MF0012 Set 1&Set2

MF0012 - Taxation ManagementAssignment Set-1

Q.1.Tax evasion is a menace to the people, economy and the country. In the wake of recent Swiss bank account scandal give your views on the following: a. How does it affect the Indian economy and the growth prospects? b. Does black money cause Inflation?Ans. a.)

In view of the facts set out so far, it becomes necessary to look at the extent of compliance of tax laws in India. Though many estimates of black money have been coming forth, an attempt was made to determine the extent of tax evasion in the Mumbai Income Tax charge, which collected about 35% of the Income Tax collections of the country and 43% of the corporate tax collections. The study was made on the basis of results of the survey and search cases for all the years covered by such cases. It came to light that none of the taxpayers concerned declared for taxation purposes anything more than 25% of their true incomes after 1999. The figure arrived at was given to the press specifying the basis on which it was so calculated. Not a single protest was received from any of the taxpayer, including companies. The said figure was thereafter cited for some more time, and even thereafter no protest was received. There was, therefore, every reason to believe this estimate. However, there appears 10 to be higher tax evasion in the case of companies. Some of the companies have shown their entire capital as having come from the countries regarded as Tax Havens. Considering the extent of Indian monies stacked in Swiss Bank Accounts, and bank accounts of the developed countries, and comparing the same with the annual income tax collections of the Central Government, it appears that the real income admitted for taxation purposes is less than 25% . The extent of evasion appears to be very much higher in the case of companies as the companies have resorted to evolution of tax evasion devices in the accounts and such methods have not yet been properly investigated by the Income Tax Department. There are companies which have camouflaged their capital investments and shown it in the books as if it is explained capital for income tax purposes.The Indian Scenario - Peculiar problems of tax evasion :It will be appropriate at this stage to highlight some of the key problems from the view point of computerisation in India :

(a) Investments in Real Estate : The one field where black monies have been invested on the largest scale is that of real estate properties. Lands were sold for only 20% of their real values and the balance 80% given in cash out of the tax evaded monies, ever since 1947. But later on when the tax rates were lowered to 30% for individuals and 35% for companies, the black portion got reduced to 40% . It may be a difficult task to trace such black transactions through the computer system, suggested for adoption on the U.S. pattern for India. But it is common knowledge that the black monies invested in land have been reinvested in bank accounts, shares and in other properties, apart from real estate property. It is now confirmed knowledge that in regard to buildings constructed, only 40% of the cost is shown to income tax. It is possible to detect such investment by analysis of the data obtained from the trade and industry governing commodities used for construction of buildings.

Roll No. 521070094 Name: Hemant Singh Rawat

(b) Gold and Jewellery Holdings : India is having the largest private holdings of gold and diamond jewellery among all the countries of the world. In the searches conducted by the Income Tax Department, huge unaccounted cash balances and gold and diamond jewellery have been found in the bank lockers maintained by tax payers in bogus names and in their own names. At current market rates, purchases of gold, silver and diamonds may now reach about Rs. 80,000 crores a year. Gold and diamond traders are mostly keeping their transactions outside bank accounts. They are also giving vouchers to the effect that raw gold has been given by the customers, though, in fact, it would have come from the traders themselves. Therefore, it is necessary to introduce a law requiring them to transact only through bank cheques and issue computerized bills, to facilitate proper flow of information to the computer system of the tax department.

(c) Shares, Mutual Funds, etc : There are vast investments in shares and debentures, travelers’ cheques, mutual funds and the primary bonds issued by the Reserve Bank of India. The data regarding company shares and other investments mentioned can be easily transferred to the computer system of the Income Tax Department. The Mumbai Stock Exchange is having a separate computer system with complete data on daily transactions and the Income Tax Department has so far not made use of such data. There is also the data generated in the computers of the organizations in charge of demat of shares. Like-wise, the data on post office savings and other accounts is easy to be brought on the computers of the tax department for verification with the individual returns, which are available with the Government itself.

d) Undisclosed Stock in-trade held by companies and traders : Many firms and individuals have also a tendency to keep undisclosed business assets like cars and private assets, unaccounted cash holdings etc., They have ability to give extensive bribes to protect business and other interests. All such practices would varnish once fear is caused among the tax payers about the use of computerized data for taxation purposes.

(e) Benami Investments : Benami investments are typical of the Indian economy. Even big companies have indulged in such practices to impart total secrecy to their undisclosed accounts. It may be difficult to determine whether the investment found in the computers of the income tax department is benami or not, and benami shares will have to be traced sometimes by extensive studies to be conducted by teams of revenue officers. This problem requires comprehensive study because it is peculiar to the Indian Taxation System.

(f) Swiss Bank and other undisclosed bank accounts held abroad: Swiss Bank Accounts are shrouded in secrecy and hence no information will be available to the computer system of the Income Tax Department. The amounts in Swiss Bank Accounts, which are held in foreign currency, have been utilised by big companies and other taxpayers in India to import huge machineries at vastly underinvoiced prices. Such practices enable payment of secret trade commissions in foreign currency and unaccounted funds in Indian currency to those contesting general elections. Several major companies have converted Swiss Account holdings into benami shares and debentures. The large amounts of Swiss Bank deposits have, thus, been utilized and every year, there are additions to the Swiss Bank Account holdings.

Ans. b.)

Illegally earned money is called black money. It is the result of hoarding, smuggling, tax evasion and dealing in immovable property for which the consideration is paid in black. It has been beyond the control of the Government. The black money has already created a serious


problem in our country. The Indian economy stands badly shattered because of the huge amount of this tainted wealth lying in the coffers of the rich. It has given rise to parallel economy operating in the country. As a result, the prices continue to rise in spite of all government efforts to control them. The poor go on becoming poorer while the rich go on becoming richer. The gap between the haves and the have nots is widening every day.

Black money is used by the rich in various evil activities. They use this money for corrupting and demoralizing social and political life. They display it in ostentatious living and wasteful luxuries. They bribe Government officers and lead them to corruption and dishonesty. They purchase political bosses and control the strings of the Government. Thus the entire social structure comes to be badly polluted.

It is difficult to form an exact idea of the amount of black money in circulation in the country. Searches and raids by Income Tax authorities are conducted from time to time. Such raids yield crores of rupees. But the people are, at times, cleverer than the Government. They seek the aid of the best legal brains and get the law twisted in their favour. Most of the offenders use all their money and influence and go scot free whenever they are caught. The Government has, at various times, announced some voluntary disclosure schemes for unearthing the black money. These schemes have proved successful to a very limited extent. What has come to the surface is believed only to be the tip of the huge iceberg lying hidden underneath. The 1997 Voluntary Disclosure Scheme announced by the Government of India unearthed a big amount of black money as the tax rate in this scheme had been reduced to thirty per cent.

The black money, according to some reliable estimates has gone up to Rs. 10,000 crores in our country. It is to a great extent responsible for a great rise in prices because the purchasing power of the people has increased. People having black money are leading a life of luxury whereas the poor people are leadinng a miserable life. Some leading economists of the country have suggested stringent measures to the government to unearth black money but successive governments have been rejecting those measures. The vested interests always stand in the way of effective measures and get them diluted.

The government of the day appears to be doing its best to unearth black money. A number of steps have been taken. Taxation structure and system have been made easier. At different times, the government has brought forward several schemes and asked the people to declare their wealth. There has been some success. A lot soil remains to be done.

It must be clear to all that the nation cannot shut her eyes to this state of affairs. Smugglers and black-marketeers can no longer be tolerated. They are striking at the very roots of our democratic structure. All steps to weed the black money out of circulation must be taken as early as possible.The government must come down with a heavy hand on smugglers, tax evaders, black-marketeers and hoarders. Black money is a curse. It must be rooted out from public life.


Q.2.Detail death cum retirement gratuity under Sec 17(1)iii of IT Act. Is commutation of pension a viable option in terms of tax planning?Ans.

Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income under clause (10) of Section 10. Any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence service. Gratuity received in cases other than above on retirement, termination etc is exempt up to the limit as prescribed by the Board. Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax. However, in respect of private sector employees gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union, or holders of civil posts/posts connected with defence, under the Union,or civil posts under a State, or to the members of the All India Services/Defence Services, or, to the employees of a local authority or a corporation established by a Central,State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of Section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10. Also, any payment in commutation of pension received from a Regimental Fund or Non-Public Fund established by the Armed Forces of the Union referred to in Section 10(23AAB) is exempt under sub-clause (iii) of clause (10A) of Section 10.

However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely: (a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the

commuted value of half of such pension. It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.


Q.3.Explain the essential conditions to be satisfied by a firm to be assessed as firm under Section 184.Ans.

POSITION OF FIRM UNDER THE INCOME TAX ACT

Legally, a partnership firm does not have a separate entity from that of the partners constituting the firm as the partners are the owners of the firm. However, a firm is treated as a separate tax entity under the Income Tax Act. Salient features of the assessment of a firm are as under:

1. A firm is treated as a separate tax entity.

2. While computing the income of the firm under the head “Profits and gains of business or profession”, besides the deductions which are allowed u/ss 30 to 37, special deduction is allowed to the firm on account of remuneration to working partners and interest paid to the partners. However, it is subject to certain limits laid down u/s 40 (b).

3. Share of profit which a partner receives from the firm (after deduction of remuneration and interest allowable) shall be fully exempt in the hands of the partner. However, only that part of the interest and remuneration which was allowed as a deduction to the firm shall be taxable in the hands of the partners in their individual assessment under the head ‘profits and gains of business or profession.’

4. The firm will be taxed at a flat rate of 30% plus education cess @ 3% plus for the financial year 2010-11.

5. The firm will be assessed as a firm provided conditions mentioned under Section 184 are satisfied. In case these conditions are not satisfied in a particular assessment year, the firm will be assessed as affirm, but no deduction by way of payment of interest, salary, bonus, commission or remuneration, by whatever name called, made to the partner, shall be allowed in computing the income chargeable under the head “profits and gains of business or profession” and such interest, salary, bonus, commission or remuneration shall not be chargeable to income tax in the hands of the partner.

Assessment of firm

From point (5) stated above, it can be concluded that for taxation purposes, a firm can be of two types:

1. Firm assessed as firm (provided conditions mentioned u/s 184 are satisfied).and the firm shall be eligible for deduction on account of interest, salary etc while computing its income under the head business and profession). However, it will be subject to the maximum of the limit specified under Section 40(b)

2. If the prescribed conditions are not satisfied, no deduction shall be allowed to the firm on account of such interest, salary, bonus etc.

Essential conditions to be satisfied by a firm to be assessed as firm (Section 184)


1. In the first assessment year: The firm will be assessed as a firm, also known as ‘Firm Assessed as Such’ (FAAS) if the following conditions are satisfied:

(a) Partnership is evidenced by an instrument i.e. there is a written document giving the terms of partnership.

(b) The individual share of the partners is specified in that instrument.

(c) Certified copy of partnership deed must be filed: A certified copy of the said instrument of partnership shall accompany the return of income in respect of the assessment year for which the assessment as a firm is first sought.

Where certified copy is not filed with the return there is no provision for condonation of delay. However where the return itself is filed late then there is no problem if the certified copy is filed along with such return as the condition that it shall accompany the return of income is satisfied. Further Delhi ITAT in the case of Ishar Dass Sahini & Sons v CIT held that where uncertified Photostat copy of the instrument of partnership is submitted along with the return of income and the certified copy is produced at the time of assessment, it will satisfy this condition.

2. In the subsequent assessment years: If the above three conditions are satisfied the firm will be assessed as such (FAAS) in the first assessment year. Once the firm is assessed as firm for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the share of the partners. Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year. Read the box for some important points to be considered in this regard.

Circumstance where the firm will be assessed as a firm but shall not be eligible for deduction on account of interest, salary, bonus, etc. [Section 184(5)]

The firm will be assessed as a firm but shall not be eligible for any deduction on account of interest, salary and bonus etc if there is failure on the part of the firm as is mentioned in Section 144 (relating to Best Judgment Assessment) and where the firm does not comply with the three conditions mentioned under Section 184.


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Q.4. List out the steps to compute total incomeAns.Step 1 – Determination of residential status

The residential status of a person has to be determined to ascertain which income is to be included in computing the total income. The residential statuses as per the Income-tax Act are shown below –In the case of an individual, the duration for which he is present in India determines his residential status. Based on the time spent by him, he may be (a) resident and ordinarily resident, (b) resident but not ordinarily resident, or (c) non-resident. The residential status of a person determines the taxability of the income. For e.g., income earned outside India will not be taxable in the hands of a non-resident but will be taxable in case of a resident and ordinarily resident.

Step 2 – Classification of income under different headsThe Act prescribes five heads of income. These are shown below –HEADS OF INCOMESALARIES INCOME FROM PROFITS AND GAINS CAPITAL INCOMEHOUSE PROPERTY OF BUSINESS OR GAINS FROM OTHERPROFESSION SOURCES

These heads of income exhaust all possible types of income that can accrue to or be received by the tax payer. Salary, pension earned is taxable under the head “Salaries”. Rental income is taxable under the head “Income from house property”. Income derived from carrying on any business or profession is taxable under the head “Profits and gains from business or profession”. Profit from sale of a capital asset (like land) is taxable under the head “Capital Gains”. The fifth head of income is the residuary head under which income taxable under the Act, but not falling under the first four heads, will be taxed. The tax payer has to classify the income earned under the relevant head ofincome.

Step 3 - Exclusion of income not chargeable to taxThere are certain income which are wholly exempt from income-tax e.g. Agricultural

income. These income have to be excluded and will not form part of Gross Total Income. Also, some incomes are partially exempt from income-tax e.g. House Rent Allowance, Education Allowance. These incomes are excluded only to the extent of the limits specified in the Act. The balance income over and above the prescribed exemption limits would enter computation of total income and have to be classified under the relevant head of income.

Step 4 - Computation of income under each headIncome is to be computed in accordance with the provisions governing a particular head

of income. Under each head of income, there is a charging section which defines the scope of income chargeable under that head. There are deductions and allowances prescribed under each head of income. For example, while calculating income from house property, municipal taxes and interest on loan are allowed as deduction. Similarly, deductions and allowances are prescribed under other heads of income. These deductions etc. have to be considered before arriving at the net income chargeable under each headStep 5 – Clubbing of income of spouse, minor child etc.


In case of individuals, income-tax is levied on a slab system on the total income. The tax

system is progressive i.e. as the income increases, the applicable rate of tax increases. Some

taxpayers in the higher income bracket have a tendency to divert some portion of their income to

their spouse, minor child etc. to minimize their tax burden. In order to prevent such tax

avoidance, clubbing provisions have been incorporated in the Act, under which income arising to

certain persons (like spouse, minor child etc.) have to be included in the income of the person

who has diverted his income for the purpose of computing tax liability.

Step 6 – Set-off or carry forward and set-off of losses

An assessee may have different sources of income under the same head of income. He

might have profit from one source and loss from the other. For instance, an assessee may have

profit from his textile business and loss from his printing business. This loss can be set-off

against the profits of textile business to arrive at the net income chargeable under the head

“Profits and gains of business or profession”. Similarly, an assessee can have loss under one

head of income, say, Income from house property and profits under another head of income, say,

Profits and gains of business or profession. There are provisions in the Income-tax Act for

allowing inter-head adjustment in certain cases. Further, losses which cannot be set-off in the

current year due to inadequacy of eligible profits can be carried forward for set-off in the

subsequent years as per the provisions contained in the Act.

Step 7 – Computation of Gross Total Income.

The final figures of income or loss under each head of income, after allowing the

deductions, allowances and other adjustments, are then aggregated, after giving effect to the

provisions for clubbing of income and set-off and carry forward of losses, to arrive at the gross

total income.

Step 8 – Deductions from Gross Total Income

There are deductions prescribed from Gross Total Income. These deductions are of three types.

Step 9 – Total income

The income arrived at, after claiming the above deductions from the Gross Total Income is

known as the Total Income. It is also called the Taxable Income. It should be rounded off to the

nearest Rs. 10.


The process of computation of total income is shown hereunder –

Step 10 – Application of the rates of tax on the total income

The rates of tax for the different classes of assesses are prescribed by the Annual Finance Act.

Taxation For individuals, HUFs etc., there is a slab rate and basic exemption limit. At present,

the basic exemption limit is Rs. 1,00,000 for individuals. This means that no tax is payable by

individuals with total income of up to Rs. 1,00,000. Those individuals whose total income is

more than Rs. 1,00,000 but less than Rs. 1,50,000 have to pay tax on their total income in excess

of Rs. 1,00,000 @ 10% and so on. The highest rate is 30%, which is attracted in respect of

income in excess of Rs. 2,50,000. For firms and companies, a flat rate of tax is prescribed. At

present, the rate is 30% on the whole of their total income. The tax rates have to be applied on

the total income to arrive at the income-tax liability.

Step 11 – Surcharge

Surcharge is an additional tax payable over and above the income-tax. Surcharge is levied as a

percentage of income-tax. At present, the rate of surcharge for firms and domestic companies is

10% and for foreign companies is 2.5%. For individuals, surcharge would be levied @10% only

if their total income exceeds Rs. 10 lakhs.

Step 12 – Education cess

The income-tax, as increased by the surcharge, is to be further increased by an additional

surcharge called education cess@2%. The Education cess on income-tax is for the purpose of

providing universalised quality basic education. This is payable by all assesses who are liable to

pay income-tax irrespective of their level of total income.

Step 13 - Advance tax and tax deducted at source

Although the tax liability of an assessee is determined only at the end of the year, tax is required to be paid in advance in certain installments on the basis of estimated income. In certain cases, tax is required to be deducted at source from the income by the payer at the rates prescribed in the Act. Such deduction should be made either at the time of accrual or at the time of payment, as prescribed by the Act. For example, in the case of salary income, the obligation of the employer to deduct tax at source arises only at the time of payment of salary to the employees. Such tax deducted at source has to be remitted to the credit of the Central Government through any branch of the RBI, SBI or any authorized bank. If any tax is still due on the basis of return of income, after adjusting advance tax and tax deducted at source, the assessee has to pay such tax (called self-assessment tax) at the time of filing of the return Taxation


Q.5.Detail the important provisions under Wealth tax Act.Ans.

Wealth tax is not a very important or high revenue tax in view of various exemptions. Wealth tax is a socialistic tax. It is not on income but payable only because a person is wealthy. Wealth tax is payable on net wealth on ‘valuation date’. As per Section 2(q), valuation date is 31st March every year. It is payable by every individual, HUF and company. Tax rate is 1% on amount by which ‘net wealth’ exceeds Rs 30 lakhs from AY 2010-11. (Till 31-3-2009, the limit was Rs 15 lakhs). No surcharge or education cess is payable. No wealth-tax is chargeable in respect of net wealth of any company registered under section 25 of the Companies Act, 1956; any co-operative society; any social club; any political party; and a Mutual fund specified under section 10(23D) of the Income-tax Act [section 45]

Net wealth = Value of assets [as defined in section 2(ea] plus deemed assets (as defined in section 4) less exempted assets (as defined in section 5), less debt owed [as defined in section 2(m)]. Debt should have been incurred in relation to the assets which are included in net wealth of assessee. Only debt owed on date of valuation is deductible. In case of residents of India, assets outside India (less corresponding debts) are also liable to wealth tax. In case of non-residents and foreign national, only assets located in India including deemed assets less corresponding debts are liable to wealth tax [section 6]. Net wealth in excess of Rs. 30,00,000 is chargeable to wealth-tax @ 1 per cent (on surcharge and education cess).

Assessment year - Assessment year means a period of 12 months commencing from the first day of April every year falling immediately after the valuation date [Section 2(d)] All.).

1-1 Assets

Assets are defined in Section 2(ea) as follows.

Guest house, residential house or commercial building - The following are treated as “assets” - (a) Any building or land appurtenant thereto whether used for commercial or residential purposes or for the purpose of guest house (b) A farm house situated within 25 kilometers from the local limits of any municipality (whether known as a municipality, municipal corporation, or by any other name) or a cantonment board [Section 2(ea)(i)] A residential house is not asset, if it is meant exclusively for residential purposes of employee who is in whole-time employment and the gross annual salary of such employee, officer or director is less than Rs. 5,00,000.

Any house (may be residential house or used for commercial purposes) which forms part of stock-in-trade of the assessee is not treated as “asset”.

Any house which the assessee may occupy for the purposes of any business or profession carried on by him is not treated as “asset”.

A residential property which is let out for a minimum period of 300 days in the previous year is not treated as an “asset”.

Any property in the nature of commercial establishments or complex is not treated as an “asset”.

Jewellery, bullion, utensils of gold, silver, etc. [Section 2(ea)(iii)] - Jewellery, bullion, furniture, utensils and any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals are treated as “assets” [Section 2(ea)(ii)]


For this purpose, “jewellery” includes ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, and also precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel. Where any of the above assets (i.e., jewellery, bullion, utensils of gold, etc.) is used by an assessee as stock-in-trade, then such asset is not treated as “assets” under section 2(ea)(iii).

Yachts, boats and aircrafts - Yachts, boats and aircrafts (other than those used by the assessee for commercial purposes) are treated as “assets” [Section 2(ea)(iv)]

Cash in hand - In case of individual and HUF, cash in hand on the last moment of the valuation date in excess of Rs. 50,000 is an ‘asset’. In case of companies, any amount not recorded in books of account is ‘asset’ [Section 2(ea)(vi)]

1-2 Deemed assets Often, a person transfers his assets in name of others to reduce his liability of wealth tax. To stop such tax avoidance, provision of ‘deemed asset’ has been made. In computing the net wealth of an assessee, the following assets will be included as deemed assets u/s 4.

Assets transferred by one spouse to another - The asset is transferred by an individual after March 31, 1956 to his or her spouse, directly or indirectly, without adequate consideration or not in connection with an agreement to live apart will be ‘deemed asset’ [Section 4(1)(a)(i)] If an asset is transferred by an individual to his/her spouse, under an agreement to live apart, the provisions of section 4(1)(a)(i) are not applicable. The expression “to live apart” is of wider connotation and even the voluntary agreements to live apart will fall within the exceptions of this sub-clause. Assets held by minor child - In computing the net wealth of an individual, there shall be included the value of assets which on the valuation date are held by a minor child (including step child/adopted child but not being a married daughter) of such individual [Section 4(1)(a)(ii)] The net wealth of minor child will be included in the net wealth of that parent whose net wealth [excluding the assets of minor child so includible under section 4(1)] is greater.

Assets transferred to a person or an association of persons - An asset transferred by an individual after March 31, 1956 to a person or an association of person, directly or indirectly, for the benefit of the transferor, his or her spouse, otherwise than for adequate consideration, is ‘deemed asset’ of transferor [Section 4(1)(a)(iii)]

Assets transferred to son’s wife [Section 4(1)(a)(v)] - The asset transferred by an individual after May 31, 1973, to son’s wife, directly or indirectly, without adequate consideration will be ‘deemed asset’ of transferor [Section 4(1)(a)(iv)]

Assets transferred for the benefit of son’s wife - If the asset is transferred by an individual after May 31, 1973, to a person or an association of the immediate or deferred benefit of son’s wife, whether directly or indirectly, without adequate consideration, it will be treated as ‘deemed asset’ of the transferor [Section 4(1)(a)(vi)].

Interest of partner- Where the assessee (may or may not be an individual) is a partner in a firm or a member of an association of persons, the value of his interest in the assets of the firm or an association shall be included in the net wealth of the partner/member. For this purpose, interest of partner/member in the firm or association of persons should be determined in the manner laid down in Schedule III to the Wealth-tax Act [Section 4(1)(b)]. Admission of minor


to benefits of the partnership firm - If a minor is admitted to the benefits of partnership in a firm, the value of his interest in the firm shall be included in the net wealth of parent of minor in accordance with the provisions of section 4(1)(a)(ii) [see para 546.2]. It will be determined in the manner specified in Schedule III.

1-3 Assets which are exempt from tax

The following assets are exempt from wealth-tax, as per section 5.

Property held under a trust - Any property held by an assessee under a trust or other legal obligation for any public purpose of charitable or religious nature in India is totally exempt from tax. [Section 5(i)].

Business assets held in trust, which are exempt - The following business assets held by as assessee under a trust for any public charitable/religious trust are exempt from tax - (a) where the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or the business is of a kind notified by the Central Government in this behalf in the Official Gazette (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution (c) the business is carried on by an institution, fund or trust specified in sections 10(23B) or 20(23C) of the Income-tax Act. Any other business assets of a public charitable/religious trust is not exempt.

Coparcenary interest in a Hindu undivided family - If the assessee is a member of a Hindu undivided family, his interest in the family property is totally exempt from tax [Section 5(ii)].

Residential building of a former ruler - The value of any one building used for the residence by a former ruler of a princely State is totally exempt from tax [Section 5(iii)]

Assets belonging to the Indian repatriates - Assets (as given below) belonging to assessee who is a person of Indian origin or a citizen of India, who was ordinarily residing in a foreign country and who has returned to India with intention to permanently reside in India, is exempt. A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India. After his return to India, following shall not be chargeable to tax for seven successive assessment years - (a) moneys brought by him into India (b) value of asset brought by him into India (c) moneys standing to the credit of such person in a Non-resident (External) Account in any bank in India on the date of his return to India and (d) value of assets acquired by him out of money referred to in (a) and (c) above within one year prior to the date of his return and at any time thereafter [Section 5(v)]

One house or part of a house - In the case of an individual or a Hindu undivided family, a house or a part of house, or a plot of land not exceeding 500 sq. meters in area is exempt. A house is qualified for exemption, regardless of the fact whether the house is self-occupied or let out. In case a house is owned by more than one person, exemption is available to each co-owner of the house [Section 5(vi)]


Q.6.What is meant by Full value of consideration? How short term capital gains and long term capital gains are computed using full value of consideration?Ans.

Full value of consideration means & includes the whole/complete sale price or exchange value or compensation including enhanced compensation received in respect of capital asset in transfer. The following points are important to note in relation to full value of consideration.

The consideration may be in cash or kind. The consideration received in kind is valued at its fair market value. It may be received or receivable. The consideration must be actual irrespective of its adequacy.

COST OF ACQUISITIONCost of Acquisition (COA) means any capital expense at the time of acquiring capital

asset under transfer, i.e., to include the purchase price, expenses incurred up to acquiring date in the form of registration, storage etc. expenses incurred on completing transfer. In other words, cost of acquisition of an asset is the value for which it was acquired by the assessee. Expenses of capital nature for completing or acquiring the title are included in the cost of acquisition.

Indexed Cost of Acquisition = COA X CII of Year of transfer CII of Year of acquisition

The indices for the various previous years are given below:S.No. Fin. Year Cost

Inflation Index

S.No. Fin. Year Cost Inflation Index

1 1981-82 100 15 1995-96 2812 1982-83 109 16 1996-97 3053 1983-84 116 17 1997-98 3314 1984-85 125 18 1998-99 3515 1985-86 133 19 1999-2000 3896 1986-87 140 20 2000-01 4067 1987-88 150 21 2001-02 4268 1988-89 161 22 2002-03 4479 1989-90 172 23 2003-04 46310 1990-91 182 24 2004-05 48011 1991-92 199 25 2005-06 49712 1992-93 223 26 2006-07 51913 1993-94 244 27 2007-08 55114 1994-95 259 28 2008-09 582

If capital assets were acquired before 1.4.81, the assesses has the option to have either actual cost of acquisition or fair market value as on 1.4.81 as the cost of acquisition. If assesses chooses the value as on 1.4.81 then the indexation will also be done as per the CII of 1981 and not as per the year of acquisition.


COST OF IMPROVMENTCost of improvement is the capital expenditure incurred by an assessee for making any addition or improvement in the capital asset. It also includes any expenditure incurred in protecting or curing the title. In other words, cost of improvement includes all those expenditures, which are incurred to increase the value of the capital asset.

Indexed Cost of improvement = COA X CII of Year of transferCII of Year of improvement

Any cost of improvement incurred before 1st April 1981 is not considered or it is ignored. The reason behind it is that for carrying any improvement in asset before 1st April 1981, asset should have been purchased before 1st April 1981. If asset is purchased before 1st April we consider the fair market value. The fair market value of asset on 1st April 1981 will certainly include the improvement made in the asset.

Provisions for computation of Capital Gain

Provisions under section 48

The income under the head “Capital Gains” shall be computed by deducting the following from the full value of the consideration received or accrued as a result of the transfer of the capital asset :

Expenditure incurred wholly and exclusively in connection with such transfer.

The cost of acquisition of the asset and the cost of any improvement thereto.

Computation of Short Term Capital Gains

From full value of consideration, deduct

Expenditure incurred wholly and in exclusively

Cost of acquisition

Cost of any improvement of asset

Computation of Long Term Capital Gains

From full value of consideration, deduct

Expenditure incurred wholly and in exclusively connection with the transfer

Indexed cost of acquisition of asset

Indexed cost of any improvement of asset


MF0012 - Taxation ManagementAssignment Set-2

Q.1. Prepare a ready reckoner of various tax savings investment options covering Section C to U. According you what are the 5 best investment options under these sections.Ans.

1. Deductions in respect of life insurance premium, deferred annuity, contributions to

provident fund, subscription to certain equity shares or debentures, etc. [Section 80c] :-In

computing the total income of an assessee, being an individual or a Hindu Undivided Family,

there shall be deducted in accordance with and subject to the provisions of this Section, the

whole of the amount paid or deposited for the current year as does not exceed Rs. 1 lacs.

2. Deduction in respect of contribution to certain pension funds [Section 80ccc]

1) Deduction is permissible, under this Section, only to an individual assessee.

2) It is allowed in respect of nay amount paid or deposited in the previous year by such

individual to effect or keep in force a contract for any annuity plan of life Insurance Corporation

of India or any other insurer for receiving pension fund from the fund set up by LIC/or any other

insurer referred to in Section 10(23AAB)

3) The amount is paid out of his income chargeable to tax. Quantum of deduction: The whole of

the amount paid or deposited (excluding interest or bonus accrued or credited to the assessee’s

account, (if any) or Rs. 1,00,000 whichever is less.

3. Deduction in respect of contribution to pension scheme of central government or any

other employer [Section 80CCD] :-The deduction under this Section is allowed to an assessee

who is an individual and who is employed by the Central Government or any other employer.

The deduction is allowed on account of:

1. any amount not exceeding 10% of salary of the previous year paid or deposited by the

employee in his account under the notified pension scheme

2. any amount contributed by the employer (i.e. central Government or any other employer) to

such pension scheme not exceeding 10% of the salary of the employee.

4. Section 80D: Deduction in respect of medical insurance premium Conditions

1. Payment shall be on account of insurance premium in respect of Medical Insurance (Not Life

Insurance).


2. Payment shall be made by cheque.

3. Payment shall be out of income chargeable to tax.

4. Insurance scheme shall be framed by GIC and approved by the Central Government from A.Y.

2002-03 the amount deposited in any scheme of any other insurer who is approved by the

Insurance Regulatory & Development Authority shall also be eligible for deduction.

5. Deduction can be claimed only by individual (in respect of policy taken on his Health of

his/her spouse, dependent parents, dependent children) and by the HUF (on the health of any

member of such family).

Quantum of deduction: The actual premium/premia paid during the tear, or Rs. 15,000 whichever

is less.

5. Section 80DD: Deduction in respect of maintenance including medical treatment of

handicapped dependents

Quantum of deduction: Rs. 50,000 irrespective of the amount deposited and Rs. 75,000 where

such dependant is a person with severe disability.

Conditions

1. The assessee is either an individual who is resident in India or a Hindu Undivided Family who

is resident in India.

2. i) The assessee has during the previous year incurred any expenditure for the medical

treatment (including nursing), training and rehabilitation of a handicapped dependant.

OR

ii) He has paid or deposited any amount under a scheme framed in this behalf by the Life

Insurance Corporation or Unit Trust of India, which is approved by the Board.

3. The scheme mentioned under (2)(ii) above fulfills two additional conditions:

i) The scheme provides for payment of annuity or lump sum amount for the benefit of a

handicapped dependent in the event of the death of the individual or the member of the Hindu

Undivided Family in whose name subscription to the scheme has been made.

ii) The assessee nominates either the handicapped dependent or any other person or a trust to

receive the payment on his behalf for the benefit of the handicapped dependent.


Q.2.Write short notes on (a) Profit in lieu of salary (b) Sec 80D.Ans.

A:-PROFITS IN LIEU OF SALARY [SECTION 17(3)]

Section 17(3) defines „profit in lieu of salary‟ to include:

1. The amount of compensation due to or received by an assessee from his employer or former

employer at or in connection with

a) Termination of employment; or

b) Modification of the terms and conditions of employment.

2. Any payment due to or received by the assessee from his employer or former employer or

from provident or any other fund or any sum received under a key man insurance policy

including the sum allocated by way of bonus on such policy (It does not include exempt

payments from superannuation fund, gratuity, commuted pension, retrenchment compensation,

house rent allowance, employees contribution to PF and interest thereon).

3. Any amount due to or received whether in lumpsum or otherwise, by any assessee from any

person before his joining any employment with that person or after cessation of his employment

with that person.

B:- SECTION 80D:

Deduction in respect of medical insurance premium

Conditions

1. Payment shall be on account of insurance premium in respect of Medical Insurance (Not Life

Insurance).

2. Payment shall be made by cheque.

3. Payment shall be out of income chargeable to tax.

4. Insurance scheme shall be framed by GIC and approved by the Central Government from A.Y.

2002-03 the amount deposited in any scheme of any other insurer who is approved by the

Insurance Regulatory & Development Authority shall also be eligible for deduction.

5. Deduction can be claimed only by individual (in respect of policy taken on his Health of

his/her spouse, dependent parents, dependent children) and by the HUF (on the health of any

member of such family).


Quantum of deduction: The actual premium/premia paid during the tear, or Rs. 15,000 whichever

is less.

Q.3. Explain the tax provisions for new business in free trade zonesAns.

TAX PROVISIONS FOR NEW BUSINESS

Many incentives are available under the Income Tax Act which is directly co-related to the nature of business. Some of these incentives are given as follows:

NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONES [SECTION10A]

A deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee.Essential conditions to claim deduction

The deduction shall apply to an undertaking which fulfills the following condition:i) It has begun or begins to manufacture or produce articles during the previous year, relevant to the assessment yeara) 1981-82 or thereafter, in any free trade zoneb) 1994-95 or thereafter, in nay electronic hardware technology park, or as the case may be, software technology park; orc) 2001-02 or thereafter in any special economic zoneii) It should not be formed by the splitting op or reconstruction of a business already in existence.iii) It should not be formed by the transfer of machinery or plant, previously used for any purpose, to a new business.iv) The sale proceeds of articles or things or computer software exported out of India should be received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months or, within such extended period as the competent authority may allow.v) The exemption shall not be admissible for any A.Y 2001-02 or thereafter, unless the assessee furnishes in the prescribed form [Form No.65F] along with the return of income, the report of the chartered accountant certifying that the deduction has been correctly claimed as per provisions of this Section.

The expression Free Trade Zone means such areas as Kandla Free Trade Zone, Santa Cruz Electronics Export Processing Zone, Falta Export Processing Zone, Madras Export Processing Zone, Cochin Export Processing zone, Noida Export Processing Zone, or situated in an Electronic Hardware Technology Park or in a Software Technology Park.

Period of tax holiday

The profits and gain from the exports of such undertaking shall not be included in the total income in respect of any ten consecutive assessment years beginning from the year in which the unit begins to manufacture or produce such article or things or computer software. No deduction under this Section shall be allowed for the Assessment Year 2010-2011 and thereafter. Therefore, any unit set up after financial year 2000-2001 is be eligible to claim exemption for less number of years i.e. units set up in 2001-2002 can claim this deduction for 9 years, units set up in 2002-2003 can claim this deduction for 8 years and so on. In case of existing units which are already claiming this exemption, deduction is being allowed only for the unexpired period of


the aforesaid 10 years.

NEWLY ESTABLISHED 100 PERCENT EXPORT ORIENTED UNITS [SECTION10B]

Profits of 100 percent Export Oriented Units are exempt provided it is a new unit. Thisexemption is available for a period of 10 consecutive years beginning from the year in which the unit commenced production. No deduction under this Section is being allowed after financial year 2010-2011 i.e. from the A.Y.2011-2012. Therefore, any unit set up after financial year 2000-2001 is be eligible to claim exemption for less number of years i.e. units set up in 2001-2002 can claim deduction for 9 years, units set up in 2002-2003 can claim this deduction for 8 years and so on. In case of existing units which are already claiming this exemption, deduction is to be allowed only for the unexpired period of the aforesaid 10 years. The following are the main conditions for claiming this deduction:i) The unit manufactures or produces any articles or things or computer software.ii) It is not formed by splitting or re-construction of an existing unit.iii) It is not formed by transfer of used plant and machinery.iv) The Assessee will have to bring the sale proceeds into India in convertible foreign exchange within 6 months from the end of the financial year in order to avail of the exemption. This period of 6 months may be extended by the RBI on application made in this behalf. The deduction will be proportionately reduced in case the entire sale proceeds are not brought into India as mentioned above.v) Audit report should be submitted in Form No. 56G.vi) Amount of deduction: The deduction will be computed as follows:Profits of the business of the undertaking × Export turnoverTotal turnover of the business carried on by the unitvii) Period of deduction: 10 consecutive AYs beginning with the AY relevant to previous year in which the undertaking begins manufacture or produce such articles or things or computer software.

VENTURE CAPITAL COMPANIES [SECTION 10(23 FB)]

Any income of a VCF or a VCC set up to raise funds for investment in a VCU is exemptsubject to certain conditions. VCC means a company which has been granted a certificate of registration by SEBI and which fulfils the conditions laid down by SEBI with the approval of the Central Government. VCF means a fund operating under a trust deed registered under the Registration Act, 1988, which has been granted a certificate of registration by SEBI and which fulfils the conditions laid down by SEBI with the approval of the Central Government. VCU means a domestic company whose shares are not listed in a recognized stock exchange in India and which is engaged in the business for providing services, production or manufacture of an article or thing but does not include activities or sectors which are specified by SEBI with approval of the Central Government.

TEA DEVELOPMENT ACCOUNT, COFFEE DEVELOPMENT ACCOUNT AND RUBBER DEVELOPMENT ACCOUNT [SECTION 33 AB]

An assessee carrying on business of growing and manufacturing tea or coffee in India is entitled for deduction to the extent of least of the following:a) amount deposited in special A/c with NABARD within a period of 6 months from the end of the previous year or before due date of furnishing return of income, whichever is earlier.


b) 40% of profits of such business as computed before making deduction u/s 33 AB and before a adjusting brought forward business loss u/s 72.

Q.4. Distinguish between amalgamation, merger and demerger. What type of transactions is not treated as ‘amalgamation’?Ans.

AMALGAMATION

Amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings. Merger or amalgamation under the Income Tax Act is said to occur when two or more companies combine into one company. In legal terms, the term amalgamation is used to denote merger. Sec.2 (1B) of the Income Tax Act 1961 defines amalgamation as the merger of one or more companies with another company or the merger of two or more companies (called amalgamating companies) to form a new company (called amalgamated company) in such a way that all assets and liabilities of the amalgamating company or companies become assets and liabilities of the amalgamated company and shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company.

The following cases subject to fulfilling the above conditions fall within the definition of Section 2(1B): Merger of A Ltd. with X Ltd. (A Ltd. goes out of existence) Merger of A Ltd. and B Ltd. with X Ltd. (A Ltd. and B Ltd. go out of existence) Merger of A Ltd. and B Ltd. into a newly incorporated X Ltd. (A Ltd. and B Ltd. Go out of existence) Merger of A Ltd., B Ltd. and C Ltd. into a newly incorporated X Ltd. (A Ltd., B Ltd. and C Ltd. go out of existence)

In the aforesaid cases, A Ltd., B Ltd. and C Ltd. are amalgamating companies while X Ltd. is the amalgamated company.

Transactions not treated as ‘amalgamation’ Section 2(1B)

Section 2(IB) specifically provides that in the following two cases there is no amalgamation, for the purpose of income tax though, the element of merger exists:a) Where the property of the company which merges is sold to the other company and the merger is the result of a transaction of sale.b) Where the company which merges is wound up in liquidation and the liquidator distributes its property to another company.

DEMERGER – [SECTION 2 (19AA)]

Demerger in relation to companies, means the transfer, pursuant to a scheme of arrangement under Sections 391 to 394 of the companies Act, 1956 by a demerged company of its one or more undertakings to any resulting company in such a manner that:i) All the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of demerger.


ii) All the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of demerger.iii) The property and liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in the books of accounts immediately before the demerger.iv) The resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis.v) The shareholders holding not less than three-fourths in value of shares in the demerged company other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition ofthe property or assets of the demerged company or any undertaking thereof by the resulting company.vi) The transfer of the undertaking is on a going concern basisvii)The demerger is in accordance with the conditions, if any, notified under Subsection (5) of Section 72A by the Central Government in this behalf.Explanation 1: For the purpose of this clause „undertaking‟ shall include any part of the undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any key combination thereof not constituting a business activity. Explanation 2: Liabilities include(i) The liabilities which arise out of the activities or operations of the undertaking(ii) The specific loans or borrowings including debentures raised, incurred or utilized solely for the activities or operations of the undertaking and(iii) In other cases so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger.

Transactions not treated as ‘amalgamation’ Section 2(1B)

Section 2(IB) specifically provides that in the following two cases there is no amalgamation, for the purpose of income tax though, the element of merger exists:a) Where the property of the company which merges is sold to the other company and the merger is the result of a transaction of sale.b) Where the company which merges is wound up in liquidation and the liquidator distributes its property to another company.


Q.5.What is the key factors of dividend policy? How does dividend policy affect financial

decisions?

Ans.

KEY FACTORS OF DIVIDEND POLICY

The following Tax considerations one need keep in mind:

a) Meaning of dividend under Section 2(22)

b) Tax treatment in the hands of shareholders

c) Tax deduction at source under Section 194

d) Tax on dividend

Dividends can be of three types:

a) Dividends declared by a domestic company

b) Dividends declared by a foreign company

c) Dividends or any other income distributed by Unit Trust of India.

Any amount declared, distributed or paid by a domestic company by way of dividends

(whether interim or otherwise), on or after 1.6.1997 but up to 31.3.2002, whether out of current

or accumulated profits, shall be exempt in the hands of shareholders under Section 10(33).

Dividend includes deemed dividend but shall not include deemed dividend mentioned in Section

2(22) (e), i.e. loan/advance given by a closely held company to a specified shareholder/concern.

Therefore w.e.f. assessment year 2003-2004, any dividend received either by a domestic

company is taxable.

Deemed dividend: Dividend includes deemed dividend. Section 2(22) defines the term

“dividend” which includes the following:

a) Any distribution of accumulated profits entailing the release of assets of the company.

b) Any distribution by a company of debentures, debenture – stock, etc. to its shareholders and

distribution of bonus shares to preference shareholders to the extent of accumulated profits;

c) Any distribution made to the shareholders on a company’s liquidation, to the extent of

accumulated profit.


d) Any distribution to its shareholders on the reduction of capital to the extent of accumulated

profits that arose after 31.3.1933; and

e) Any payment by a closely held company made after 31.5.1987 by way of advance or loan to a

shareholder with substantial interest provided lending of money is not a substantial part of the

business of the company.

Types of dividend policies

The firm’s dividend policy is formulated with two basic objectives in mind – providing

for sufficient financing and maximising the wealth of the firm’s shareholders. Three of

the more commonly used dividend policies are:

1. Constant Payout Ratio Dividend Policy

2. Regular Dividend Policy

3. Low Regular and Extra-dividend Policy

Constant Payout Ratio Dividend Policy: The term payout refers to the ratio of dividend to

earnings or the percentage of share of earnings used to pay dividend. With constant target payout

ratio, a firm pays a constant percentage of net earnings as dividend to the shareholders. In other

words, a stable dividend payout ratio implies that the percentage of earnings paid out each year is

fixed. Accordingly, dividends would fluctuate proportionately with earnings and are likely to be

highly volatile in the wake of wide fluctuations in the earnings of the company. As a result, when

earnings of the firm decline substantially or there are losses in a given period, the dividends

according to the target payout ratio would be low or nil.

Regular Dividend Policy: The regular dividend policy is based on the concept of a fixed rupee

dividend in each period. This policy provides the owners with positive information, thereby

minimizing the uncertainty. Another variant of this policy is to increase the regular dividend

once a proven increase in earnings has occurred. Often, a regular dividend policy is built around

a target dividend payout ratio but without letting the dividends fluctuate, it pays a stated rupee

dividend and adjusts that dividend towards the target payout as proven earnings happen.

Low Regular and Extra Dividend Policy: Some firms have the policy of low regular and extra

dividend meaning that the firms keep the regular earnings as low which is supplemented by

additional dividend when earnings are higher than normal in a given period. By terming the


additional dividend as extra dividend, firms avoid giving shareholders false hopes. This policy is

especially common among companies that experience cyclical shifts in earnings

Q.6. Explain the tax considerations of bonus shares to Equity shares on: Situation 1: At the time of issue of bonus shares Situation 2: At the time of sale of bonus shares by shareholders Situation 3: At the time of redemption of bonus sharesAns.

Tax considerations are given below:Bonus Shares to Equity Shareholders

Capital gains on bonus sharesSection 55 provides that cost of acquisition of any additional financial asset as bonus

shares or security or otherwise which is received without any payment by the assessee on the basis of his holding any financial asset shall be taken to be nil. Moreover, in the case of a capital asset being a share, security or unit which is allotted without any payment on the basis of holding of any other financial asset, the period for treating such share, security or unit as a short-term capital asset shall be calculated from the date of allotment of such share, security or unit, as the case may be.Illustration 1:X purchases 1,000 equity shares in A Ltd. @ Rs.16 per share (brokerage 1 per cent) on December 10, 1979. He gets 500 bonus shares (by virtue of his holding of 1000 shares) on January 10, 1984 Fair market value of shares of A Ltd. on April 1, 1981 is Rs. 24. On March 13, 2005 he transfers 1000 original shares @ Rs.81 per share (brokerage 1.5 per cent) On March 15, 2011, he transfers 500 bonus shares @ Rs. 87 per share (brokerage 1.5 per cent) shares.



MF0012 Set 1&Set2

Documents

hemant singh

software technology

insurance

hindu undivided

convertible

public charitablereligious

separate tax

actual premiumpremia