Question 4 (b)

Gifts, a property bought below stamp duty value, lottery winnings and other income of a senior citizen (as set, 1961 Act, AY 2018-19)

6 marks

Time to write
About 12 minutes

From an older CBCS paper

Question

Question 4 (b) · 6 marks

Mrs. Sunaina Khera (age 69 years, resident individual) gives the following information relating to PY 2017-18. For AY 2018-19, compute her taxable income and tax liability. 6

  1. Receives as a gift ₹ 1,20,000 from her father's cousin.

  2. Purchases, for ₹ 2,55,000, a house property from her close friend, Neha (the stamp duty value of the property being ₹ 12,00,000).

  3. Receives, as Net winnings from lotteries, ₹ 7,00,000 where tax is deducted at the source @ 30%.

  4. Receives a Dividend of ₹ 1,00,000 from Infosys Limited, which is an Indian Company.

  5. Receives ₹ 20,000 as rental income from letting out furniture (not charged as business income).

Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2018-19 (previous year 2017-18), with the dates as printed. Item (iii) says "Net winnings" of 7,00,000 "where tax deducted at source @ 30%"; the question does not say whether 7,00,000 is before or after the tax deducted, and the answer will give its conclusion under both readings.

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

12 minfor 6 marks

Read from the question

  • 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 Gift and the property below stamp duty value 2 marks 3 min
  3. 2 Lottery, dividend and furniture rent 1½ marks 2 min
  4. 3 Taxable income ½ mark 2 min
  5. 4 Tax liability and tax payable 2 marks 3 min
  6. Check: arithmetic, units (₹, %), final answer underlined 1 min

Try it first. About 12 minutes for 6 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.

Readings

  1. Item (iii) calls ₹7,00,000 the net winnings with tax deducted at 30%; the answer reads it as the amount received after the tax deducted, so the gross winnings are ₹7,00,000 × 100/70 = ₹10,00,000 and the tax deducted ₹3,00,000. The result if ₹7,00,000 is the gross figure is given at the end.
  2. Mrs. Khera is a resident individual aged 69, a senior citizen.
  3. All the receipts are on or after 1 April 2017, so section 56(2)(x) governs the gift and the property.

Treatment of each item

  1. Gift of ₹1,20,000 from her father's cousin: a sum of money received without consideration is taxable in full when the total for the year exceeds ₹50,000 (section 56(2)(x)(a)). A father's cousin is not among the relatives listed in the Explanation to section 56(2)(vii) (spouse, brothers and sisters of the individual, of the spouse and of either parent, lineal ascendants and descendants, and their spouses), so the exclusion for gifts from relatives in the proviso to section 56(2)(x) does not help: ₹1,20,000 is taxable.
  2. House bought for ₹2,55,000 with a stamp duty value of ₹12,00,000: where immovable property is received for a consideration below its stamp duty value and the excess is more than the threshold, the excess is taxed (section 56(2)(x)(b)(B)). The excess is ₹9,45,000. For this year the threshold is ₹50,000; the alternative threshold of 5% of the consideration came in only from 1 April 2019 (the footnote substituting item (B)), and the excess is far above either. ₹9,45,000 is taxable. A friend is not a relative.
  3. Lottery winnings: taxable under Income from other sources at 30% on the gross winnings, with no expense, allowance or basic exemption set against them (section 115BB); the payer deducts tax at source on them.
  4. Dividend of ₹1,00,000 from Infosys Limited: exempt (section 10(34)); section 115BBDA taxes only dividends above ₹10 lakh.
  5. Rent of ₹20,000 from letting furniture, not business income: taxable under Income from other sources (section 56(2)(ii)); no expense is given, and the 30% deduction of section 24 is only for house property.

Computation of taxable income

Particulars₹
Gift from her father's cousin1,20,000
Stamp duty value over consideration (12,00,000 − 2,55,000)9,45,000
Lottery winnings, gross (7,00,000 × 100/70)10,00,000
Rent from furniture20,000
Income from other sources = gross total income20,85,000
Less: deductions under Chapter VI-A (none given)Nil
Taxable income20,85,000

Tax liability

Resident senior citizen (60 to 79) (Finance Act, 2018, First Schedule, Part I, Paragraph A, item (II); Finance Act, 2018, section 2(11) and (12)):

Particulars₹
Lottery winnings ₹10,00,000 at 30% (section 115BB)3,00,000
Other income ₹10,85,000: first ₹3,00,000Nil
On ₹3,00,001 to ₹5,00,000 at 5%10,000
On ₹5,00,001 to ₹10,00,000 at 20%1,00,000
On ₹85,000 (₹10,85,000 − ₹10,00,000) at 30%25,500
Tax4,35,500
Add: education cess 2% and secondary and higher education cess 1%13,065
Tax liability4,48,565
Tax liability rounded off to the nearest ₹10 (section 288B)4,48,570
Less: tax deducted at source on the winnings3,00,000
Tax payable (4,48,565 − 3,00,000 = 1,48,565, rounded)1,48,570

No surcharge (total income below ₹50,00,000) and no rebate under section 87A (total income above ₹3,50,000).

If the facts are read otherwise

If ₹7,00,000 is the gross winnings, the tax deducted is ₹2,10,000: taxable income ₹17,85,000, tax liability ₹3,55,870, tax payable after the tax deducted ₹1,45,870 (same rates).

Where the 6 marks sit

#ComponentMarks
1Gift and the property below stamp duty value2
2Lottery, dividend and furniture rent1.5
3Taxable income0.5
4Tax liability and tax payable2
Total6
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