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GNDU QUESTION PAPERS 2022
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. Dene the concept of Previous Year with a suitable example. What are the excepons to
the general rule that income of previous year is charged to tax during assessment year?
2. Write short notes on:
(a) Exempted incomes
(b) Agriculture incomes.
SECTION-B
3. Ms. Kashish is an employee of ABC Ltd. And receives the following salary and
perquisites from her employer during the previous year 2020-21: Basic salary as Rs.
4,50,000 p.a.; Bonus on prot as Rs. 17,500; Commission on sales @ 2 per cent of turnover
achieved of Rs. 28,50,000 by him; Advance salary for April 2021 as Rs. 37,500. Employers
contribuon towards R.P.F. @ 5,500 p.m.; Interest credited in P.F. A/c @12.5 per cent being
Rs. 8,700; 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 services of gardener (expenses of Rs.
3,000), free services of watchman (expenses of 4,200), free service of cook (salary of Rs.
3,000), free supply of raon (expense of Rs. 7,500). All these free services are provided
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and expenses on this behalf are borne by employer. Calculate the taxable salary income
for Ms. Kashish for A.Y. 2021-22.
4. Dene Annual Value. What deducons are allowed from annual value in compung
taxable income from house property ?
SECTION-C
5. Write short notes on:
(a) Transfer of Asset
(b) Capital Gains exempted from tax.
6.Following are the particulars of assets sold during the P.Y. 2017-18.
Calculate the taxable amount of capital gains if C.I.I. for 2017-18 is 272:
Details of Assets
Assets
Year of
Acquisitio
n
C.I.I
.
Cost of
Acquisitio
n (Rs.)
FMV as
on 1-4-
2001
(Rs.)
Selling
Expenses/Brokerag
e (Rs.)
Selling
Price
(Rs.)
Shop
1995-96
50,000
1,40,00
0
10,000
5,20,00
0
Jewellery
1998-99
60,000
1,45,00
0
5,50,00
0
Shares
2003-04
109
90,000
2,000
2,50,00
0
Shares
2007-08
129
18,000
1,000
30,000
Plant
(Depreciable
)
2003-04
109
4,00,000
(WDV)
7,00,00
0
Residential
House
2004-05
113
2,00,000
5,90,00
0
SECTION D
7. Mention the different kinds of incomes specifically mentioned as chargeable to tax under
the head Income from other sources.
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8 Ms. Shaina had gross total income of Rs. 10,00,000, which included Rs. 10,000 as long-
term capital gain for A.Y. 2020-21. During the year, she made the following donations:
Donations
Particulars
Amount (Rs.)
(a) National Defence Fund
10,000
(b) P.M. National Relief Fund
1,00,000
(c) Family Planning Association of India
40,000
(d) Congress Party (Recognized Political Party)
1,00,000
(e) IIT Delhi (notified as Institute of National Eminence)
50,000
(f) to a notified Charitable Hospital
50,000
(g) To Clean Ganga Fund
20,000
Additional Information:
She paid life insurance premium of Rs. 25,000
Policy amount: Rs. 2,00,000
Policy acquired on: March 10th, 2020
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GNDU Answer PAPERS 2022
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. Dene the concept of Previous Year with a suitable example. What are the excepons to
the general rule that income of previous year is charged to tax during assessment year?
Ans: What is Previous Year?
Imagine your life as a student.
You study during the year
Then your teacher evaluates your performance later
Same thing happens in Income Tax.
Definition (Simple Words):
Previous Year is the financial year (1 April to 31 March) in which you earn income.
Easy Example
Suppose:
You earned income between 1 April 2024 to 31 March 2025
This period is called:
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Previous Year (PY): 202425
But tax is not calculated immediately.
It is calculated in the next year:
Assessment Year (AY): 202526
Diagram for Better Understanding
INCOME FLOW IN TAX SYSTEM
┌─────────────────────────────┐
│ PREVIOUS YEAR │
│ (Income is Earned) │
│ 1 April 2024 │
│ ↓ │
│ 31 March 2025 │
└────────────┬────────────────┘
│
│ Income evaluated
↓
┌─────────────────────────────┐
│ ASSESSMENT YEAR │
│ (Tax is Calculated) │
│ 1 April 2025 │
│ ↓ │
│ 31 March 2026 │
└─────────────────────────────┘
Shortcut to remember:
Earn in Previous Year → Pay tax in Assessment Year
General Rule
Normally:
Income earned in Previous Year
is taxed in the Assessment Year
This is called the General Rule of Income Tax
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But There Are Exceptions!
Sometimes, the government does not wait till next year to collect tax.
Why?
Because there is a risk that the person may disappear or not pay tax later
So, in some cases, income is taxed in the same year (Previous Year itself).
Exceptions to the General Rule
Lets understand each one like real-life situations
1. Income of Non-Resident (Shipping Business)
If a non-resident ship owner earns income in India:
The ship may leave India anytime
Government cannot track later
So tax is collected immediately
2. Persons Leaving India Permanently
Imagine someone:
Is leaving India forever (job abroad, migration)
Government fears:
They may never come back to pay tax!
So their income is taxed before leaving India
3. AOP / BOI Formed for Short Duration
AOP = Association of Persons
BOI = Body of Individuals
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Example:
People come together for a short project or event
Then they dissolve
After finishing, they may disappear
So tax is charged immediately
4. Discontinued Business
If a business:
Is shutting down permanently
Government cannot wait till next year
So tax is collected in the same year
5. Income Escaping Assessment (Likely to be Hidden)
If tax officer believes:
Person is trying to hide income
Or may not pay tax later
Tax is charged immediately
Summary Diagram of Exceptions
GENERAL RULE vs EXCEPTIONS
NORMAL CASE:
Income (PY) → Tax next year (AY)
EXCEPTION CASES:
Income (PY) → Tax SAME YEAR
┌─────────────────────────────┐
│ Exceptions Include: │
│ Non-resident shipping │
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│ Leaving India permanently│
│ Short-term AOP/BOI │
│ Business discontinued │
│ Income may escape tax │
└─────────────────────────────┘
Final Understanding (Super Simple)
Think of it like this:
Normally:
You earn today → Pay tax tomorrow
But in risky situations:
You earn today → Pay tax immediately
2. Write short notes on:
(a) Exempted incomes
(b) Agriculture incomes.
Ans: Introduction
When we study income tax in India, two important concepts often come up: Exempted
Incomes and Agricultural Incomes. These are categories of income that either do not attract
tax or are treated in a special way under the Income Tax Act. Understanding them is crucial
for students of commerce, economics, and law because they show how taxation policy
balances revenue collection with social and economic priorities.
(a) Exempted Incomes
1. Meaning
Exempted incomes are those which are not included in the total taxable income of a
person. In other words, even if you earn them, you dont have to pay tax on them. The
government exempts these incomes to encourage certain activities, provide relief, or
recognize social obligations.
2. Examples of Exempted Incomes
Agricultural Income (though subject to certain rules, it is generally exempt).
Scholarships received by students for education.
Income of charitable trusts used for social or religious purposes.
Dividends received from Indian companies (subject to certain conditions).
Allowances and perquisites for government employees working abroad.
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Gratuity, pension, or leave encashment up to specified limits for retired employees.
3. Purpose of Exemption
To support agriculture and rural economy.
To encourage education by exempting scholarships.
To promote charity and social welfare.
To provide relief to employees after retirement.
4. Key Point to Remember
Exempted incomes are not taxed, but they must still be disclosed in the income tax return.
This ensures transparency and proper record-keeping.
(b) Agricultural Incomes
1. Meaning
Agricultural income refers to income earned from activities directly related to agriculture.
The Income Tax Act defines it as income derived from:
Cultivation of crops.
Sale of agricultural produce.
Rent or revenue from agricultural land.
Farmhouses used for agricultural operations.
2. Components of Agricultural Income
Rent from agricultural land.
Income from cultivation (growing crops, fruits, vegetables).
Income from farmhouses used for agricultural purposes.
Sale of produce grown on agricultural land.
3. Why Agricultural Income is Exempt
Agriculture is the backbone of Indias economy.
Farmers often face uncertain incomes due to weather, pests, and market
fluctuations.
Exempting agricultural income provides relief and encourages farming.
4. Special Rule: Partial Integration
Although agricultural income is exempt, it is sometimes used to determine the tax rate on
non-agricultural income. This is called partial integration.
If a person has both agricultural and non-agricultural income, the agricultural income
is added to the non-agricultural income to calculate the tax slab.
This ensures fairness and prevents misuse of exemption.
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5. Limitations
Only income from genuine agricultural activities is exempt.
Income from processing or trading agricultural produce beyond basic operations may
be taxable.
For example, selling packaged food products made from crops is not considered
agricultural income.
Diagram for Better Understanding
Income Tax in India
|
----------------------------
| |
Exempted Incomes Taxable Incomes
|
----------------------------
| | |
Agricultural Scholarships Charitable Trusts
Income & Education & Social Welfare
Support
Evaluation
Exempted incomes reflect the governments social and economic priorities. They
encourage education, charity, and agriculture while providing relief to employees
and families.
Agricultural income is exempt because of its importance to Indias economy and the
vulnerability of farmers. However, rules like partial integration ensure that
exemptions are not misused.
Conclusion
Exempted incomes and agricultural incomes are vital concepts in taxation. They show how
the government balances revenue collection with social justice and economic support.
While exempted incomes cover a wide range of categories like scholarships, charity, and
retirement benefits, agricultural income specifically highlights the importance of farming in
India.
SECTION-B
3. Ms. Kashish is an employee of ABC Ltd. And receives the following salary and
perquisites from her employer during the previous year 2020-21: Basic salary as Rs.
4,50,000 p.a.; Bonus on prot as Rs. 17,500; Commission on sales @ 2 per cent of turnover
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achieved of Rs. 28,50,000 by him; Advance salary for April 2021 as Rs. 37,500. Employers
contribuon towards R.P.F. @ 5,500 p.m.; Interest credited in P.F. A/c @12.5 per cent being
Rs. 8,700; 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 services of gardener (expenses of Rs.
3,000), free services of watchman (expenses of 4,200), free service of cook (salary of Rs.
3,000), free supply of raon (expense 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 Ms. Kashish for A.Y. 2021-22.
Ans: Step 1: Understand What We Need to Do
We have to calculate Taxable Salary Income of Ms. Kashish for A.Y. 202122.
In simple terms:
We will
1. Add all taxable salary components
2. Add taxable perquisites (benefits)
3. Exclude fully exempt items
Step 2: Calculate Salary Components
1. Basic Salary
= ₹4,50,000
2. Bonus
= ₹17,500
Fully taxable
3. Commission
= 2% of ₹28,50,000
= ₹57,000
Fully taxable
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4. Advance Salary
= ₹37,500
Taxable in the year received
Total Salary (so far)
= 4,50,000 + 17,500 + 57,000 + 37,500
= ₹5,62,000
Step 3: Provident Fund (RPF) Treatment
Employers Contribution
= ₹5,500 per month → ₹66,000 per year
Rule:
Employer contribution is taxable only if it exceeds 12% of salary
Here, no % of salary given → assume within limit
So: Not taxable
Interest on PF
= ₹8,700 at 12.5%
Rule:
Interest above 9.5% is taxable
Taxable part = proportion above limit
𝑇𝑎𝑥𝑎𝑏𝑙𝑒 = 8700 ×
12.5 − 9.5
12.5
= 8700 ×
3
12.5
= 2088
Taxable Interest = ₹2,088
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Step 4: Allowances
Travelling Allowance
= ₹400 (fully used for official work)
Rule:
Fully exempt if used for official purposes
Taxable = Nil
Step 5: Perquisite Rent-Free House
This is important and a bit trickybut Ill simplify it.
Given:
Unfurnished house rent = ₹96,000
Furniture rent = ₹12,000
Location = Mumbai (big city)
Step 5A: Value of Unfurnished House
Rule:
For big cities → 15% of salary OR actual rent paid (whichever is lower)
Salary for this =
Basic + Bonus + Commission + Advance
= ₹5,62,000
15% of salary =
= ₹84,300
Compare:
15% salary = 84,300
Actual rent = 96,000
Take lower = ₹84,300
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Step 5B: Furniture Value
= ₹12,000
Total House Perquisite
= 84,300 + 12,000
= ₹96,300
Step 6: Other Perquisites (Free Services)
All these are paid by employer → fully taxable
Service
Amount
Gardener
3,000
Watchman
4,200
Cook
3,000
Ration
7,500
Total =
= 3,000 + 4,200 + 3,000 + 7,500
= ₹17,700
Step 7: Final Calculation
Add Everything
Particulars
Amount (₹)
Salary (Basic + Bonus + Commission + Advance)
5,62,000
PF Interest (taxable part)
2,088
Rent-free house
96,300
Free services
17,700
Total Taxable Salary
= 5,62,000 + 2,088 + 96,300 + 17,700
= ₹6,78,088
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Final Answer
Taxable Salary Income of Ms. Kashish = ₹6,78,088
4. Dene Annual Value. What deducons are allowed from annual value in compung
taxable income from house property ?
Ans: Introduction
When we study income tax in India, one of the most important heads of income is Income
from House Property. This head deals with the taxability of income earned from owning
property, whether it is rented out or sometimes even if it is self-occupied. The central
concept here is the Annual Value of the property. Understanding what annual value means
and what deductions are allowed from it is crucial for students of taxation and commerce.
Lets explore this in a clear, engaging way.
Definition of Annual Value
The Annual Value of a property is essentially the capacity of the property to earn income. It
is not always the actual rent received; rather, it is the notional value determined under the
Income Tax Act.
In simple words: Annual Value = The amount for which the property might reasonably be
expected to be let out from year to year.
Key Points:
1. If the property is let out, annual value is usually the actual rent received or
receivable.
2. If the property is self-occupied, the annual value is taken as nil (subject to certain
conditions).
3. If the property is vacant, the annual value is determined based on expected rent.
Thus, annual value is a statutory conceptit is calculated according to rules, not just based
on actual income.
How Annual Value is Determined
The Income Tax Act provides a framework:
1. Expected Rent: The rent that the property can reasonably fetch in the open market.
2. Municipal Value: The value determined by municipal authorities for property tax
purposes.
3. Fair Rent: The rent of similar properties in the same locality.
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4. Standard Rent: If the property is subject to Rent Control laws, the maximum rent
allowed under those laws.
The annual value is generally the higher of municipal value and fair rent, but restricted to
the standard rent if applicable.
Deductions Allowed from Annual Value
Once the annual value is determined, certain deductions are allowed to compute the
taxable income from house property. These deductions are provided under Section 24 of
the Income Tax Act.
1. Standard Deduction (30%)
A flat deduction of 30% of the Net Annual Value is allowed.
This is given irrespective of actual expenses incurred on repairs, maintenance, or
collection charges.
Example: If the annual value is ₹1,00,000, the standard deduction is ₹30,000.
2. Interest on Borrowed Capital
If the owner has taken a loan for purchase, construction, repair, or renovation of the
property, the interest paid on such loan is deductible.
For self-occupied property, the maximum deduction is ₹2,00,000 per year (subject
to conditions).
For let-out property, the entire interest amount is deductible without any upper
limit.
3. Vacancy Allowance
If the property remains vacant for part of the year, the actual rent received may be
lower than expected rent.
In such cases, the lower actual rent is considered, and the owner is not penalized for
vacancy.
4. Municipal Taxes Paid
Municipal taxes actually paid by the owner during the year are deductible from the
gross annual value.
This ensures that the tax burden is not duplicated.
Diagram for Better Understanding
Gross Annual Value (GAV)
|
(-) Municipal Taxes Paid
|
= Net Annual Value (NAV)
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|
(-) Standard Deduction (30% of NAV)
(-) Interest on Borrowed Capital
|
= Taxable Income from House Property
Importance of Deductions
These deductions are crucial because:
They recognize the costs of ownership (repairs, maintenance, interest).
They ensure fairness by not taxing notional income when the property is vacant.
They encourage investment in housing by allowing interest deductions.
Conclusion
The concept of Annual Value is central to taxation of house property. It represents the
notional income capacity of the property, determined by municipal value, fair rent, and
standard rent. From this annual value, deductions are allowed under Section 24most
importantly, the 30% standard deduction and interest on borrowed capital. These
deductions ensure that taxpayers are not unfairly burdened and that housing remains an
attractive investment.
SECTION-C
5. Write short notes on:
(a) Transfer of Asset
(b) Capital Gains exempted from tax.
Ans: Introduction
In the study of taxation, particularly under the Income Tax Act of India, two important
concepts often discussed are Transfer of Asset and Capital Gains Exempted from Tax. These
ideas are central to understanding how capital gains are computed and when they are
exempted. Lets break them down in a clear, engaging way so that they feel natural and
easy to grasp.
(a) Transfer of Asset
1. Meaning
A transfer of asset refers to any transaction through which the ownership of a capital asset
changes hands. It is not limited to selling; it includes a wide range of transactions. The
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Income Tax Act defines transfer broadly to ensure that all forms of disposal of assets are
covered.
2. Forms of Transfer
Sale: Selling an asset for money.
Exchange: Swapping one asset for another.
Relinquishment: Giving up rights in an asset.
Compulsory Acquisition: When the government acquires land or property.
Conversion into Stock-in-Trade: When a capital asset is converted into business
inventory.
Gift or Inheritance: Though gifts and inheritance are not taxable as capital gains,
they are considered transfers for certain purposes.
Partnership Contributions: When a partner contributes assets to a firm.
3. Importance of Transfer
The concept of transfer is crucial because capital gains tax liability arises only when there is
a transfer of a capital asset. Without transfer, there is no capital gain.
(b) Capital Gains Exempted from Tax
1. Meaning
Capital gains are profits earned from the transfer of capital assets like land, buildings,
shares, or bonds. However, the Income Tax Act provides exemptions in certain cases to
encourage investment, protect taxpayers, and promote social welfare.
2. Examples of Exemptions
(i) Section 54 Sale of Residential House Property
If an individual sells a residential house and invests the capital gain in purchasing or
constructing another residential house within specified time limits, the gain is
exempt.
(ii) Section 54B Sale of Agricultural Land
If agricultural land is sold and the proceeds are reinvested in purchasing other
agricultural land, the capital gain is exempt.
(iii) Section 54EC Investment in Specified Bonds
Capital gains from sale of land or building can be exempt if invested in bonds of NHAI
or REC within six months.
(iv) Section 54F Sale of Any Asset Other Than House Property
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If the proceeds from sale of any asset (like shares or gold) are invested in a
residential house, exemption is available.
(v) Compulsory Acquisition of Land
Compensation received for compulsory acquisition of certain agricultural lands is
exempt.
3. Purpose of Exemptions
To encourage reinvestment in housing and agriculture.
To promote infrastructure development through bond investments.
To provide relief to taxpayers in cases of compulsory acquisition.
Diagram for Better Understanding
Capital Asset → Transfer (Sale, Exchange, Relinquishment,
etc.)
|
Capital Gains Arise
|
Exemptions Available (Sections 54, 54B, 54EC, 54F)
|
→ Reinvestment in House Property
→ Purchase of Agricultural Land
→ Investment in Specified Bonds
Evaluation
Transfer of Asset is the trigger point for capital gains taxation. Without transfer,
there is no capital gain.
Capital Gains Exemptions reflect the governments policy to encourage
reinvestment in housing, agriculture, and infrastructure. They balance revenue
collection with social and economic priorities.
Conclusion
To summarize:
Transfer of Asset means any transaction that changes ownership of a capital asset,
including sale, exchange, relinquishment, compulsory acquisition, or conversion into
stock-in-trade.
Capital Gains Exempted from Tax include gains reinvested in residential property,
agricultural land, specified bonds, or cases of compulsory acquisition.
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6.Following are the particulars of assets sold during the P.Y. 2017-18.
Calculate the taxable amount of capital gains if C.I.I. for 2017-18 is 272:
Details of Assets
Assets
Year of
Acquisitio
n
C.I.I
.
Cost of
Acquisitio
n (Rs.)
FMV as
on 1-4-
2001
(Rs.)
Selling
Expenses/Brokerag
e (Rs.)
Selling
Price
(Rs.)
Shop
1995-96
50,000
1,40,00
0
10,000
5,20,00
0
Jewellery
1998-99
60,000
1,45,00
0
5,50,00
0
Shares
2003-04
109
90,000
2,000
2,50,00
0
Shares
2007-08
129
18,000
1,000
30,000
Plant
(Depreciable
)
2003-04
109
4,00,000
(WDV)
7,00,00
0
Residential
House
2004-05
113
2,00,000
5,90,00
0
Ans: Step 1: Understand What We Need to Do
We need to calculate Capital Gains for each asset.
Formula:
Capital Gain = Selling Price (Indexed Cost of Acquisition + Expenses)
Step 2: Important Concept Indexation
Since prices change over time due to inflation, we adjust the cost using:
Indexed Cost = (Cost × CII of Sale Year) / CII of Purchase Year
Given:
CII for 201718 = 272
Step 3: Solve Each Asset One by One
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1. Shop (Purchased before 1-4-2001)
Special rule:
If asset is bought before 1 April 2001, we can take:
Higher of Cost OR FMV as on 1-4-2001
Cost = 50,000
FMV = 1,40,000 → (Higher, so take this)
Indexed Cost:
= (1,40,000 × 272) / 100
= 3,80,800
Capital Gain:
= 5,20,000 (3,80,800 + 10,000)
= 5,20,000 3,90,800
= 1,29,200
2. Jewellery (Before 1-4-2001)
Same rule applies.
Cost = 60,000
FMV = 1,45,000 → take this
Indexed Cost:
= (1,45,000 × 272) / 100
= 3,94,400
Capital Gain:
= 5,50,000 3,94,400
= 1,55,600
3. Shares (2003-04)
Cost = 90,000
CII = 109
Indexed Cost:
= (90,000 × 272) / 109
≈ 2,24,587
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Capital Gain:
= 2,50,000 (2,24,587 + 2,000)
≈ 2,50,000 2,26,587
= 23,413
4. Shares (2007-08)
Cost = 18,000
CII = 129
Indexed Cost:
= (18,000 × 272) / 129
≈ 37,953
Capital Gain:
= 30,000 (37,953 + 1,000)
= 30,000 38,953
= Loss = (8,953)
This is a capital loss
5. Plant (Depreciable Asset)
Important rule:
Depreciable assets are always treated as Short-Term Capital Gain (STCG)
No indexation allowed
Capital Gain:
= 7,00,000 4,00,000
= 3,00,000 (STCG)
6. Residential House
Cost = 2,00,000
CII = 113
Indexed Cost:
= (2,00,000 × 272) / 113
≈ 4,81,416
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Capital Gain:
= 5,90,000 4,81,416
≈ 1,08,584
Step 4: Combine All Results
Long-Term Capital Gains (LTCG)
Asset
Gain (Rs.)
Shop
1,29,200
Jewellery
1,55,600
Shares (2003-04)
23,413
Residential House
1,08,584
Shares (2007-08)
(8,953) Loss
Total LTCG:
= 1,29,200 + 1,55,600 + 23,413 + 1,08,584 8,953
= 4,07,844
Short-Term Capital Gain (STCG)
Asset
Gain
Plant
3,00,000
Final Answer
Long-Term Capital Gain (LTCG) = ₹4,07,844
Short-Term Capital Gain (STCG) = ₹3,00,000
SECTION D
7. Mention the different kinds of incomes specifically mentioned as chargeable to tax under
the head Income from other sources.
Ans: What is Income from Other Sources?
In income tax, every earning you have must go somewhere. Most incomes fall into clear
categories like:
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Salary
Business or profession
House property
Capital gains
But what about incomes that dont fit anywhere else?
Thats where Income from Other Sources comes in.
It acts like a catch-all category for miscellaneous incomes.
Imagine This
Think of your income like items in your room:
Clothes → Salary
Books → Business
Furniture → Property
Electronics → Capital Gains
And then there are random items like chargers, coins, receipts
These go into a miscellaneous drawer = Income from Other Sources
Now, What Types of Incomes Are Specifically Included?
Under the Income Tax Act, some incomes are specifically mentioned as taxable under this
head. Lets understand them one by one in simple language:
Dividends
If you invest in shares of a company, you may receive dividends (a portion of profit).
Example:
You own shares of a company and receive ₹5,000 as dividend.
✔ This is taxable under Income from Other Sources.
Winnings from Lottery, Gambling, etc.
This includes income from:
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Lotteries
Crossword puzzles
Card games / betting
Online games
Horse races
Example:
You win ₹1,00,000 in a lottery.
✔ Fully taxable under this head (and usually taxed at a higher rate).
Interest Income
This is one of the most common types.
Includes:
Interest from bank savings account
Fixed deposits (FD)
Recurring deposits (RD)
Loans given to others
Example:
You earn ₹10,000 interest from FD.
✔ Taxable under Income from Other Sources.
Gifts Received (in certain cases)
If you receive money or property without consideration, it may be taxable.
Example:
Your friend gifts you ₹80,000.
✔ If it exceeds ₹50,000 in a year → taxable
Exception: Gifts from relatives are NOT taxable.
Family Pension
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If a person dies, and their family receives pension:
Example:
A widow receives pension after her husbands death.
✔ This is taxed under Income from Other Sources (not salary).
Income from Letting Out Machinery, Plant, or Furniture
If you rent out:
Machinery
Furniture
Equipment
Example:
You rent out your sound system for events.
✔ Income is taxed under this head (if not business income).
Composite Letting (Building + Machinery/Furniture)
If you rent:
Building + furniture together
Building + machinery together
Example:
You give a fully furnished office on rent.
✔ Entire income taxed under Other Sources (if not business income).
Interest on Compensation
When government or court gives compensation (like for land acquisition), you may receive
interest.
Example:
You receive interest on delayed compensation.
✔ This interest is taxable under this head.
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Keyman Insurance Policy Amount
If a company takes insurance on a key employee and receives money:
✔ That amount is taxable under this head.
Any Other Miscellaneous Income
If income doesnt fit in any other category:
✔ It automatically comes under Income from Other Sources
Example:
Commission income (not business-related)
Casual income
Small side earnings
Final Understanding
The idea is simple:
If income is:
Not salary
Not business
Not house property
Not capital gain
It will most likely fall under Income from Other Sources.
Easy Way to Remember
Think of it as:
All leftover incomes go here.
or
The miscellaneous income box of taxation
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Conclusion
Income from Other Sources is an important concept because it ensures that no income
escapes taxation. Even if your earnings are small, random, or irregularif they dont belong
anywhere else, they are still taxable here.
8 Ms. Shaina had gross total income of Rs. 10,00,000, which included Rs. 10,000 as long-
term capital gain for A.Y. 2020-21. During the year, she made the following donations:
Donations
Particulars
Amount (Rs.)
(a) National Defence Fund
10,000
(b) P.M. National Relief Fund
1,00,000
(c) Family Planning Association of India
40,000
(d) Congress Party (Recognized Political Party)
1,00,000
(e) IIT Delhi (notified as Institute of National Eminence)
50,000
(f) to a notified Charitable Hospital
50,000
(g) To Clean Ganga Fund
20,000
Additional Information:
She paid life insurance premium of Rs. 25,000
Policy amount: Rs. 2,00,000
Policy acquired on: March 10th, 2020
Ans: Introduction
This problem is a practical application of the Income Tax Act, 1961. It asks us to compute
how donations and certain payments affect the taxable income of Ms. Shaina for the
Assessment Year (A.Y.) 202021. To make this simple and engaging, lets walk through the
situation step by step, like a story of how her income is adjusted by law.
Step 1: Gross Total Income
Ms. Shainas Gross Total Income (GTI) = ₹10,00,000
This includes ₹10,000 as long-term capital gain (LTCG).
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Remember: For deductions under Chapter VI-A (like Section 80C, 80G, etc.), certain
incomes such as LTCG are excluded. So, we must keep this in mind when calculating the
qualifying amount for deductions.
Step 2: Life Insurance Premium (Section 80C)
She paid ₹25,000 as life insurance premium.
Policy amount = ₹2,00,000.
Policy acquired on March 10, 2020.
Under Section 80C:
Deduction is allowed up to 10% of the sum assured for policies issued after April 1,
2012.
Here, 10% of ₹2,00,000 = ₹20,000.
So, although she paid ₹25,000, only ₹20,000 is eligible for deduction under Section 80C.
Step 3: Donations (Section 80G)
Now comes the interesting parther donations. Section 80G provides deductions for
donations to certain funds and institutions. These are divided into categories:
(i) 100% Deduction Without Limit
National Defence Fund = ₹10,000
PM National Relief Fund = ₹1,00,000
Clean Ganga Fund = ₹20,000
Total = ₹1,30,000 (fully deductible).
(ii) 50% Deduction Without Limit
Congress Party (Recognized Political Party) = ₹1,00,000
Deduction = ₹50,000.
(iii) 100% Deduction Subject to Limit (10% of Adjusted GTI)
IIT Delhi (Institute of National Eminence) = ₹50,000
Deduction = ₹50,000 (but subject to limit).
(iv) 50% Deduction Subject to Limit (10% of Adjusted GTI)
Family Planning Association of India = ₹40,000
Notified Charitable Hospital = ₹50,000
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Total = ₹90,000 → Deduction = ₹45,000 (subject to limit).
Step 4: Adjusted Gross Total Income
Adjusted GTI = GTI LTCG Deductions under Section 80C = ₹10,00,000 ₹10,000
₹20,000 = ₹9,70,000
Limit for donations subject to restriction = 10% of Adjusted GTI = ₹97,000.
Step 5: Apply Limits
Donations subject to limit = ₹50,000 (IIT Delhi) + ₹90,000 (Family Planning + Hospital)
= ₹1,40,000.
Maximum allowable = ₹97,000.
Now allocate:
IIT Delhi (100%) = ₹50,000 (allowed fully).
Remaining limit = ₹47,000.
Family Planning + Hospital (50%) = ₹45,000 (but restricted to ₹47,000, so fully
allowed).
Total allowed under restricted category = ₹95,000.
Step 6: Total Deduction under Section 80G
100% without limit = ₹1,30,000
50% without limit = ₹50,000
Restricted category = ₹95,000
Total = ₹2,75,000
Step 7: Final Computation
Gross Total Income = ₹10,00,000 (-) Section 80C = ₹20,000 (-) Section 80G = ₹2,75,000
Taxable Income = ₹7,05,000
Diagram for Better Understanding
Gross Total Income = 10,00,000
|
(-) LTCG (10,000)
(-) 80C Deduction (20,000)
|
Adjusted GTI = 9,70,000
|
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80G Donations:
- 100% without limit = 1,30,000
- 50% without limit = 50,000
- Restricted (limit 97,000) = 95,000
|
Total 80G Deduction = 2,75,000
|
Final Taxable Income = 7,05,000
Conclusion
This case shows how donations and life insurance premiums reduce taxable income under
the Income Tax Act. Ms. Shainas gross income was ₹10,00,000, but after applying Section
80C and Section 80G deductions, her taxable income fell to ₹7,05,000.
This paper has been carefully prepared for educaonal purposes. If you noce any
mistakes or have suggesons, feel free to share your feedback.
