from his father and its cost of acquisation was Rs 2,00,000 in 1985. Raghu added improvements to the building worth Rs 4,00,000 in 1990.He sold the house in April 2006 for Rs 40,00,000.He spent Rs 15,000 paying Brokerage. He deposited Rs10,00,000 in CGA scheme. Find out the amount of Capital gain taxable in 2006-07PY. CII:1985-86:133;1990-91:182;2006-07:519. A.20.63,890 B.10,63,890 C.20,00,000 D.10,00,000

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Income from HP (A) is Rs. 10,000 ; loss from HP (2) is Rs. 30,000 ; income from salary Rs. 60,000. How do you treat the loss? a. Loss from HP is set off against income from HP (1) and later from income for salary b. Loss from HP is set off against income from HP (1) and the balance of loss Is ignored c. Loss from HP is set off against income from HP (1) and the balance of loss Is carried forward for next year

d. Loss from HP is set off against income from HP (1) and the balance of loss Is carried forward for set o only against income from HP 10

Income from lottery (net) 34,700 ; Income from LTCG Rs. 50,000,; Bus income Rs. 1,00,000 . What is the total tax along with educational cess. a. 25,000 b. 25,200 c. 25,500 d. 25,520

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Capital Expenditure on land for scientific research is ------ to compute business income of a Company. A. Partially disallowed B. Completely disallowed C. Fully deductible D. Deducted at 125% of actual expenditure

SECTION C- 4 MARKS

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Mr. Dheeraj Shaw has the following incomes for the previous year 2006-07. you are required to calculate his total income if he isa) Ordinarily resident b) Not ordinarily resident and c) non-resident Income from Agriculture from Bangladesh Rs.45,000 Income from rent of house in Pakistan Rs.57.000 Income from business in Delhi, controlled from Dhaka Rs.2,00,000 Income from dividends earned and received in New York Rs.45,000 Income from business in Germany, controlled from India Rs.2,50,000 Foreign Income of earlier previous years, brought to India during the previous year Rs.1,00,000 Agricultural income, earned and received at Bangalore Rs. 50,000. A. Rs.5,95,000; Rs.4,50,000; Rs.2,00,000 B. Rs. 5,57,000; Rs.4,50,000; Rs.4,50,000 C. Rs.5,95,00; Rs. 4.00.000; Rs. 2,50,000 D. Rs. 5,95,00 ;Rs. 4,50,000; Rs. 2,50,000

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Mr. Honey, a non resident, gives the following details of his income for the previous year 2006-07. Compute his total income. Business income in India Rs. 6,00,000 Dividend received from foreign companies, received out side India Rs. 1,50,000 Dividends from Indian Companies Rs.1,00,000 Interest on Govt. Securities Rs.45,000 He has made the following payments during the year: a) Medical Insurance for himself Rs. 10,000 b) Deposit with LIC pension fund Rs.1,00,000 c) Annual rent paid for residential house Rs.72,000 d) School tuition fee for son and grand son equally Rs. 30,000 A. Rs.5,16,000 B. Rs.5 17,000 C. Rs.5,16,500 D. Rs.5,17,500

3 Raghuram is an employee in a private company in Mumbai and he draws a salary of Rs.7,50,000 excluding house accommodation or HRA. He is offered to choose between House rent allowance or rent free accommodation. From the following

particulars, which is the best option from taxation point of view: HRA offered is Rs.15,000 per month, Actual rent payable is Rs.22,000 per month. The company offers accommodation of its own. I. What is the amount of HRA taxable? A. Rs.1,80,000 B. Rs.1,89,000 C. Rs.3,75,000 D Rs. Nil II. What is the value of house rent accommodation? A. Rs. 75,000 B. Rs. 1,50,000 C. Rs. 2,25,000 D. Rs. Nil III. What is the amount of taxable salary including HRA? A. Rs. 9,30,000 B. Rs. 9,39,000 C. Rs. 7.15,000 D. Rs. 7,50,000

IV. What is the amount taxable salary including the value of rent free accommodation? A. Rs. 8,75,000 B. Rs. 9,75,000 C. Rs. 7,50,000 D. Rs. 9,00,000 4

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X owns two houses and both houses are occupied by him for residence. From the particulars given below, calculate income from house property for the PY 2006-07 HP I HP II Municipal value 45,000 52,000 Fair rental value 50,000 55,000 Municipal taxes paid 4,500 5,200 Interest on capital borrowed 20,000 1,55,000 Date of completion of construction 25-08-2005 A. HP I : 11,850; HP II Loss 1,50,000 B. HP I : 31,850 HP II Loss 1,55,000 C. HP I: 11,850 HP II: loss 30,000 D. None of the above

Dr. Shantharam gives the following particulars of his the previous year 2006-07. Compute his income from profession

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Receipts:(In Rs) Fees from patients Rs1,54,000; Visiting fees Rs.25,000; Gifts from patients Rs1,45,000; Salary as visiting professor in a medical college Rs.50,000; Dividends from Indian Companies Rs.20,000; Interest on FD in banks Rs.12,000; Interest from POSB account Rs.7,000 Payments: Salary to staff Rs.36,000; Rent of the premises Rs.45,000; Car expenses Rs.20,000; Purchase of surgical equipment Rs.15,000; Purchase of medicines Rs.10,000; Repairs to clinic Rs. 12,000; Payment of life insurance premuim Rs.25,000; Educational expenses of son Rs.50,000; purchase of medical books and journals Rs.10,000; Membership Fee to Medical Association Rs.5,000 Car expenses are 50% for personal use. Depreciation on motor car is 10% on the cost of Rs.5,00,000; Repairs to clinic are to be reimbursed by the owner of the building. A. Rs. 1,56,000 B. Rs. 1,68,000 C. Rs. 2,18,000 D. Rs. None of the above 6 Mr.Rajaram is retired professor. He submits the following particulars of his income for PY2006-07.Compute his income from other sources? 1.Royalty on book writing Rs 2,00,000, expenses incurred for writing, typing and correcting the proof amounted to Rs.20,000. 2.Interest on Bank FD @ 12% on 5,00,000. 3.Winning lotteries net Rs 6,940;Expences on lottery ticketRs500. 4.Interest @8% on Rs20,000 debenture 5.Remuneration for doing extension lectures Rs 50,000. 6.Consultancy to a Distance Education programme Rs. 2,00,000, Expenses incurred was Rs.50,000. Total collection charges were Rs.2,500. A.Rs 4,50,600 B.Rs 4,51,000 C.Rs 4,50,000 D.Rs 4,51,600 7

Read the following: 1. Salary received from a partnership firm is taxed under the head 'salary' in the hands of the partner (F) 2. Surcharge is taxed if the total income of an individual is more than Rs. 10 Lakh (T) 3. The rate of MAT is 30% (T) 4. The income Tax imposed on net wealth of an individual as on 31st March of PY (F) 5. Amount deposited in CGA scheme is exempted from tax for 3 years (T) Statements which are correct are : a. 2,3,4

b. 2,3,5 c. 1,4,5 d. 1,2