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Friday, January 25, 2013

IGNOU SOLVED ASSIGNMENT: ECO - 11 (2014 - 2015) - DEMO

TUTOR MARKED ASSIGNMENT
Course Code : ECO - 11
Course Title : Element of Income Tax
Assignment Code : ECO – 11/TMA/2014-15
Coverage : All Blocks
Maximum Marks: 100
Attempt all the questions.
Answer of Q.N.1.
Concept of Residential Status of Individuals
Under Section 5, total income of an assessee is be chargeable to tax depending upon the residential status of a person and place and time of accrual of such income and the rules for determining residential status of various types of persons are contained in Section 6. Provisions for determination of the residential status are different for different categories of the assessee viz:
a)      individuals;
b)      Hindu Undivided Families (HUF
c)       Firms or Associations of Persons(AOP);
d)      Companies; and
e)      Every other person

Residential status of individual Section 6(1):
To determine the residential status of an individual, it is to be ascertained whether he is resident or a non –resident during the previous year. An individual will be a resident in India in any previous year, if he satisfies at least one of the following TWO basic conditions:
1) He is in India in the previous year for a period of 182 days or more OR
2) He is in India for a period of 60 days or more during the previous year AND 365 days or more during 4 years immediately preceding the previous year

But there are certain exception to these basic conditions. The Second condition of 60 days or more is extended to 182 days or more in following two circumstances:
i. An Indian citizen leaves India during the previous year for the purpose of taking up employment outside India. OR as a member of the crew of an Indian ship OR .
ii. An Indian citizen or a person of Indian origin comes on visit to India during the previous year. For this purpose, a person is said to be of Indian origin if either he or any of his parents or any of his grandparents was born in undivided India. In both the above cases, an individual needs to be present in India for a minimum of 182 days or more to become resident in India instead of 60 days.
If the individual satisfies any of the two conditions, he is a resident in India and if he does not satisfy any of the conditions, he is a non resident during that particular assessment year.

Resident and Ordinarily Resident [R & O R ]- Secion 6(6) :
Once an individual satisfies any of the above two basic conditions for a particular assessment year, next step would be to determine whether he will be a resident and ordinarily resident of India in that assessment year. Sec. 6(6) provides that a person will be “resident and ordinarily resident” in India in any assessment year if he satisfies BOTH of the following two conditions:
1) he has been resident in India in at least 2 out of 10 previous years according to the above basic conditions immediately proceeding the relevant previous year. AND
2) in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.
Resident and Not Ordinarily Resident [R &N O R ]
A resident individual, who does not satisfy BOTH of the above conditions given above, will be a Resident but Not Ordinarily Resident in India. In other words, an individual becomes resident but not ordinarily resident in India If he Satisfies at least one of the basic conditions but satisfies NONE of the additional conditions OR Satisfies ONLY ONE of the two additional conditions.
Non Resident
An individual is a non-resident in India if he satisfies none of the basic conditions. It must be noted that if a person satisfies the additional conditions but does not satisfy the basic conditions, he will still be treated as Non-Resident. In such a case, additional conditions are not relevant.
From the above discussion it is brought out that an individual can either be:
(a) resident and ordinarily resident in India;
(b) resident but not ordinarily resident in India or
(c) non-resident


Answer of Q.N.2.
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Answer of Q.N.3.
Annual Value (Section 23)
The Annual Value of a house property is the inherent capacity of the property to earn income and  it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out.
Computation of annual value: Computation of Annual Value for the determination of Income from House property requires three steps.
Ø  STEP 1 Determine the Gross Annual Value(GAV)
Ø  STEP 2 Determine the value of Municipal taxes
Ø  STEP 3 Compute the Net Annual Value
STEP 1- Determine the Gross Annual Value (GAV):
Calculation of GAV based on the following factors:
1) Fair Rental Value (FRV): The amount of rent which a similar property (similar to the house property the GAV of which is to be determined) in the same locality would fetch.
2) Municipal Rental Value (MRV): The value of the house property under consideration as determined by the Municipal authorities for the purpose of levying Municipal taxes.
3) Standard Rental Value (SRV): The maximum amount of rent which a person can recover from his tenant, legally, as determined by the Rent Control Act.
4) Expected Rental Value (ERV): The Fair rent or Municipal value, whichever is higher, subject to the Standard rent.
5) Unrealised rent: The amount of rent which is not capable of being realised. The amount of Unrealised rent shall not be included in the actual amount of rent receivable from the house property if all the following for conditions are satisfied:
a) Tenancy is in good-faith.
b) The defaulting tenant has vacated or steps must have been taken to vacate such tenant.
c) The defaulting tenant doesn't continue to occupy any other property of the assessee.
d) Assessee has taken all the reasonable steps to proceed against the defaulting tenant legally or he must satisfy the assessing officer that if such steps are taken, it will be of no use. 
6) Actual rent receivable (ARR): The amount of rent which is equal to the difference between the Rent receivable and the unrealised rent.
7) Unoccupied property: The House property which cannot be occupied by its owner by reason of his employment, business or profession being in some other place and he resides at that place in a property not owned by him.
It should be noted that the procedure for determination of Gross Annual Value is not same in all the cases. It varies according to the given situation. Various situations and the respective procedures for computation of GAV are given below:
1) Property is let out throughout the previous year (Section 23(1) (a)/ (b)): GAV = ERV or ARR, whichever is higher.
2) Let out property is vacant for a part of the year (Section 23(1) (c)):  If the ARR < ERV only because the property was vacant for a part of the year, GAV = ERV.  If the ARR < ERV for any other reason, GAV = ERV.  If the ARR > ERV even though it was vacant for a part of the year, GAV = ARR. In all the cases, ARR is computed for the let out period only and the ERV is for whole year as usual.
3) Self-occupied or Unoccupied property (Section 23(2)): GAV = Nil 
4) Let out for a part of the year and self-occupied for a part of the year (Section 23(3)):  GAV = Higher of ERV (calculated for the whole year) and ARR (calculated for let out period only)
5) Deemed to be let out property (Section 23(4)):  This case arises when the assessee has more than one Self-occupied properties in a previous year. In such case, only one of such properties is treated as self-occupied and the remaining shall be treated as Deemed to be let out properties. Here, GAV = ERV.
6) A portion of the property is let out and the remaining portion is self-occupied:  GAV is calculated separately for self-occupied part and the let out part. The values of FR, MV, SR and Municipal taxes are apportioned on the given basis.
Thus, there is a scope for charging tax on Notional rent too. This happens when the GAV determined according to the above steps is the ERV.
Now that the Gross Annual Value of the house property is determined, the next step is to determine the value of Municipal taxes paid that is deductible from the Gross Annual Value.
STEP 2 - Determine the value of Municipal taxes:
The municipal tax or the property tax paid is allowed as deduction from the Gross Annual Value if the following two conditions are satisfied.
(a)    The property is let out during the whole or any part of the previous year,
(b)   The Municipal taxes must be borne by the landlord. If the Municipal taxes or any part thereof are borne by the tenant, it will not be allowed.
(c)    The Municipal taxes must be paid during the year. Where the municipal taxes become due but have not been actually paid, it will not be allowed.
STEP 3 - Compute the Net Annual Value:
Gross Annual Value                                        ++++++
Less: Municipal Taxes                                     ++++++
Net Annual Value                                            ++++++

Deductions allowable under section 24 of the income tax act
Following two deductions will be allowable from the net annual value to arrive at the taxable income under the head ‘income from house property’:-
(a)    Statutory deduction: 30 per cent of the net annual value will be allowed as a deduction towards repairs and collection of rent for the property, irrespective of the actual expenditure incurred.
(b)   Interest on borrowed capital: The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. It is immaterial whether the interest has actually been paid during the year or not. If money is borrowed for some other purpose, interest payable thereon cannot be claimed as deduction.
Limit of deduction u/s 24(b)
A. In case of Let out/ deemed to be let out house property: Interest on Money borrowed is allowed as deduction without any limit. Here interest on money borrowed = interest of P/Y + 1/5 of Pre-construction period (PCP) interest. PCP started from the date of borrowing and ended on 31st mar immediately preceeding (Before) the year of completion.
B. In Case of Self Occupied House Property:  Max. Rs. 1,50,000 is allowed as deduction if the following conditions are satisfied:
Ø  Loan taken after 1 – 4 – 99
Ø  For construction/purchase (Capital expenditure) of house
Ø  Construction completed within 3years from the end of financial year in which loan is borrowed.
Ø  Loan certificate is obtained
For all other cases maximum allowed deduction is Rs. 30000

Answer of Q.N.4.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967

Answer of Q.N.5.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967
Notes:
1) Agricultural income is exempt but it is integrated with total income while calculating Income tax liability.
2) Rent from house property is assumed to be gross.
2) loss from speculation can be set off against income from speculation.