Maximum Marks: 100
Time: 3 Hours
Instructions:
- Attempt all questions.
- Show all calculations with relevant sections of the Income Tax Act, 1961.
- Use proper tax planning and compliance reasoning where required.
Section A: Theory & Conceptual Questions (20 Marks)
Answer any 4 questions. Each carries 5 marks.
- Explain the residential status and scope of total income of an individual, including the difference between ROR, RNOR, and Non-Resident.
- Explain the taxability of salaries under the Income Tax Act, 1961, including allowances, perquisites, and deductions.
- Discuss capital gains under Sections 45, 48, and 54, including exemptions available for residential property and bonds.
- Explain tax audit provisions under Section 44AB, including applicability, reporting requirements, and penalties for non-compliance.
- Discuss Advance Tax, TDS, and TCS provisions, including sections applicable, due dates, and interest liability for defaults.
Section B: Practical / Numerical Problems (50 Marks)
Answer any 5 questions. Each carries 10 marks.
- Income Tax Computation: Mr. X, aged 50, has the following income for FY 2025-26:
- Salary: ₹ 15,00,000
- Short-term capital gain on listed equity shares: ₹ 3,00,000
- Long-term capital gain on property: ₹ 8,00,000 (cost of acquisition ₹ 4,00,000; improvement ₹ 2,00,000; invested ₹ 5,00,000 in a new residential house)
- Interest on fixed deposits: ₹ 2,00,000
- Set-off & Carry Forward: Mr. Y has:
- Business loss: ₹ 5,00,000
- Short-term capital gain (STCG – unlisted shares): ₹ 3,00,000
- Long-term capital loss brought forward: ₹ 1,50,000
- Tax Planning Case: Mrs. Z sold her residential property for ₹ 60,00,000.
- Cost of acquisition: ₹ 35,00,000
- Cost of improvement: ₹ 5,00,000
- She invested ₹ 20,00,000 in a new house and ₹ 5,00,000 in bonds under Sec 54EC.
- TDS Computation: ABC Ltd. made the following payments:
- Rent to resident: ₹ 3,00,000 (Sec 194I, 10% TDS)
- Professional fees to CA: ₹ 1,50,000 (Sec 194J, 10% TDS)
- Interest on fixed deposits: ₹ 2,00,000 (Sec 194A, 10% TDS)
- Clubbing & Set-off Case: Mr. P gifted ₹ 10,00,000 to his son and received ₹ 1,00,000 income from it.
- Dividend received from another source: ₹ 50,000
- Interest on minor’s savings account: ₹ 20,000
Section C: Case Study / Analytical Questions (30 Marks)
Answer any 2 questions. Each carries 15 marks.
- House Property & Loss Set-off Case: Mr. Q owns two properties:
- Property A (self-occupied) – interest on loan ₹ 2,00,000
- Property B (rented) – annual rent ₹ 3,00,000; interest on loan ₹ 1,50,000
- Corporate Tax Planning Case: A company earned ₹ 1,50,00,000 profit before tax.
- Depreciation: ₹ 20,00,000
- Donations eligible under Sec 80G: ₹ 5,00,000
- MAT applicability: Assume 15%
- Capital Gains & Investment Planning: Mr. R sold machinery (business asset) for ₹ 30,00,000.
- WDV under block of asset: ₹ 12,00,000
- Reinvested ₹ 10,00,000 in new machinery
Solutions – CA Final: Direct Tax Laws (100 Marks)
Section A: Theory & Conceptual Questions (20 Marks)
- Residential Status & Scope of Total Income (Sec 6)
- Resident & Ordinarily Resident (ROR): Worldwide income taxable
- Resident but Not Ordinarily Resident (RNOR): India-sourced income + income from business controlled in India
- Non-Resident (NR): Only India-sourced income taxable
- Salary Income (Sec 15–17)
- Components: Basic, HRA, allowances, perquisites, bonuses
- Exemptions: HRA (Sec 10(13A)), leave encashment, pension (as per limits)
- Deductions: Standard deduction ₹50,000, professional tax
- Capital Gains (Sec 45, 48, 54)
- Short-Term: Equity shares ≤ 12 months → STCG @ 15%
- Long-Term: Property > 36 months → LTCG 20% with indexation
- Exemption Sec 54: LTCG from residential property reinvested in new house → exempt
- Tax Audit (Sec 44AB)
- Applicability: Turnover > ₹ 1 crore (business), ₹ 50 lakh (profession)
- Reported in Form 3CD
- Penalty: ₹ 1,50,000 for non-compliance
- Advance Tax, TDS & TCS
- Advance Tax: Payable in 4 installments (15th June, 15th Sep, 15th Dec, 15th Mar)
- TDS Sections: 192 (salary), 194I (rent), 194J (professional fees), 194A (interest)
- Interest for delay: Sec 234A/B/C
Section B: Practical / Numerical Problems (50 Marks)
Q1: Income Tax Computation
| Particulars | Amount (₹) | Notes |
|---|---|---|
| Salary | 15,00,000 | Fully taxable |
| Interest on FD | 2,00,000 | Fully taxable |
| STCG (Equity shares) | 3,00,000 | Taxed @ 15% Sec 111A |
| LTCG on property | 8,00,000 | Exemption under Sec 54: 5,00,000 invested → taxable LTCG = 3,00,000 |
Computation:
- Total Income (excluding LTCG exempt) = 15,00,000 + 2,00,000 + 3,00,000 + 3,00,000 = ₹ 23,00,000
- STCG Tax: 3,00,000 × 15% = ₹ 45,000
- Income Tax on Salary + Interest + LTCG (3,00,000) using slabs (FY 2025-26, new regime):
- 0–3,00,000 → 0
- 3,00,001–6,00,000 → 5% of 3,00,000 = 15,000
- 6,00,001–9,00,000 → 10% of 3,00,000 = 30,000
- 9,00,001–12,00,000 → 15% of 3,00,000 = 45,000
- 12,00,001–15,00,000 → 20% of 3,00,000 = 60,000
- 15,00,001–18,00,000 → 25% of 5,00,000 = 1,25,000
- Total Tax (excluding STCG) = 15,000 + 30,000 + 45,000 + 60,000 + 1,25,000 = ₹ 2,75,000
- Add STCG Tax = 2,75,000 + 45,000 = ₹ 3,20,000
Q2: Set-off & Carry Forward
- Business loss = ₹ 5,00,000
- STCG (unlisted) = ₹ 3,00,000 → can set off against STCL, not against other STCG
- LTCL B/F = ₹ 1,50,000 → set off against LTCG
Computation:
| Particulars | Amount (₹) |
|---|---|
| STCG (unlisted) | 3,00,000 |
| Less: Business loss set-off | 3,00,000 – 3,00,000 = 0 (set-off only for eligible items) |
| LTCL B/F | 1,50,000 → can adjust against future LTCG |
Taxable income = STCG taxed separately, balance carried forward
Q3: Tax Planning Case
- Sale Price = ₹ 60,00,000
- Cost + Improvement = 35,00,000 + 5,00,000 = 40,00,000
- LTCG = 60,00,000 – 40,00,000 = ₹ 20,00,000
- Exemption under Sec 54EC (bonds) = 5,00,000
- Exemption under Sec 54 (residential house) = 20,00,000 → limit is LTCG, so maximum exemption = 20,00,000
Taxable LTCG: ₹ 20,00,000 – 20,00,000 = ₹ 0
Planning: Invest in 54EC bonds to maximize exemption, stagger reinvestment to utilize Sec 54 fully
Q4: TDS Computation
| Payment | Section | TDS Rate | TDS Amount |
|---|---|---|---|
| Rent | 194I | 10% | 3,00,000 × 10% = 30,000 |
| Professional Fees | 194J | 10% | 1,50,000 × 10% = 15,000 |
| Interest on FD | 194A | 10% | 2,00,000 × 10% = 20,000 |
- Total TDS = 30,000 + 15,000 + 20,000 = ₹ 65,000
- Due Date for Deposit: 7th of next month
Q5: Clubbing & Set-off
- Minor’s income: ₹ 1,00,000 (gift from parent) → clubbed under parent’s income
- Dividend: ₹ 50,000 → taxable under Sec 10(34) if equity listed shares
- Interest: ₹ 20,000 → taxable under parent’s income if from transferred funds
Taxable Income after Clubbing:
- Parent = 1,00,000 + 20,000 = ₹ 1,20,000
- Dividend exempt if eligible → ₹ 50,000 exempt
Section C: Case Study / Analytical Questions (30 Marks)
Q1: House Property & Loss Set-off
- Property A (self-occupied): Loss = Interest 2,00,000 → Max 2,00,000 allowable
- Property B (rented): Income = Rent 3,00,000 – Interest 1,50,000 = 1,50,000
- Net Income from House Property: 1,50,000 – 2,00,000 loss from A → set off to max 2,00,000 → Net = –50,000
- Carry Forward Loss: –50,000 can be carried forward for 8 years
Q2: Corporate Tax Planning
- Profit before tax = ₹ 1,50,00,000
- Depreciation = ₹ 20,00,000 → Deduction allowed
- Donation Sec 80G = ₹ 5,00,000 → Deduction
- Taxable Income = 1,50,00,000 – 20,00,000 – 5,00,000 = 1,25,00,000
- MAT = 15% of book profit → if applicable, pay higher of MAT vs normal tax
Q3: Capital Gains & Investment Planning
- Sale of machinery = ₹ 30,00,000
- WDV = ₹ 12,00,000
- Capital Gain = Sale – WDV = 18,00,000
- Reinvestment = ₹ 10,00,000 → partial exemption under Sec 54F or Sec 54(EC) (if eligible)
- Remaining taxable gain = 8,00,000
Planning: Use Sec 54EC/54F investments to reduce taxable capital gains
Disclaimer:
This mock test is created for educational purposes only. Questions and solutions are original and inspired by typical CA Final exam patterns; they are not copied from any official CA exam papers.