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GNDU QUESTION PAPERS 2025
BBA 6
th
SEMESTER
Paper-BBA-603: INCOME TAX
Time Allowed: 3 Hours Maximum Marks: 50
Note: Aempt Five quesons in all, selecng at least One queson from each secon. The
Fih queson may be aempted from any secon. All quesons carry equal marks.
SECTION-A
1. Write short notes on:
(a) Exempted Incomes
(b) Agriculture Incomes.
2. Discuss the following:
(a) Assessee
(b) Assessment Year vs. Previous Year.
SECTION-B
3. Explain the provisions relang to maintenance of accounts by certain persons
menoned under Sec. 44АА.
4. Ms. Khushi is an employee of XYZ Ltd. and receives the following salary components
from her employer during the previous year 2023-24:
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Basic Salary as Rs. 4,50,000 p.a.; Bonus on prot as Rs. 17,500; Commssion on Sales @ 2
per cent of turnover achieved of Rs. 28,50,000 by her; Advance Salary for April 2024 as Rs.
37,500. Employer's contribuon towards R.P.F. @ 5,500 p.m.; Travelling Allowance as Rs.
400 which is being fully ulized for ocial purposes. A rent free furnished house in
Mumbai (Rent of unfurnished house paid by employer Rs. 96,000 and Rent of Furniture as
Rs. 12,000). Free service of Cook (Salary of Rs. 3,000), Free supply of raon (Expenses of
Rs. 7,500). All these free services are provided and expenses on this behalf are borne by
employer. Calculate the Taxable Salary Income for Mr. Khushi for A.Υ. 2024-25.
SECTION – C
5. Mr. Jessica owns many properes in India. She sold some of these during P.Y. 2023–24.
Calculate the amount of Capital Gain accruing to her from the following:
• Jewellery cosng Rs. 80,000 was acquired in June, 2015 and sold for Rs. 1,00,000 in
May, 2023.
• House at Chandigarh sold for Rs. 16,00,000 on 31-10-2023. It was inherited by her
in 1985. FMV as on 1-4-2001 was Rs. 5,00,000. Cost of improvements made during
2008-09 was Rs. 25,000. Expenses incurred on transfer are Rs. 25,000.
• Self culvated land was sold for Rs. 5,90,000 on 1-1-2024 and its cost in 1982-83
when it was acquired was Rs. 50,000.
• FMV of land on 1-4-2001 was Rs. 1,50,000. She purchased a new piece of
agricultural land.
6. What is compulsory acquision of Assets? How are they being treated for Capital Gains
under the IT Act, 1961?
SECTION – D
7. Discuss the various types of incomes qualifying under the head ‘Income from Other
Sources’.
8. Ms. Ridhima received the following incomes during F.Y. 2023–24. Calculate her total
income for the year from the following parculars:
Income
(i) Insurance commission received from LIC → Rs. 1,00,000
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(ii) Cloth business prots → Rs. 4,25,000
(iii) Payments made during the year:
1. Deposit in Naonal Saving Scheme, 1992 → Rs. 10,000
2. Payment to Jeevan Dhara LIC Policy → Rs. 500 p.m.
3. Investment in units of Mutual Funds (u/s 80C as ELSS) → Rs. 10,000
(iv) Donaons given to:
• Naonal Children Welfare Fund → Rs. 2,500
• P.M. Naonal Relief Fund → Rs. 5,000
• Gujarat Earthquake Relief Fund → Rs. 2,000
• Punjab CM Earthquake Relief Fund → Rs. 2,000
• Approved Public Charitable Trust → Rs. 10,000
• Naonal Fund for Control of Drug Abuse → Rs. 4,000
(v) Also, she paid Rs. 6,000 by cheque to General Insurance Corporaon for MediClaim
Policy.
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GNDU Answer PAPERS 2025
BBA 6
th
SEMESTER
Paper-BBA-603: INCOME TAX
Time Allowed: 3 Hours Maximum Marks: 50
Note: Aempt Five quesons in all, selecng at least One queson from each secon. The
Fih queson may be aempted from any secon. All quesons carry equal marks.
SECTION-A
1. Write short notes on:
(a) Exempted Incomes
(b) Agriculture Incomes.
Ans: (a) Exempted Incomes
Imagine you are earning money from different sources—salary, business, interest, gifts, etc.
Normally, the government (through Income Tax) takes a small part of your income as tax.
But here’s something interesting:
Not all income is taxable.
Some incomes are completely “exempt”, meaning you don’t have to pay any tax on them.
These are called Exempted Incomes.
What does “Exempted Income” mean?
Exempted income is that portion of your earnings which is fully free from income tax, even
though you receive it.
It is like a reward from the government—“You earned this, and you can keep it fully.”
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Common Examples of Exempted Incomes
Let’s understand with simple examples:
1. Agricultural Income
Income earned from farming (we’ll study this in part b).
2. Share of Profit from Partnership Firm
If you are a partner in a firm, the profit you receive is tax-free in your hands, because the
firm already pays tax.
3. Life Insurance Amount (on maturity or death)
Money received from a life insurance policy is usually exempt (with some conditions).
4. Scholarships
If you receive money for studies, it is fully exempt.
The government encourages education by not taxing scholarships.
5. Provident Fund (PF) Withdrawal
Under certain conditions, PF withdrawals are tax-free.
6. Gifts (within limits or from relatives)
Some gifts—especially from close relatives—are exempt.
Why does the government give exemptions?
Think of exemptions as encouragement tools. The government wants to:
• Promote education → scholarships exempt
• Support farmers → agricultural income exempt
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• Encourage savings → PF and insurance exempt
• Avoid double taxation → partnership profits exempt
Important Point
Even though exempt income is not taxed, sometimes you still need to report it in your
Income Tax Return (ITR).
Simple Way to Remember
Exempted Income = Earned money + No tax liability
(b) Agricultural Income
Now let’s move to a very important and interesting topic—especially in India.
What is Agricultural Income?
Agricultural income is the income you earn from land used for farming in India.
In simple words:
If money comes from growing crops, plants, or using agricultural land, it is agricultural
income.
Types of Agricultural Income
Let’s break it down into easy parts:
1. Income from Cultivation of Land
This includes growing crops like:
• Wheat
• Rice
• Sugarcane
• Vegetables
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Example: A farmer sells wheat and earns money → This is agricultural income.
2. Income from Agricultural Land Rent
If you own farmland and give it on rent, the rent you receive is agricultural income.
3. Income from Farm Buildings
If a building is used for agricultural purposes (like storing crops), income from it may also be
considered agricultural income.
Why is Agricultural Income Exempt?
India is an agriculture-based country. To support farmers:
The government does not tax agricultural income.
This helps:
• Farmers earn better
• Agriculture sector grow
• Rural economy stay strong
But there’s a twist (Important for exams!)
Agricultural income is exempt, but sometimes it affects your tax rate.
This concept is called:
Partial Integration of Agricultural Income
What is Partial Integration?
If a person has:
• Agricultural income +
• Non-agricultural income (like salary, business)
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Then:
Agricultural income is added only to calculate tax rate, not to tax directly.
Simple Example
Suppose:
• Salary = ₹4,00,000
• Agricultural Income = ₹2,00,000
The agricultural income will help decide tax slab, but no tax is charged on it directly.
What is NOT Agricultural Income?
Important for clarity:
Income from selling processed goods (like packaged food)
Income from poultry farming
Income from dairy business
These are business incomes, not agricultural income.
Easy Trick to Remember
Agricultural Income = Income from land + Farming activities
Final Summary (Quick Revision)
Exempted Incomes
• Income on which no tax is paid
• Examples: Scholarships, PF, insurance, agricultural income
• Purpose: Encourage savings, education, and farming
2. Discuss the following:
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(a) Assessee
(b) Assessment Year vs. Previous Year.
Ans: (a) Assessee
The term assessee is central to the Income Tax Act. It refers to any person who is liable to
pay tax or any other sum under the Act. In simple terms, the assessee is the person whose
income, expenses, or financial activities are being examined for taxation purposes.
Categories of Assessee
The law recognizes different types of assessees:
• Individual: A single person earning income.
• Hindu Undivided Family (HUF): A family unit considered as one entity for tax
purposes.
• Company: A corporate body registered under the Companies Act.
• Firm: A partnership firm.
• Association of Persons (AOP) or Body of Individuals (BOI): A group of people
earning income together.
• Local Authority: Municipalities or other local governing bodies.
• Artificial Juridical Person: Entities that are not natural persons but are recognized by
law, such as trusts.
Types of Assessee Based on Responsibility
• Normal Assessee: A person who is directly liable to pay tax on their own income.
• Representative Assessee: A person who represents another individual for tax
purposes, such as a guardian filing for a minor.
• Deemed Assessee: A person who is treated as an assessee under law even if they are
not directly earning the income, for example, legal heirs of a deceased person.
In essence, the assessee is the subject of taxation—the one whose income is being assessed
and taxed.
(b) Assessment Year vs. Previous Year
These two terms often cause confusion because they are closely related but serve different
purposes in taxation.
Previous Year
• The previous year is the financial year in which the income is earned.
• In India, the financial year runs from 1st April to 31st March.
• For example, if income is earned between 1st April 2024 and 31st March 2025, that
period is called the previous year 2024–25.
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Assessment Year
• The assessment year is the year immediately following the previous year.
• It is the year in which the income earned in the previous year is assessed and taxed.
• For the income earned in the previous year 2024–25, the assessment year will be
2025–26.
Key Difference
• Previous Year: Year of earning income.
• Assessment Year: Year of assessing and taxing that income.
Reason for the Distinction
The distinction exists because income can only be calculated after the financial year ends.
Once the year closes, the total income is known, and the government can assess it in the
following year. This ensures accuracy in taxation.
Detailed Flow
1. Income is earned during the previous year.
2. After the year ends, the assessee files a tax return.
3. The government assesses this return in the assessment year.
4. Tax liability is determined and collected in the assessment year based on the income
of the previous year.
Example Timeline
• Previous Year 2024–25: Income earned between April 2024 and March 2025.
• Assessment Year 2025–26: Income of 2024–25 is assessed and taxed during April
2025 to March 2026.
Conclusion
To summarize:
• The assessee is the person or entity whose income is subject to taxation.
• The previous year is the financial year in which the income is earned.
• The assessment year is the financial year immediately following the previous year, in
which the income is assessed and taxed.
Together, these concepts form the foundation of the taxation process. The assessee earns
income in the previous year, and the government assesses that income in the assessment
year. This systematic approach ensures that taxation is organized, fair, and based on
complete financial data.
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SECTION-B
3. Explain the provisions relang to maintenance of accounts by certain persons
menoned under Sec. 44АА.
Ans: Imagine This Situation
Suppose you are running a small business or working as a professional (like a doctor,
lawyer, CA, freelancer, etc.). You earn money, spend money, and deal with clients every day.
Now the government says:
“If you are earning income, you must keep proper records (accounts) so that your
income can be verified.”
This is exactly what Section 44AA is about — it tells who must maintain books of accounts
and what records they should keep.
What is Section 44AA?
Section 44AA deals with the maintenance of books of accounts by certain persons.
It answers two main questions:
1. Who is required to maintain books of accounts?
2. What kind of books should they maintain?
1. Persons Required to Maintain Books of Accounts
Section 44AA divides people into two main categories:
(A) Specified Professionals
These are people doing professional work, such as:
• Doctors
• Lawyers
• Chartered Accountants
• Engineers
• Architects
• Interior decorators
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• Film artists
• Company secretaries
• Technical consultants
If you belong to any of these professions, then you must maintain books of accounts if:
• Your gross receipts exceed ₹1,50,000 in any of the last 3 years
OR
• If your profession is newly started, and income is expected to exceed ₹1,50,000
(B) Business Persons (Non-Professionals)
This includes traders, shopkeepers, business owners, etc.
They are required to maintain books if:
• Their income exceeds ₹2,50,000, OR
• Their total sales/turnover exceeds ₹25,00,000
These limits are checked for any of the last 3 years.
2. What Books of Accounts Should Be Maintained?
The law does not force everyone to maintain the same records. It depends on the type of
work.
For Professionals (Specified List)
They must maintain:
• Cash Book → record of cash received and paid
• Journal → daily transaction records
• Ledger → classified accounts
• Bills and Receipts → proof of income and expenses
Additional for doctors:
• Patient records
• Stock of medicines
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For Business Persons
The law is more flexible here.
They should maintain:
• Records of income and expenses
• Purchase and sales details
• Stock records (if applicable)
The idea is simple:
Your accounts should clearly show your income and allow the tax officer to calculate your
profit.
3. Where Should Books Be Kept?
Books of accounts should be kept at:
• The main place of business or profession
If you maintain them at another place, you must inform the tax department.
4. For How Long Should Records Be Kept?
You must keep books of accounts for:
6 years from the end of the relevant assessment year
Example:
If accounts relate to FY 2022–23, keep them till 2029.
5. Can Accounts Be Maintained Digitally?
Yes!
In today’s time, you can maintain:
• Computerized records
• Accounting software (like Tally, Excel, etc.)
As long as records are accurate and accessible, digital format is allowed
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6. What Happens If You Don’t Maintain Accounts?
If a person required under Section 44AA fails to maintain books, then:
A penalty of ₹25,000 may be imposed under Section 271A.
7. Special Note (Presumptive Taxation)
If a person opts for presumptive taxation scheme (like Section 44AD or 44ADA):
• They may not need to maintain detailed books
BUT
If they declare income lower than prescribed rate, then maintaining books becomes
compulsory.
Simple Summary
Let’s make it super easy:
• Section 44AA = Rules for keeping accounts
• Professionals → Must maintain if income > ₹1.5 lakh
• Businesses → Must maintain if income > ₹2.5 lakh OR turnover > ₹25 lakh
• Books include → cash book, ledger, bills, etc.
• Keep records → for 6 years
• Digital records → allowed
• No records → ₹25,000 penalty
Final Understanding
Think of Section 44AA as a discipline rule.
Just like a student keeps notes to prepare for exams,
A taxpayer must keep records to explain their income.
It ensures:
• Transparency
• Accuracy
• Easy tax calculation
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• Avoidance of penalties
4. Ms. Khushi is an employee of XYZ Ltd. and receives the following salary components
from her employer during the previous year 2023-24:
Basic Salary as Rs. 4,50,000 p.a.; Bonus on prot as Rs. 17,500; Commssion on Sales @ 2
per cent of turnover achieved of Rs. 28,50,000 by her; Advance Salary for April 2024 as Rs.
37,500. Employer's contribuon towards R.P.F. @ 5,500 p.m.; Travelling Allowance as Rs.
400 which is being fully ulized for ocial purposes. A rent free furnished house in
Mumbai (Rent of unfurnished house paid by employer Rs. 96,000 and Rent of Furniture as
Rs. 12,000). Free service of Cook (Salary of Rs. 3,000), Free supply of raon (Expenses of
Rs. 7,500). All these free services are provided and expenses on this behalf are borne by
employer. Calculate the Taxable Salary Income for Mr. Khushi for A.Υ. 2024-25.
Ans: Step 1: Identify the Components of Salary
Ms. Khushi receives several items from her employer. Under the Income Tax Act, salary
includes not only basic pay but also allowances, perquisites, bonuses, commissions, and
contributions. Let’s list them:
1. Basic Salary – ₹4,50,000 per annum
2. Bonus on Profit – ₹17,500
3. Commission on Sales – 2% of turnover ₹28,50,000 = ₹57,000
4. Advance Salary (April 2024) – ₹37,500 (taxed in the year of receipt)
5. Employer’s Contribution to Recognized Provident Fund (RPF) – ₹5,500 per month =
₹66,000 (but only taxable if it exceeds 12% of salary; here it does not exceed, so not
taxable)
6. Travelling Allowance – ₹400 per month = ₹4,800 (fully exempt since used for official
purposes)
7. Rent-free furnished house in Mumbai – Perquisite value to be calculated
o Rent of unfurnished house paid by employer = ₹96,000
o Rent of furniture = ₹12,000
o Total = ₹1,08,000
8. Free service of Cook – Salary ₹3,000 per month = ₹36,000
9. Free supply of ration – Expenses ₹7,500
Step 2: Classify What Is Taxable
• Basic Salary: Fully taxable.
• Bonus: Fully taxable.
• Commission: Fully taxable.
• Advance Salary: Taxable in the year of receipt.
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• Employer’s Contribution to RPF: Contribution up to 12% of salary is exempt. Since
₹66,000 is within the limit, it is not taxable.
• Travelling Allowance: Exempt because it is used wholly for official purposes.
• Rent-free furnished house: Taxable as perquisite.
• Cook’s salary: Taxable as perquisite.
• Free ration: Taxable as perquisite.
Step 3: Calculate Perquisites
(i) Rent-free furnished house
For a house owned/leased by employer, perquisite value is the actual rent paid by
employer.
• Rent of house = ₹96,000
• Rent of furniture = ₹12,000
• Total = ₹1,08,000
So, taxable perquisite = ₹1,08,000.
(ii) Free service of Cook
Employer pays ₹3,000 per month = ₹36,000. Taxable in full.
(iii) Free supply of ration
Employer spends ₹7,500. Taxable in full.
Step 4: Add Everything Together
Now let’s compute the taxable salary step by step:
1. Basic Salary = ₹4,50,000
2. Bonus = ₹17,500
3. Commission = ₹57,000
4. Advance Salary = ₹37,500
5. Perquisite – Rent-free house = ₹1,08,000
6. Perquisite – Cook = ₹36,000
7. Perquisite – Ration = ₹7,500
Total Taxable Salary = 4,50,000 + 17,500 + 57,000 + 37,500 + 1,08,000 + 36,000 + 7,500
= ₹7,13,500
Step 5: Exempt Items (not included)
• Employer’s contribution to RPF (₹66,000) – exempt since within 12% limit.
• Travelling allowance (₹4,800) – exempt since used for official purposes.
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Final Answer
The Taxable Salary Income of Ms. Khushi for Assessment Year 2024–25 is:
₹7,13,500
Extended Explanation
Notice how we carefully separated taxable and exempt components. Salary income under
the Income Tax Act is not just the cash you receive—it includes perquisites (benefits
provided by employer) and allowances, unless specifically exempt. That’s why items like
rent-free accommodation, cook’s services, and ration are added to taxable salary. On the
other hand, allowances used for official purposes and provident fund contributions within
limits are exempt.
SECTION – C
5. Mr. Jessica owns many properes in India. She sold some of these during P.Y. 2023–24.
Calculate the amount of Capital Gain accruing to her from the following:
• Jewellery cosng Rs. 80,000 was acquired in June, 2015 and sold for Rs. 1,00,000 in
May, 2023.
• House at Chandigarh sold for Rs. 16,00,000 on 31-10-2023. It was inherited by her
in 1985. FMV as on 1-4-2001 was Rs. 5,00,000. Cost of improvements made during
2008-09 was Rs. 25,000. Expenses incurred on transfer are Rs. 25,000.
• Self culvated land was sold for Rs. 5,90,000 on 1-1-2024 and its cost in 1982-83
when it was acquired was Rs. 50,000.
• FMV of land on 1-4-2001 was Rs. 1,50,000. She purchased a new piece of
agricultural land.
Ans: What is happening in this question?
Mr. Jessica sold different types of assets (jewellery, house, land) during the Previous Year
2023–24.
Whenever we sell an asset, we calculate:
Capital Gain = Selling Price – (Cost + Expenses + Adjustments)
Also remember:
• If held more than 24/36 months → Long-Term Capital Gain (LTCG)
• If held shorter → Short-Term Capital Gain (STCG)
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1. Jewellery Transaction
Given:
• Cost = ₹80,000 (June 2015)
• Sale Price = ₹1,00,000 (May 2023)
Holding period = 2015 to 2023 → More than 36 months → Long-Term
Calculation:
Capital Gain = 1,00,000 – 80,000 = ₹20,000 (LTCG)
2. House at Chandigarh
This is a bit more interesting because:
• It was inherited
• Very old (before 2001)
Given:
• Sale Price = ₹16,00,000
• Expenses = ₹25,000
• FMV on 1-4-2001 = ₹5,00,000
• Improvement (2008-09) = ₹25,000
Since property was acquired before 2001 → we use Fair Market Value (FMV) as on 1-4-
2001
Step 1: Calculate Indexed Cost
We apply indexation to adjust inflation.
Let’s take standard Cost Inflation Index (CII):
• 2001-02 = 100
• 2008-09 = 137
• 2023-24 = 348
Indexed Cost of Acquisition:
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= 5,00,000 × (348 / 100)
= ₹17,40,000
Indexed Cost of Improvement:
= 25,000 × (348 / 137)
≈ ₹63,504
Total Cost:
= 17,40,000 + 63,504
= ₹18,03,504
Net Sale Value:
= 16,00,000 – 25,000
= ₹15,75,000
Capital Gain:
= 15,75,000 – 18,03,504
= (₹2,28,504) Loss
This is a Long-Term Capital Loss
3. Agricultural Land
Given:
• Sale Price = ₹5,90,000
• Original Cost (1982-83) = ₹50,000
• FMV (1-4-2001) = ₹1,50,000
Again, since land is before 2001 → use FMV
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Indexed Cost:
= 1,50,000 × (348 / 100)
= ₹5,22,000
Capital Gain:
= 5,90,000 – 5,22,000
= ₹68,000 (LTCG)
Important Note (Very Important for Exams!)
She purchased new agricultural land, so she can claim exemption under Section 54B.
This means:
Capital Gain = ₹68,000 → Fully Exempt
So taxable gain = ₹0
Final Summary
Asset
Type
Gain/Loss
Jewellery
LTCG
₹20,000
House
LTCG
₹(2,28,504) Loss
Agricultural Land
LTCG
₹68,000 (Exempt u/s 54B)
Final Capital Gain Calculation
Combine all:
• Jewellery Gain = +20,000
• House Loss = –2,28,504
• Land Gain = 0 (Exempt)
Net Result:
Total Capital Gain = –₹2,08,504 (Net Loss)
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Final Conclusion
Think of this like a business:
• She made small profit from jewellery
• She made big loss from house
• She made gain on land but saved tax by reinvesting
Overall, she is in loss of ₹2,08,504
6. What is compulsory acquision of Assets? How are they being treated for Capital Gains
under the IT Act, 1961?
Ans: Understanding Compulsory Acquisition of Assets
• Definition: Compulsory acquisition means the government or a statutory body
acquires property (like land, building, or other capital assets) without the voluntary
consent of the owner, usually for public projects such as roads, railways, or industrial
development.
• Nature of Transfer: Even though the owner does not willingly sell the asset, the law
treats compulsory acquisition as a transfer of capital asset under Section 2(47) of
the Income Tax Act.
• Compensation: The owner receives compensation for the acquired asset. This
compensation is considered the “full value of consideration” for capital gains
purposes.
Capital Gains Treatment under Section 45(5)
Section 45(5) of the Income Tax Act specifically deals with compulsory acquisition. The rules
are:
1. Initial Compensation
• The compensation received at the time of compulsory acquisition is treated as the
full value of consideration.
• Capital gains are computed by deducting the indexed cost of acquisition and
improvement from this compensation.
• The year of taxability is the year in which the compensation is actually received, not
the year of transfer.
2. Enhanced Compensation
• Sometimes, after litigation or review, the compensation amount is increased
(enhanced compensation).
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• Any enhanced compensation received later is also taxable as capital gains in the year
of receipt.
• The cost of acquisition and cost of improvement for enhanced compensation are
taken as nil. This means the entire enhanced amount is taxable.
3. Reduced Compensation
• If compensation is reduced later, the capital gains already taxed can be recomputed
to reflect the reduced amount.
4. Interest on Compensation
• Interest awarded on compensation is not treated as part of capital gains. Instead, it
is taxed under Income from Other Sources in the year of receipt.
Exemptions Available
• Section 54D: Provides exemption if the compulsory acquisition relates to land or
building used for industrial purposes. If the assessee reinvests the compensation in
acquiring new land or building for industrial use within three years, capital gains can
be exempt.
• Other exemptions like Section 54, 54F, 54EC may also apply depending on the nature
of the asset and reinvestment.
Practical Illustration
Suppose agricultural land is compulsorily acquired by the government:
• Compensation received initially = ₹10,00,000
• Indexed cost of acquisition = ₹4,00,000
• Capital gain = ₹6,00,000 (taxable in year of receipt).
Later, enhanced compensation of ₹2,00,000 is awarded.
• Entire ₹2,00,000 is taxable as capital gain in the year of receipt.
• Cost of acquisition for enhanced compensation = Nil.
If interest of ₹50,000 is awarded on compensation, it is taxed separately under “Income
from Other Sources.”
Key Points to Remember
• Compulsory acquisition is treated as a transfer.
• Compensation is taxable as capital gains in the year of receipt.
• Enhanced compensation is fully taxable with nil cost of acquisition.
• Interest on compensation is taxed separately under other sources.
• Exemptions under Section 54D and others can reduce tax liability if reinvestment
conditions are met.
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Conclusion
Compulsory acquisition of assets under the Income Tax Act, 1961, ensures that even
involuntary transfers are brought under the tax net. Section 45(5) provides a clear
framework: compensation and enhanced compensation are taxed as capital gains in the
year of receipt, while interest is taxed separately. Exemptions like Section 54D allow relief if
the compensation is reinvested in specified assets. This structured approach balances the
government’s need to acquire property for public purposes with the taxpayer’s right to fair
treatment under tax law.
SECTION – D
7. Discuss the various types of incomes qualifying under the head ‘Income from Other
Sources’.
Ans: Introduction
The Indian Income Tax Act divides income into five heads:
1. Salaries
2. Income from House Property
3. Profits and Gains of Business or Profession
4. Capital Gains
5. Income from Other Sources
The fifth head, Income from Other Sources (IFOS), is a catch-all category. It ensures that no
income escapes taxation simply because it does not fit neatly into the other four heads.
Governed mainly by Sections 56 to 59, this head includes a wide variety of incomes.
Types of Incomes Qualifying under “Income from Other Sources”
1. Dividends
• Dividends received from companies are taxable under this head.
• Earlier, dividends were exempt due to Dividend Distribution Tax (DDT), but after
abolition of DDT, dividends are now taxable in the hands of shareholders.
2. Interest Income
• Interest earned on savings bank accounts, fixed deposits, recurring deposits, and
bonds is taxable under IFOS.
• Even interest on compensation awarded by courts is included here.
3. Gifts
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• Gifts received by an individual or HUF are taxable if the aggregate value exceeds
₹50,000 in a year.
• Taxability depends on the nature of the gift (cash, movable property, immovable
property) and the relationship with the donor.
• Gifts from specified relatives or on certain occasions (like marriage) are exempt.
4. Winnings from Lotteries, Games, and Gambling
• Winnings from lotteries, crossword puzzles, horse races, card games, betting, and
online gaming are fully taxable.
• These are taxed at a flat rate of 30%, without allowing any deductions or
exemptions.
5. Rental Income of Machinery, Plant, or Furniture
• If such assets are rented out and the income does not fall under “Business Income,”
it is taxed under IFOS.
• If the building is let out along with machinery or furniture, the composite rent is also
taxed here.
6. Family Pension
• Pension received by family members after the death of an employee is taxable under
IFOS.
• A standard deduction of one-third of pension or ₹15,000 (whichever is less) is
allowed.
7. Sub-letting of Property
• If a tenant sub-lets a property and earns income, it is taxed under IFOS, since the
tenant is not the owner.
8. Income from Securities
• Income from government securities, debentures, and bonds is taxable under IFOS
unless specifically exempt.
9. Compensation and Enhanced Compensation
• Compensation received on compulsory acquisition of assets is taxed under capital
gains.
• However, interest on such compensation is taxed under IFOS.
10. Other Miscellaneous Incomes
• Income from sitting fees received by directors.
• Income from examination fees received by teachers.
• Income from casual sources not covered elsewhere.
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Deductions Allowed
While many incomes under IFOS are fully taxable, certain deductions are permitted:
• Section 57 allows deductions such as:
o Expenses incurred to earn dividend or interest income.
o Standard deduction for family pension.
o Collection charges for securities.
• However, no deductions are allowed against winnings from lotteries, gambling, or
betting.
Key Features
• Residual Nature: Covers all incomes not falling under other heads.
• Tax Rates: Most incomes are taxed at normal slab rates, but winnings from lotteries
and similar sources are taxed at a flat 30%.
• Exemptions: Certain gifts and specific incomes are exempt.
• Deductions: Limited deductions are available under Section 57.
Conclusion
The head Income from Other Sources acts as a safety net in the Income Tax Act, ensuring
that every form of income is brought under taxation. It includes dividends, interest, gifts,
winnings, family pension, rental of machinery, and many other miscellaneous incomes. By
clearly defining these categories, the Act prevents tax evasion and ensures comprehensive
coverage of all possible income streams.
8. Ms. Ridhima received the following incomes during F.Y. 2023–24. Calculate her total
income for the year from the following parculars:
Income
(i) Insurance commission received from LIC → Rs. 1,00,000
(ii) Cloth business prots → Rs. 4,25,000
(iii) Payments made during the year:
4. Deposit in Naonal Saving Scheme, 1992 → Rs. 10,000
5. Payment to Jeevan Dhara LIC Policy → Rs. 500 p.m.
6. Investment in units of Mutual Funds (u/s 80C as ELSS) → Rs. 10,000
(iv) Donaons given to:
• Naonal Children Welfare Fund → Rs. 2,500
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• P.M. Naonal Relief Fund → Rs. 5,000
• Gujarat Earthquake Relief Fund → Rs. 2,000
• Punjab CM Earthquake Relief Fund → Rs. 2,000
• Approved Public Charitable Trust → Rs. 10,000
• Naonal Fund for Control of Drug Abuse → Rs. 4,000
(v) Also, she paid Rs. 6,000 by cheque to General Insurance Corporaon for MediClaim
Policy.
Ans: Step 1: Understand the Goal
We need to calculate Ms. Ridhima’s Total Income for F.Y. 2023–24.
In Income Tax, we don’t directly subtract everything. Instead, we follow a proper process:
Step 1: Calculate Gross Total Income (GTI)
Step 2: Subtract Deductions (under Chapter VI-A)
Final: Get Total Income
Step 2: Calculate Gross Total Income (GTI)
Ridhima has two types of income:
1. Insurance Commission (from LIC) = ₹1,00,000
2. Cloth Business Profit = ₹4,25,000
So,
Gross Total Income = 1,00,000 + 4,25,000 = ₹5,25,000
Step 3: Identify Deductions
Now comes the interesting part—deductions. These reduce taxable income.
We will divide deductions into categories:
(A) Deduction under Section 80C
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This section allows deduction up to ₹1,50,000.
Eligible investments:
• National Saving Scheme = ₹10,000
• LIC Jeevan Dhara Policy = ₹500 × 12 = ₹6,000
• ELSS Mutual Fund = ₹10,000
Total under 80C:
10,000 + 6,000 + 10,000 = ₹26,000
This is within the limit, so full ₹26,000 is allowed.
(B) Deduction under Section 80D (Mediclaim)
• Paid ₹6,000 for Mediclaim Policy
Allowed deduction = ₹6,000
(C) Deduction under Section 80G (Donations)
Now we carefully classify donations because not all are treated the same.
100% Deduction (No Limit)
• P.M. National Relief Fund = ₹5,000
• National Children Welfare Fund = ₹2,500
• National Fund for Control of Drug Abuse = ₹4,000
Total:
₹11,500 (fully allowed)
50% Deduction (No Limit)
• Gujarat Earthquake Relief Fund = ₹2,000
Allowed:
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50% of 2,000 = ₹1,000
Donations with Limit (50% subject to GTI limit)
• Punjab CM Relief Fund = ₹2,000
• Approved Charitable Trust = ₹10,000
Total = ₹12,000
50% = ₹6,000
But this is subject to 10% of Adjusted GTI
Step 4: Calculate Adjusted GTI
Adjusted GTI = GTI – deductions (except 80G)
= ₹5,25,000 – (₹26,000 + ₹6,000)
= ₹5,25,000 – ₹32,000
= ₹4,93,000
10% of Adjusted GTI =
10% of 4,93,000 = ₹49,300
Since ₹6,000 (eligible donation) is less than ₹49,300 → full allowed.
Step 5: Total Deductions
Let’s add everything:
1. Section 80C = ₹26,000
2. Section 80D = ₹6,000
3. Section 80G:
• 100% category = ₹11,500
• 50% (no limit) = ₹1,000
• 50% (with limit) = ₹6,000
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Total 80G =
11,500 + 1,000 + 6,000 = ₹18,500
Total Deductions:
26,000 + 6,000 + 18,500 = ₹50,500
Step 6: Final Total Income
Now subtract deductions from Gross Total Income:
Total Income = 5,25,000 – 50,500
= ₹4,74,500
Final Answer:
Ms. Ridhima’s Total Income = ₹4,74,500
Easy Way to Remember
Think of it like this:
• First, collect all income (like filling a bucket )
• Then remove deductions (like taking water out)
• What remains is your taxable income
Conclusion
This question looks complex because of multiple deductions, but once you:
✔ Break it into steps
✔ Classify deductions properly
✔ Apply limits carefully
“This paper has been carefully prepared for educaonal purposes. If you noce any
mistakes or have suggesons, feel free to share your feedback.”
