Net income and tax liability with gifts, long-term capital gains and deductions (as set, 1961 Act, AY 2016-17)

Assumptions

1. Mr. X is taken to be resident and ordinarily resident in India, which the question does not state; for a salaried employee whose data are all in rupees it is the likelier case. A resident's total income takes in income from all sources (section 5(1)). If he is not resident, only income received or deemed to be received in India, or accruing or arising, or deemed to accrue or arise, in India is included (section 5(2)). The question does not say where the salary is earned, where the debentures, bonds and the asset sold are, or where the gift from the non-resident friend was received; an item that both arises and is received outside India would then drop out. The figures for one such case are at the end.
2. The interest on debentures and bonds is taxable (no tax-free bond is named), and is included gross.
3. The long-term capital gain of ₹6,00,000 is taken as the gain already computed (the question gives the figure, not its working), on an asset other than listed equity shares or equity-fund units sold with securities transaction tax (so section 10(38) does not exempt it), and with no reinvestment exemption claimed, as no reinvestment is given; it is therefore taxed at 20% under section 112(1)(a). The other reading is at the end.
4. Net Income means total income. The premiums are paid otherwise than in cash, and the policies are on or after 1 April 2012.
5. The tuition fees are read as fees (no development fee or donation) paid to a school, college or university in India for the son's full-time education, and the PPF account as standing in his own name. The result if any of the deductions in assumptions 4 and 5 is not allowed is given at the end.

Treatment of the items

(i) Net income (total income) for assessment year 2016-17

The section 80C total is within ₹1,50,000 (section 80C(1)). The deductions are set against income other than the long-term capital gain (section 112(2)); that income, ₹51,10,000, is far larger than the deductions.

(ii) Tax liability for assessment year 2016-17

Rates for an individual below 60 (Finance Act, 2016, First Schedule, Part I, Paragraph A, item (I)): nil up to ₹2,50,000, 10% up to ₹5,00,000, 20% up to ₹10,00,000, 30% above; no surcharge, since total income is below ₹1 crore; education cess 2% and secondary and higher education cess 1% (Finance Act, 2016, section 2(11) and (12)). Long-term capital gain at 20% under section 112(1)(a).

The surcharge of 12% applies only above ₹1 crore (Finance Act, 2016, First Schedule, Part I, Paragraph A, Surcharge on income-tax).

If the facts assumed are otherwise

If the long-term capital gain arose on listed equity shares or equity-fund units sold with securities transaction tax, section 10(38) exempts it: net income becomes ₹50,17,000 and the tax liability ₹13,70,000 (same rates: Finance Act, 2016, First Schedule, Part I, Paragraph A, item (I)).

If Mr. X is not resident in India, or is resident but not ordinarily resident (whose income accruing or arising outside India is also left out unless it comes from a business that is controlled in India or from a profession set up in India, section 5(1), proviso), and the ₹4,00,000 gift is received outside India (every other item arising or received in India), the gift falls outside his total income (section 5(2)): net income ₹52,17,000 and tax liability ₹13,70,000 (income-tax ₹13,30,100 plus cess ₹39,903, rounded).

If one of the deductions is not allowed (each case alone; same rates):

• The tuition fees do not qualify (for example, a development fee, or an institution outside India): section 80C falls to ₹48,000; net income ₹56,37,000 and tax liability ₹14,99,780.
• The Mediclaim premium was paid in cash: section 80D allows nothing (section 80D(2B)(ii)); net income ₹56,42,000 and tax liability ₹15,01,330.
• The PPF account is not in the name of a person section 80C(4)(a) names: section 80C falls to ₹58,000; net income ₹56,27,000 and tax liability ₹14,96,690.