Professional Documents
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Errors Rectified:
Page 67- last sentence (a) to be redrafted as:
a. The maximum tax rate of a natural person on his/her income from Disposal of Non Business
Chargeable asset is 10% subject to the following:
Page 68- 7th Line to be changed as:
Since the maximum tax rate for income from disposal of Non Business Chargeable Asset is 10%, there
shall be no additional 40% surcharge even when the balance taxable income exceed Rs. 25 Lakhs.
Page 68- Point (d) to be added after point (c):
In case a natural person carrying on operation of Special industry exports its products, the tax rate shall
be 11.25% instead of rates applicable to block of 15% and 25%, and 15.75% when the income is related
to the block where 35% is applicable.
Notes:
The rates of tax taken on this chapter are as applicable for IY 2072/73. Please note the same.
Question 1- Page 71
Provisions of Income Tax Act- facilities entitled to Mr. Ram
a. As he is handicapped, he is entitled to reduction of 50% of Basic Exemption Limit while calculating
Balance Taxable Income from Taxable Income.
b. Similarly, the rate of tax on export income on such income where rate of 25% is applicable is
15%,and since its export from the products of special industry, the effective rate instead of applicable
rate of 15% and 25% is 11.25% and that of applicable rate of 35% is 15.75% .
c. He is operating a special industry as defined by Clarification Clause of Sec. 11, thus, the rate of tax
on income from Special industry where rate of 25% is applicable is 20%.
d. Students should note that there are three methods of calculation of tax liability in this case. One
method benefits taxpayer, the other the tax receivers and the third method assumes the consumption
of deductions and reductions on proportionate basis. In this solution, the author has used the third
method that gives the result on trade off position.
e. Corrections in question, instead of 10 Million of export sales make it Rs. 100 Million.
Calculation of Taxable Income:
Assessable Income from Business
From Export Income:
From other Special Industry
Total Assessable Income
(as there is no information as to income from investment or employment)
Less: Allowable Deductions
Less: allowable Reductions
a. Reduction as a result of incapacitated person
(50% of 300,000- BEL for Couple as the question suggests)
Balance Taxable Income
Calculation of Balance taxable income attributable to export sales and local sales
10,000,000
15,000,000
25,000,000
Nil
150,000
24,850,000
Attributable to Export Sales= (Profit from Export included in Assessable income/ Total
Assessable income less NBCA Income * Balance Taxable Income excluding NBCA Income)=
10/25*24,850,000= 9,940,000
Attributable to Local Sales= (Profit from Local Sales included in Assessable income/ Total
Assessable income less NBCA Income * Balance Taxable Income excluding NBCA Income)=
15/25*24,850,000= 14,910,000
Note: There are two alternative ways to calculate tax liability, and the answer is not final. Please have a
look at Example in Page 73-76 of the book for the same.
Question 2- Page 71
a. It is assumed that each of the individual is opted Couple assessment for the purpose of tax as per
Sec. 50.
1. Calculation of Tax Liability of Mr. A
Since the total taxable income is less than Rs. 300,000; there shall be no tax liability. Had he opted
individual for tax assessment, the tax liability would be 5% of Rs. 40,000 (i.e. 5% of 290,000 less Rs.
250,000).
2. Calculation of Tax Liability of Mr. B
Mr. B has taxable income attributable to gain on disposal of land and building with ownership more
than 5 years of Rs. 290,000 which is subject to maximum tax rate of 2.5%. The balance of Rs.
100,000 is assumed to be business income. As suggested by Supreme Court decision based on
minimum tax liability to tax payer, the tax liability would be:
1st Rs. 300,000
0%
Balance Rs. 90,000
2.5%
2,250
3. Calculation of Tax Liability of Mr. C
Mr. C has taxable income attributable to gain on disposal of listed shares of Rs. 290,000 which is
subject to maximum tax rate of 5%. The balance of Rs. 400,000 is assumed to be business income.
As suggested by Supreme Court decision based on minimum tax liability to tax payer, the tax liability
would be:
1st Rs. 300,000
0%
Next Rs. 100,000
15%
15,000
Balance Rs. 290,000
5%
14,500
4. Calculation of Tax Liability of Mr. D
Mr. D has taxable income attributable to gain on disposal of land and building with ownership less
than 5 years of Rs. 290,000 which is subject to maximum tax rate of 5%. The balance of Rs.
1,800,000 is assumed to be business income. As suggested by Supreme Court decision based on
minimum tax liability to tax payer, the tax liability would be:
1st Rs. 300,000
0%
Next Rs. 100,000
15%
15,000
5,000,000
1,000,000
8,000,000
14,000,000
14,000,000
-
14,000,000
14,000,000
(125,000)
(20,000)
(62,500)
(20,000)
13,772,500