Page 1
ANSWERS OF MODEL TEST PAPER 3
INTERMEDIATE COURSE: GROUP - I
PAPER – 3: TAXATION
SECTION – A: INCOME TAX LAW
Division A – Multiple Choice Questions
MCQ No. Sub-part Most Appropriate
Answer
MCQ No. Most Appropriate
Answer
1. (i) (a) 3. (a)
(ii) (d) 4. (c)
(iii) (b)
2. (i) (b)
(ii) (c)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income of Mr. Ayush for A.Y. 2025-26 under the
regular provisions of the Act
Particulars ? ? ?
I Income from business or
profession
Net profit as per profit and loss
account
82,45,000
Add: Items of expenditure not
allowable while computing
business income
(i) Interest on loan taken for
purchase of plant & machinery
[Interest from the date on
which capital was borrowed till
the date on which asset was
first put to use, not allowable
as deduction under section
36(1)(iii). Accordingly, interest
of ? 1,75,000 [ ? 50,00,000 x
10.5% x 4/12] has to be added
back, since the same is
debited to the profit and loss
account]
1,75,000
(ii) Purchase of goods at a price
higher than the fair market
value
[The difference between the
purchase price ( ? 40 lakhs)
and the fair market value
5,00,000
498
Page 2
ANSWERS OF MODEL TEST PAPER 3
INTERMEDIATE COURSE: GROUP - I
PAPER – 3: TAXATION
SECTION – A: INCOME TAX LAW
Division A – Multiple Choice Questions
MCQ No. Sub-part Most Appropriate
Answer
MCQ No. Most Appropriate
Answer
1. (i) (a) 3. (a)
(ii) (d) 4. (c)
(iii) (b)
2. (i) (b)
(ii) (c)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income of Mr. Ayush for A.Y. 2025-26 under the
regular provisions of the Act
Particulars ? ? ?
I Income from business or
profession
Net profit as per profit and loss
account
82,45,000
Add: Items of expenditure not
allowable while computing
business income
(i) Interest on loan taken for
purchase of plant & machinery
[Interest from the date on
which capital was borrowed till
the date on which asset was
first put to use, not allowable
as deduction under section
36(1)(iii). Accordingly, interest
of ? 1,75,000 [ ? 50,00,000 x
10.5% x 4/12] has to be added
back, since the same is
debited to the profit and loss
account]
1,75,000
(ii) Purchase of goods at a price
higher than the fair market
value
[The difference between the
purchase price ( ? 40 lakhs)
and the fair market value
5,00,000
498
( ? 35 lakhs) has to be added
back as per section 40A(2)
since the purchase is from a
related party, i.e., his brother
and at a price higher than the
fair market value]
6,75,000
89,20,000
Less: Items of income to be
treated separately under the
respective head of income
(i) Income-tax refund including
interest on refund of ? 4,550
15,550
(ii) Dividend from Indian
companies
15,00,000
(iii) Short term capital gains on
transfer of listed equity shares
10,00,000
25,15,550
64,04,450
Less: Depreciation on interest
on loan capitalised to plant and
machinery
? 1,75,000, being the amount of
interest on loan taken for purchase
of plant and machinery from the date
on which capital was borrowed till
the date on which asset was first put
to use, shall be capitalized
Normal depreciation @15% x 50%
on such interest
13,125
Additional depreciation @20% x
50% on such interest
[Since plant & machinery was put
to use for less than 180 days in
P.Y. 2024-25, it is eligible for 50%
of the rate of depreciation]
17,500 30,625
63,73,825
II Capital Gains
Short term capital gains on transfer
of listed equity shares
10,00,000
III Income from Other Sources
Interest on income-tax refund 4,550
Dividend from Indian companies 15,00,000 15,04,550
Gross Total Income 88,78,375
Less: Deductions under Chapter
VI-A
- Deduction under section 80C
Life insurance premium for married
daughter [Allowable as deduction
40,000
499
Page 3
ANSWERS OF MODEL TEST PAPER 3
INTERMEDIATE COURSE: GROUP - I
PAPER – 3: TAXATION
SECTION – A: INCOME TAX LAW
Division A – Multiple Choice Questions
MCQ No. Sub-part Most Appropriate
Answer
MCQ No. Most Appropriate
Answer
1. (i) (a) 3. (a)
(ii) (d) 4. (c)
(iii) (b)
2. (i) (b)
(ii) (c)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income of Mr. Ayush for A.Y. 2025-26 under the
regular provisions of the Act
Particulars ? ? ?
I Income from business or
profession
Net profit as per profit and loss
account
82,45,000
Add: Items of expenditure not
allowable while computing
business income
(i) Interest on loan taken for
purchase of plant & machinery
[Interest from the date on
which capital was borrowed till
the date on which asset was
first put to use, not allowable
as deduction under section
36(1)(iii). Accordingly, interest
of ? 1,75,000 [ ? 50,00,000 x
10.5% x 4/12] has to be added
back, since the same is
debited to the profit and loss
account]
1,75,000
(ii) Purchase of goods at a price
higher than the fair market
value
[The difference between the
purchase price ( ? 40 lakhs)
and the fair market value
5,00,000
498
( ? 35 lakhs) has to be added
back as per section 40A(2)
since the purchase is from a
related party, i.e., his brother
and at a price higher than the
fair market value]
6,75,000
89,20,000
Less: Items of income to be
treated separately under the
respective head of income
(i) Income-tax refund including
interest on refund of ? 4,550
15,550
(ii) Dividend from Indian
companies
15,00,000
(iii) Short term capital gains on
transfer of listed equity shares
10,00,000
25,15,550
64,04,450
Less: Depreciation on interest
on loan capitalised to plant and
machinery
? 1,75,000, being the amount of
interest on loan taken for purchase
of plant and machinery from the date
on which capital was borrowed till
the date on which asset was first put
to use, shall be capitalized
Normal depreciation @15% x 50%
on such interest
13,125
Additional depreciation @20% x
50% on such interest
[Since plant & machinery was put
to use for less than 180 days in
P.Y. 2024-25, it is eligible for 50%
of the rate of depreciation]
17,500 30,625
63,73,825
II Capital Gains
Short term capital gains on transfer
of listed equity shares
10,00,000
III Income from Other Sources
Interest on income-tax refund 4,550
Dividend from Indian companies 15,00,000 15,04,550
Gross Total Income 88,78,375
Less: Deductions under Chapter
VI-A
- Deduction under section 80C
Life insurance premium for married
daughter [Allowable as deduction
40,000
499
though she is not dependent, since
child of an individual whether
dependent or not falls within the
meaning of term “Person”.
Accordingly, whole of the amount
of ? 40,000 is allowable as it does
not exceed 10% of the
? 5,00,000, being the sum assured]
- Deduction under section 80D
Health insurance premium for self,
spouse and children [Allowable as
deduction, since it is paid
otherwise than by way of cash.
However, it is to be restricted to
? 25,000
25,000 65,000
Total Income 88,13,375
Total Income (Rounded off) 88,13,380
Computation of tax payable by Mr. Ayush for A.Y. 2025-26
under the regular provisions of the Act
Particulars ? ?
Tax on total income of ? 88,13,380
Tax on short term capital gains on transfer of
listed equity shares @15% u/s 111A [ ? 10,00,000
x 15%]
1,50,000
Tax on other Income of ? 78,13,380
Upto ? 2,50,000 Nil
? 2,50,001 – ? 5,00,000 [@5% of ? 2.50 lakh] 12,500
? 5,00,001 – ? 10,00,000 [@20% of ? 5,00,000] 1,00,000
? 10,00,001- ? 78,13,380 [@30% of ? 68,13,380] 20,44,014 21,56,514
23,06,514
Add: Surcharge @10%, since total income
exceeds ? 50,00,000 but does not exceed ? 1
crore
2,30,651
25,37,165
Add: Health and education cess@4% 1,01,487
Total tax liability 26,38,652
Less: TDS u/s 194N @ 2% on ? 50 lakhs, being
the cash withdrawals exceeding ? 1 crore
1,00,000
Less: Advance tax paid 17,50,000 18,50,000
Tax payable 7,88,652
Tax payable (Rounded off) 7,88,650
500
Page 4
ANSWERS OF MODEL TEST PAPER 3
INTERMEDIATE COURSE: GROUP - I
PAPER – 3: TAXATION
SECTION – A: INCOME TAX LAW
Division A – Multiple Choice Questions
MCQ No. Sub-part Most Appropriate
Answer
MCQ No. Most Appropriate
Answer
1. (i) (a) 3. (a)
(ii) (d) 4. (c)
(iii) (b)
2. (i) (b)
(ii) (c)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income of Mr. Ayush for A.Y. 2025-26 under the
regular provisions of the Act
Particulars ? ? ?
I Income from business or
profession
Net profit as per profit and loss
account
82,45,000
Add: Items of expenditure not
allowable while computing
business income
(i) Interest on loan taken for
purchase of plant & machinery
[Interest from the date on
which capital was borrowed till
the date on which asset was
first put to use, not allowable
as deduction under section
36(1)(iii). Accordingly, interest
of ? 1,75,000 [ ? 50,00,000 x
10.5% x 4/12] has to be added
back, since the same is
debited to the profit and loss
account]
1,75,000
(ii) Purchase of goods at a price
higher than the fair market
value
[The difference between the
purchase price ( ? 40 lakhs)
and the fair market value
5,00,000
498
( ? 35 lakhs) has to be added
back as per section 40A(2)
since the purchase is from a
related party, i.e., his brother
and at a price higher than the
fair market value]
6,75,000
89,20,000
Less: Items of income to be
treated separately under the
respective head of income
(i) Income-tax refund including
interest on refund of ? 4,550
15,550
(ii) Dividend from Indian
companies
15,00,000
(iii) Short term capital gains on
transfer of listed equity shares
10,00,000
25,15,550
64,04,450
Less: Depreciation on interest
on loan capitalised to plant and
machinery
? 1,75,000, being the amount of
interest on loan taken for purchase
of plant and machinery from the date
on which capital was borrowed till
the date on which asset was first put
to use, shall be capitalized
Normal depreciation @15% x 50%
on such interest
13,125
Additional depreciation @20% x
50% on such interest
[Since plant & machinery was put
to use for less than 180 days in
P.Y. 2024-25, it is eligible for 50%
of the rate of depreciation]
17,500 30,625
63,73,825
II Capital Gains
Short term capital gains on transfer
of listed equity shares
10,00,000
III Income from Other Sources
Interest on income-tax refund 4,550
Dividend from Indian companies 15,00,000 15,04,550
Gross Total Income 88,78,375
Less: Deductions under Chapter
VI-A
- Deduction under section 80C
Life insurance premium for married
daughter [Allowable as deduction
40,000
499
though she is not dependent, since
child of an individual whether
dependent or not falls within the
meaning of term “Person”.
Accordingly, whole of the amount
of ? 40,000 is allowable as it does
not exceed 10% of the
? 5,00,000, being the sum assured]
- Deduction under section 80D
Health insurance premium for self,
spouse and children [Allowable as
deduction, since it is paid
otherwise than by way of cash.
However, it is to be restricted to
? 25,000
25,000 65,000
Total Income 88,13,375
Total Income (Rounded off) 88,13,380
Computation of tax payable by Mr. Ayush for A.Y. 2025-26
under the regular provisions of the Act
Particulars ? ?
Tax on total income of ? 88,13,380
Tax on short term capital gains on transfer of
listed equity shares @15% u/s 111A [ ? 10,00,000
x 15%]
1,50,000
Tax on other Income of ? 78,13,380
Upto ? 2,50,000 Nil
? 2,50,001 – ? 5,00,000 [@5% of ? 2.50 lakh] 12,500
? 5,00,001 – ? 10,00,000 [@20% of ? 5,00,000] 1,00,000
? 10,00,001- ? 78,13,380 [@30% of ? 68,13,380] 20,44,014 21,56,514
23,06,514
Add: Surcharge @10%, since total income
exceeds ? 50,00,000 but does not exceed ? 1
crore
2,30,651
25,37,165
Add: Health and education cess@4% 1,01,487
Total tax liability 26,38,652
Less: TDS u/s 194N @ 2% on ? 50 lakhs, being
the cash withdrawals exceeding ? 1 crore
1,00,000
Less: Advance tax paid 17,50,000 18,50,000
Tax payable 7,88,652
Tax payable (Rounded off) 7,88,650
500
2. (a) Miss Geeta is said to be resident if she satisfies any one of the
following basic conditions:
(i) Has been in India during the previous year for a total period of
182 days or more
(or)
(ii) Has been in India during the 4 years immediately preceding the
previous year for a total period of 365 days or more and has been
in India for at least 60 days during the previous year.
Miss Geeta’s stay in India during the P.Y.2024-25 is 142 days
[30+31+30+31+20] which is less than 182 days. However, her stay in
India during the P.Y.2024-25 exceeds 60 days. Since, she left India for
the first time, her stay in India during the four previous years prior to
P.Y.2024-25 would be more than 365 days. Hence, she is a resident
for P.Y.2024-25.
Further, Miss Geeta would be “Resident and ordinarily resident” in
India in during the previous year 2024-25, since her stay in India in the
last seven previous years prior to P.Y.2024-25 is more than 729 days
and she must be resident in the preceding ten years.
Computation of business income and agricultural income of Miss
Geeta for A.Y. 2025-26
Particulars
Income Business
Income
?
Agricultural
Income
?
(i) Income from sale of
centrifuged latex
processed from rubber
plants grown in
Kanyakumari (Apportioned
between business and
agricultural income in the
ratio of 35:65 as per Rule
7A of Income-tax Rules,
1962)
1,50,000
52,500
97,500
(ii) Income from sale of coffee
grown, cured, roasted and
grounded in Colombo and
received in Chennai [See
Note 1 below]
5,00,000
5,00,000
-
(iii) Income from sale of tea
grown and manufactured
in West Bengal
(Apportioned between
business and agricultural
income in the ratio of
501
Page 5
ANSWERS OF MODEL TEST PAPER 3
INTERMEDIATE COURSE: GROUP - I
PAPER – 3: TAXATION
SECTION – A: INCOME TAX LAW
Division A – Multiple Choice Questions
MCQ No. Sub-part Most Appropriate
Answer
MCQ No. Most Appropriate
Answer
1. (i) (a) 3. (a)
(ii) (d) 4. (c)
(iii) (b)
2. (i) (b)
(ii) (c)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income of Mr. Ayush for A.Y. 2025-26 under the
regular provisions of the Act
Particulars ? ? ?
I Income from business or
profession
Net profit as per profit and loss
account
82,45,000
Add: Items of expenditure not
allowable while computing
business income
(i) Interest on loan taken for
purchase of plant & machinery
[Interest from the date on
which capital was borrowed till
the date on which asset was
first put to use, not allowable
as deduction under section
36(1)(iii). Accordingly, interest
of ? 1,75,000 [ ? 50,00,000 x
10.5% x 4/12] has to be added
back, since the same is
debited to the profit and loss
account]
1,75,000
(ii) Purchase of goods at a price
higher than the fair market
value
[The difference between the
purchase price ( ? 40 lakhs)
and the fair market value
5,00,000
498
( ? 35 lakhs) has to be added
back as per section 40A(2)
since the purchase is from a
related party, i.e., his brother
and at a price higher than the
fair market value]
6,75,000
89,20,000
Less: Items of income to be
treated separately under the
respective head of income
(i) Income-tax refund including
interest on refund of ? 4,550
15,550
(ii) Dividend from Indian
companies
15,00,000
(iii) Short term capital gains on
transfer of listed equity shares
10,00,000
25,15,550
64,04,450
Less: Depreciation on interest
on loan capitalised to plant and
machinery
? 1,75,000, being the amount of
interest on loan taken for purchase
of plant and machinery from the date
on which capital was borrowed till
the date on which asset was first put
to use, shall be capitalized
Normal depreciation @15% x 50%
on such interest
13,125
Additional depreciation @20% x
50% on such interest
[Since plant & machinery was put
to use for less than 180 days in
P.Y. 2024-25, it is eligible for 50%
of the rate of depreciation]
17,500 30,625
63,73,825
II Capital Gains
Short term capital gains on transfer
of listed equity shares
10,00,000
III Income from Other Sources
Interest on income-tax refund 4,550
Dividend from Indian companies 15,00,000 15,04,550
Gross Total Income 88,78,375
Less: Deductions under Chapter
VI-A
- Deduction under section 80C
Life insurance premium for married
daughter [Allowable as deduction
40,000
499
though she is not dependent, since
child of an individual whether
dependent or not falls within the
meaning of term “Person”.
Accordingly, whole of the amount
of ? 40,000 is allowable as it does
not exceed 10% of the
? 5,00,000, being the sum assured]
- Deduction under section 80D
Health insurance premium for self,
spouse and children [Allowable as
deduction, since it is paid
otherwise than by way of cash.
However, it is to be restricted to
? 25,000
25,000 65,000
Total Income 88,13,375
Total Income (Rounded off) 88,13,380
Computation of tax payable by Mr. Ayush for A.Y. 2025-26
under the regular provisions of the Act
Particulars ? ?
Tax on total income of ? 88,13,380
Tax on short term capital gains on transfer of
listed equity shares @15% u/s 111A [ ? 10,00,000
x 15%]
1,50,000
Tax on other Income of ? 78,13,380
Upto ? 2,50,000 Nil
? 2,50,001 – ? 5,00,000 [@5% of ? 2.50 lakh] 12,500
? 5,00,001 – ? 10,00,000 [@20% of ? 5,00,000] 1,00,000
? 10,00,001- ? 78,13,380 [@30% of ? 68,13,380] 20,44,014 21,56,514
23,06,514
Add: Surcharge @10%, since total income
exceeds ? 50,00,000 but does not exceed ? 1
crore
2,30,651
25,37,165
Add: Health and education cess@4% 1,01,487
Total tax liability 26,38,652
Less: TDS u/s 194N @ 2% on ? 50 lakhs, being
the cash withdrawals exceeding ? 1 crore
1,00,000
Less: Advance tax paid 17,50,000 18,50,000
Tax payable 7,88,652
Tax payable (Rounded off) 7,88,650
500
2. (a) Miss Geeta is said to be resident if she satisfies any one of the
following basic conditions:
(i) Has been in India during the previous year for a total period of
182 days or more
(or)
(ii) Has been in India during the 4 years immediately preceding the
previous year for a total period of 365 days or more and has been
in India for at least 60 days during the previous year.
Miss Geeta’s stay in India during the P.Y.2024-25 is 142 days
[30+31+30+31+20] which is less than 182 days. However, her stay in
India during the P.Y.2024-25 exceeds 60 days. Since, she left India for
the first time, her stay in India during the four previous years prior to
P.Y.2024-25 would be more than 365 days. Hence, she is a resident
for P.Y.2024-25.
Further, Miss Geeta would be “Resident and ordinarily resident” in
India in during the previous year 2024-25, since her stay in India in the
last seven previous years prior to P.Y.2024-25 is more than 729 days
and she must be resident in the preceding ten years.
Computation of business income and agricultural income of Miss
Geeta for A.Y. 2025-26
Particulars
Income Business
Income
?
Agricultural
Income
?
(i) Income from sale of
centrifuged latex
processed from rubber
plants grown in
Kanyakumari (Apportioned
between business and
agricultural income in the
ratio of 35:65 as per Rule
7A of Income-tax Rules,
1962)
1,50,000
52,500
97,500
(ii) Income from sale of coffee
grown, cured, roasted and
grounded in Colombo and
received in Chennai [See
Note 1 below]
5,00,000
5,00,000
-
(iii) Income from sale of tea
grown and manufactured
in West Bengal
(Apportioned between
business and agricultural
income in the ratio of
501
40:60 as per Rule 8 of the
Income-tax Rules, 1962)
12,00,000
4,80,000
7,20,000
(iv) Income from sapling and
seedling grown in a
nursery at Cochin. Basic
operations were not
carried out on land [See
Note 2 below]
2,00,000
-
2,00,000
20,50,000 10,32,500 10,17,500
Notes:
(1) Since Ms. Geeta is resident and ordinarily resident in India for
A.Y. 2025-26, her global income is taxable in India. Entire income
from sale of coffee grown, cured, roasted and grounded in
Colombo is taxable as business income since such income is
earned from sale of coffee grown, cured, roasted and grounded
outside India i.e., in Colombo.
(2) As per Explanation 3 to section 2(1A), income derived from
sapling or seedlings grown in a nursery would be deemed to be
agricultural income, whether or not the basic operations were
carried out on land. Hence, income of ? 2,00,000 from sapling and
seedling grown in a nursery at Cochin is agricultural income.
(b) TDS implications
(i) On pre-mature withdrawal from EPF
No tax is deductible under section 192A even though the
employee, Mr. Vikas, has not completed 5 years of continuous
service, since termination of employment is on account of his ill-
health. Hence, Rule 8 of Part A of the Fourth Schedule is
applicable in this case.
(ii) On payment of service fee to bank
Even though service fee is included in the definition of “interest”
under section 2(28A), no tax is deductible at source under section
194A, since the service fee is paid to a banking company, i.e.,
Indian Bank.
3. (a) Computation of Gross Total Income of Mr. Jain and Mrs. Jain for
A.Y. 2025-26
Particulars Mr. Jain Mrs. Jain
? ? ? ?
Salary 12,50,000 -
Less: Standard
deduction under
section 16(ia)
50,000
12,00,000
502
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