Question 1 OR (b)

Residential status and tax liability with agricultural income and a disabled dependant (as set, 1961 Act, AY 2017-18)

7 marks

Time to write
About 14 minutes

From an older CBCS paper

Question

Question 1 OR (b) · 7 marks

Harmeet Kaur is a person of Indian origin, who has settled in Canada. In the financial year 2016-17 she visited India, arriving on 30th September and returning to Canada on 30th March, 2017. Her stay in India during the previous year 2015-16 was 210 days. Earlier, in the previous year 2008-09, she had likewise stayed in India for 210 days. The following was reported for the previous year 2016-17:

Income derived from a business in IndiaRs. 12,00,000
Interest on a savings account with the State Bank of India in IndiaRs. 35,000
The Net Agricultural Income in IndiaRs. 6,00,000

Harmeet incurred Rs. 12,000 towards the medical treatment of her dependent brother, who suffers from blindness (100% loss of vision). Compute the tax liability of Harmeet for the assessment year 2017-18, assuming that she is 65 years of age.

Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2017-18 (previous year 2016-17), with the dates as printed. The only earlier stays given are 210 days in the previous year 2015-16 and 210 days in 2008-09; her stay in the other earlier years, her residential history and whether she is ordinarily resident are not stated. "A person of Indian origin" is as printed. Her arrival (30th September) and departure (30th March, 2017) both fall inside the previous year 2016-17. This note only records what the question leaves out.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

14 minfor 7 marks

Read from the question

  • assuming that she is 65 years…The paper fixes this: use it as given, and say so in your answer.
  • ComputeHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.

Write it in this order

  1. Read the data; note exactly what is asked 1 min
  2. 1 Days in India and residential status 2 marks 3 min
  3. 2 Gross total income and deductions (sections 80DD, 80TTA) 2 marks 3 min
  4. 3 Partial integration of agricultural income, slabs, cess 3 marks 5 min
  5. Check: arithmetic, units (₹, %), final answer underlined 2 min

Try it first. About 14 minutes for 7 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Assumptions

  1. The days of arrival (30 September 2016) and departure (30 March 2017) are both counted as days in India.
  2. Her brother is wholly or mainly dependent on her and has not claimed the deduction under section 80U himself, and she files the medical authority's certificate of his disability with her return (section 80DD(4)).
  3. The net agricultural income of ₹6,00,000 is from land in India and is exempt (section 10(1)); it enters only the rate calculation.

Residential status

Stay in India in previous year 2016-17: September 1 + October 31 + November 30 + December 31 + January 31 + February 28 + March 30 = 182 days. She was in India for 182 days or more, so she is resident (section 6(1)(a)). The rule for a person of Indian origin visiting India (section 6(1), Explanation 1(b)) changes only the 60-day test of section 6(1)(c), so it does not affect section 6(1)(a).

Whether she is ordinarily resident turns on her earlier stays (section 6(6)(a)), which the question gives only in part. It does not change the result: all three incomes accrue or arise in India, so they are taxed in both cases (section 5(1)).

Computation of total income

ParticularsRs.
Profits and gains of business in India12,00,000
Income from other sources: savings bank interest, State Bank of India35,000
Gross total income12,35,000
Less: Section 80DD, dependant with severe disability (blindness, 100%): a fixed ₹1,25,000, whatever is spent (₹12,000 here)1,25,000
Less: Section 80TTA, savings bank interest (limit ₹10,000; her own savings account with a bank, a co-operative bank or a post office (section 80TTA(1)), not one held by or for a firm, association of persons or body of individuals (section 80TTA(2)))10,000
Total income11,00,000

Blindness of 100% is 80% or more, a severe disability (section 80DD, Explanation), so the higher fixed deduction applies (section 80DD(1), proviso). The deduction is allowed only to a resident (section 80DD(1)).

Tax liability for assessment year 2017-18

Agricultural income is exempt but is taken into account for the rate, because it is above ₹5,000 and the other income is above the exemption limit (Finance Act, 2017, section 2(2) and its first proviso). She is a resident aged 65, so the slabs for a resident individual aged 60 to 80 apply: nil up to ₹3,00,000, 10% to ₹5,00,000, 20% to ₹10,00,000 and 30% above (Finance Act, 2017, First Schedule, Part I, Paragraph A, item (II)).

ParticularsRs.
Tax on ₹17,00,000 (total income ₹11,00,000 + agricultural income ₹6,00,000): ₹20,000 + ₹1,00,000 + ₹2,10,0003,30,000
Less: Tax on ₹9,00,000 (agricultural income ₹6,00,000 + ₹3,00,000): ₹20,000 + ₹80,000 (Finance Act, 2017, section 2(2)(b))1,00,000
Tax on total income2,30,000
Rebate under section 87A: not available, total income is above ₹5,00,000 (section 87A; Finance Act, 2016, section 46)—
Add: Education cess 2% and secondary and higher education cess 1% (Finance Act, 2017, section 2(11) and (12))6,900
Tax liability2,36,900

No surcharge: total income is below ₹1 crore (Finance Act, 2017, First Schedule, Part I, Paragraph A, Surcharge on income-tax).

If the facts assumed are otherwise

If only one of the two travel days is counted, she was in India for 181 days and is a non-resident (the 182-day test of section 6(1)(a) and, for a visiting person of Indian origin, of section 6(1)(c) both fail). Then section 80DD is not available, total income is ₹12,25,000, the ordinary exemption limit of ₹2,50,000 applies, and the tax liability is ₹2,85,830 (Finance Act, 2017, First Schedule, Part I, Paragraph A, item (I)).

Where the 7 marks sit

#ComponentMarks
1Days in India and residential status2
2Gross total income and deductions (sections 80DD, 80TTA)2
3Partial integration of agricultural income, slabs, cess3
Total7
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