Page 1
ANSWERS OF MODEL TEST PAPER 7
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) (c) 3. (a)
(ii) (d) 4. (b)
(iii) (a)
2. (i) (b)
(ii) (b)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income and tax liability of Mr. Sahil for
A.Y. 2025-26
Particulars ` `
I Income from house property
Annual value of self-occupied property Nil
Less: Deduction under section 24(b)
Interest on housing loan of ` 2,60,000
restricted to ` 2,00,000
2,00,000
(2,00,000)
II Profits and gains of business or
profession
Net Profit 94,92,000
Add: Expenses debited to Profit and
loss A/c but not allowable as
deduction or to be considered under
other head
- Commission paid to brother
[Commission paid to a related
person/relative to the extent it is
excessive to market rate is disallowed
under section 40A(2)]
10,000
- Cash payment to a Transport Carrier
[Not disallowed under section 40A(3)
since the limit for one time cash
payment is ` 35,000 in respect of
payment to transport operators]
Nil
536
Page 2
ANSWERS OF MODEL TEST PAPER 7
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) (c) 3. (a)
(ii) (d) 4. (b)
(iii) (a)
2. (i) (b)
(ii) (b)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income and tax liability of Mr. Sahil for
A.Y. 2025-26
Particulars ` `
I Income from house property
Annual value of self-occupied property Nil
Less: Deduction under section 24(b)
Interest on housing loan of ` 2,60,000
restricted to ` 2,00,000
2,00,000
(2,00,000)
II Profits and gains of business or
profession
Net Profit 94,92,000
Add: Expenses debited to Profit and
loss A/c but not allowable as
deduction or to be considered under
other head
- Commission paid to brother
[Commission paid to a related
person/relative to the extent it is
excessive to market rate is disallowed
under section 40A(2)]
10,000
- Cash payment to a Transport Carrier
[Not disallowed under section 40A(3)
since the limit for one time cash
payment is ` 35,000 in respect of
payment to transport operators]
Nil
536
- Interest to bank on term loan [Interest
paid to bank after the due date of filing
of return under section 139(1) is
disallowed as per section 43B]
2,80,000
- Contribution to Prime Minister’s Relief
Fund [Not allowable since the same is
not incurred wholly and exclusively for
business purpose]
10,000
- SGST Penalty paid [SGST penalty
paid is not compensatory in nature
and therefore, not allowable]
49,000
- Loss on sale of shares 1,40,000
- Depreciation as per books of account 14,00,000
1,13,81,000
Less: Incomes credited to profit and
loss account but not taxable as
business income
- Dividend from Domestic Companies 1,05,000
- Winnings from lotteries 73,500
- Profit on sale of shares 3,15,000
1,08,87,500
Less: Depreciation allowable as per
Income-tax Rules,1962
- On Plant & Machinery [@15% on
` 98,00,000, being opening WDV of
` 84 lakhs and additions put to use for
more than 180 days of ` 14 lakhs +
@7.5% on ` 14,00,000, being additions
put to use for less than 180 days]
15,75,000
Business Income 93,12,500
Less: Set off of loss from house property
as per section 71(3A)
2,00,000
91,12,500
III Capital Gains
Long term capital gains taxable u/s 112A
[Since shares are held for 2 years and
STT has been paid]
3,15,000
Less: Set off of short term capital loss as
per section 70(2)
1,40,000 1,75,000
IV Income from Other Sources
Dividend from Domestic Companies 1,05,000
Winning from lotteries (` 31,500 +
` 73,500)
1,05,000
2,10,000
Gross Total Income 94,97,500
537
Page 3
ANSWERS OF MODEL TEST PAPER 7
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) (c) 3. (a)
(ii) (d) 4. (b)
(iii) (a)
2. (i) (b)
(ii) (b)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income and tax liability of Mr. Sahil for
A.Y. 2025-26
Particulars ` `
I Income from house property
Annual value of self-occupied property Nil
Less: Deduction under section 24(b)
Interest on housing loan of ` 2,60,000
restricted to ` 2,00,000
2,00,000
(2,00,000)
II Profits and gains of business or
profession
Net Profit 94,92,000
Add: Expenses debited to Profit and
loss A/c but not allowable as
deduction or to be considered under
other head
- Commission paid to brother
[Commission paid to a related
person/relative to the extent it is
excessive to market rate is disallowed
under section 40A(2)]
10,000
- Cash payment to a Transport Carrier
[Not disallowed under section 40A(3)
since the limit for one time cash
payment is ` 35,000 in respect of
payment to transport operators]
Nil
536
- Interest to bank on term loan [Interest
paid to bank after the due date of filing
of return under section 139(1) is
disallowed as per section 43B]
2,80,000
- Contribution to Prime Minister’s Relief
Fund [Not allowable since the same is
not incurred wholly and exclusively for
business purpose]
10,000
- SGST Penalty paid [SGST penalty
paid is not compensatory in nature
and therefore, not allowable]
49,000
- Loss on sale of shares 1,40,000
- Depreciation as per books of account 14,00,000
1,13,81,000
Less: Incomes credited to profit and
loss account but not taxable as
business income
- Dividend from Domestic Companies 1,05,000
- Winnings from lotteries 73,500
- Profit on sale of shares 3,15,000
1,08,87,500
Less: Depreciation allowable as per
Income-tax Rules,1962
- On Plant & Machinery [@15% on
` 98,00,000, being opening WDV of
` 84 lakhs and additions put to use for
more than 180 days of ` 14 lakhs +
@7.5% on ` 14,00,000, being additions
put to use for less than 180 days]
15,75,000
Business Income 93,12,500
Less: Set off of loss from house property
as per section 71(3A)
2,00,000
91,12,500
III Capital Gains
Long term capital gains taxable u/s 112A
[Since shares are held for 2 years and
STT has been paid]
3,15,000
Less: Set off of short term capital loss as
per section 70(2)
1,40,000 1,75,000
IV Income from Other Sources
Dividend from Domestic Companies 1,05,000
Winning from lotteries (` 31,500 +
` 73,500)
1,05,000
2,10,000
Gross Total Income 94,97,500
537
Less: Deduction under Chapter VI-A
Deduction under section 80C
Principal repayment of housing loan 50,000
Deduction under section 80EE
Interest on housing loan of ` 60,000
[` 2,60,000 – ` 2,00,000, allowed u/s
24(b)] allowable under section 80EEA
60,000
Deduction under section 80G
Contribution to Prime Minister’s Relief
Fund
10,000 1,20,000
Total Income 93,77,500
Tax Liability
Tax on LTCG of ` 50,000 exceeding
` 1.25 lakhs] u/s 112A @12.5%
6,250
Tax on winning from lotteries of
` 1,05,000 @30%
31,500
Tax on balance income of ` 90,97,500 at
slab rate
Upto ` 2,50,000 Nil
From ` 2,50,001 to ` 5,00,000 @5% 12,500
From ` 5,00,001 to ` 10,00,000 @20% 1,00,000
From ` 10,00,001 to ` 90,97,500 @30% 24,29,250 25,41,750
25,79,500
Add: Surcharge @10% since total income
exceeds ` 50 lakhs but does not exceed
` 1 crore
2,57,950
28,37,450
Add: Health and education cess @4% 1,13,498
Tax Liability 29,50,948
Tax liability (Rounded off) 29,50,950
2. (a) Computation of total income of Mr. Tilak for the A.Y. 2025-26
(if he is Resident and Ordinarily Resident - ROR)
Particulars `
(i) FTS for services rendered in Malaysia
Global income is taxable in case of a ROR.
50,000
(ii) Profit from business in England controlled from
Bombay
Global income is taxable in case of a ROR.
3,00,000
(iii) Past untaxed profits earned in Singapore and
brought to India in current year
Nil
538
Page 4
ANSWERS OF MODEL TEST PAPER 7
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) (c) 3. (a)
(ii) (d) 4. (b)
(iii) (a)
2. (i) (b)
(ii) (b)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income and tax liability of Mr. Sahil for
A.Y. 2025-26
Particulars ` `
I Income from house property
Annual value of self-occupied property Nil
Less: Deduction under section 24(b)
Interest on housing loan of ` 2,60,000
restricted to ` 2,00,000
2,00,000
(2,00,000)
II Profits and gains of business or
profession
Net Profit 94,92,000
Add: Expenses debited to Profit and
loss A/c but not allowable as
deduction or to be considered under
other head
- Commission paid to brother
[Commission paid to a related
person/relative to the extent it is
excessive to market rate is disallowed
under section 40A(2)]
10,000
- Cash payment to a Transport Carrier
[Not disallowed under section 40A(3)
since the limit for one time cash
payment is ` 35,000 in respect of
payment to transport operators]
Nil
536
- Interest to bank on term loan [Interest
paid to bank after the due date of filing
of return under section 139(1) is
disallowed as per section 43B]
2,80,000
- Contribution to Prime Minister’s Relief
Fund [Not allowable since the same is
not incurred wholly and exclusively for
business purpose]
10,000
- SGST Penalty paid [SGST penalty
paid is not compensatory in nature
and therefore, not allowable]
49,000
- Loss on sale of shares 1,40,000
- Depreciation as per books of account 14,00,000
1,13,81,000
Less: Incomes credited to profit and
loss account but not taxable as
business income
- Dividend from Domestic Companies 1,05,000
- Winnings from lotteries 73,500
- Profit on sale of shares 3,15,000
1,08,87,500
Less: Depreciation allowable as per
Income-tax Rules,1962
- On Plant & Machinery [@15% on
` 98,00,000, being opening WDV of
` 84 lakhs and additions put to use for
more than 180 days of ` 14 lakhs +
@7.5% on ` 14,00,000, being additions
put to use for less than 180 days]
15,75,000
Business Income 93,12,500
Less: Set off of loss from house property
as per section 71(3A)
2,00,000
91,12,500
III Capital Gains
Long term capital gains taxable u/s 112A
[Since shares are held for 2 years and
STT has been paid]
3,15,000
Less: Set off of short term capital loss as
per section 70(2)
1,40,000 1,75,000
IV Income from Other Sources
Dividend from Domestic Companies 1,05,000
Winning from lotteries (` 31,500 +
` 73,500)
1,05,000
2,10,000
Gross Total Income 94,97,500
537
Less: Deduction under Chapter VI-A
Deduction under section 80C
Principal repayment of housing loan 50,000
Deduction under section 80EE
Interest on housing loan of ` 60,000
[` 2,60,000 – ` 2,00,000, allowed u/s
24(b)] allowable under section 80EEA
60,000
Deduction under section 80G
Contribution to Prime Minister’s Relief
Fund
10,000 1,20,000
Total Income 93,77,500
Tax Liability
Tax on LTCG of ` 50,000 exceeding
` 1.25 lakhs] u/s 112A @12.5%
6,250
Tax on winning from lotteries of
` 1,05,000 @30%
31,500
Tax on balance income of ` 90,97,500 at
slab rate
Upto ` 2,50,000 Nil
From ` 2,50,001 to ` 5,00,000 @5% 12,500
From ` 5,00,001 to ` 10,00,000 @20% 1,00,000
From ` 10,00,001 to ` 90,97,500 @30% 24,29,250 25,41,750
25,79,500
Add: Surcharge @10% since total income
exceeds ` 50 lakhs but does not exceed
` 1 crore
2,57,950
28,37,450
Add: Health and education cess @4% 1,13,498
Tax Liability 29,50,948
Tax liability (Rounded off) 29,50,950
2. (a) Computation of total income of Mr. Tilak for the A.Y. 2025-26
(if he is Resident and Ordinarily Resident - ROR)
Particulars `
(i) FTS for services rendered in Malaysia
Global income is taxable in case of a ROR.
50,000
(ii) Profit from business in England controlled from
Bombay
Global income is taxable in case of a ROR.
3,00,000
(iii) Past untaxed profits earned in Singapore and
brought to India in current year
Nil
538
(iv) Capital gain on sale of land in India but received in
Malaysia
Deemed to accrue or arises in India, since the property is
situated in India.
2,00,000
(v) Income from agricultural land in Nepal, received
there
Global income is taxable in case of a ROR
18,000
(vi) Interest on saving bank deposit in SBI
Taxable since it is deemed to accrue or arises in India.
12,000
Gross Total Income 5,80,000
Less: Deduction under Chapter VI-A
Deduction under section 80C - For repayment of
housing loan
50,000
Deduction under section 80TTA - Interest on savings
bank account subject to a maximum of ` 10,000
10,000
Total Income 5,20,000
Computation of total income of Mr. Tilak for the A.Y. 2025-26
(if he is Resident but Not Ordinarily Resident - RNOR)
Particulars `
(a) FTS for services rendered in Malaysia to a non-
resident
In case of RNOR, FTS would not be taxable in India
since neither services are utilised for business in
India nor FTS received in India.
Nil
(b) Profit from business in England controlled from
Bombay
In case of RNOR, whole profits of ` 3,00,000 from
business in England is taxable since business is
controlled from India.
3,00,000
(c) Past untaxed profits earned in Singapore and
brought to India in current year
Nil
(d) Capital gain on sale of land in India but received
in Malaysia
Deemed to accrue or arises in India, since the property
is situated in India.
2,00,000
(e) Income from agricultural land in Nepal, received
there
In case of RNOR, it would not be taxable in India,
since neither it is deemed to accrue or arise in India
nor received in India.
Nil
(f) Interest on saving bank deposit in SBI
Taxable since it is deemed to accrue or arises in
India.
12,000
539
Page 5
ANSWERS OF MODEL TEST PAPER 7
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) (c) 3. (a)
(ii) (d) 4. (b)
(iii) (a)
2. (i) (b)
(ii) (b)
(iii) (b)
Division B – Descriptive Questions
1. Computation of total income and tax liability of Mr. Sahil for
A.Y. 2025-26
Particulars ` `
I Income from house property
Annual value of self-occupied property Nil
Less: Deduction under section 24(b)
Interest on housing loan of ` 2,60,000
restricted to ` 2,00,000
2,00,000
(2,00,000)
II Profits and gains of business or
profession
Net Profit 94,92,000
Add: Expenses debited to Profit and
loss A/c but not allowable as
deduction or to be considered under
other head
- Commission paid to brother
[Commission paid to a related
person/relative to the extent it is
excessive to market rate is disallowed
under section 40A(2)]
10,000
- Cash payment to a Transport Carrier
[Not disallowed under section 40A(3)
since the limit for one time cash
payment is ` 35,000 in respect of
payment to transport operators]
Nil
536
- Interest to bank on term loan [Interest
paid to bank after the due date of filing
of return under section 139(1) is
disallowed as per section 43B]
2,80,000
- Contribution to Prime Minister’s Relief
Fund [Not allowable since the same is
not incurred wholly and exclusively for
business purpose]
10,000
- SGST Penalty paid [SGST penalty
paid is not compensatory in nature
and therefore, not allowable]
49,000
- Loss on sale of shares 1,40,000
- Depreciation as per books of account 14,00,000
1,13,81,000
Less: Incomes credited to profit and
loss account but not taxable as
business income
- Dividend from Domestic Companies 1,05,000
- Winnings from lotteries 73,500
- Profit on sale of shares 3,15,000
1,08,87,500
Less: Depreciation allowable as per
Income-tax Rules,1962
- On Plant & Machinery [@15% on
` 98,00,000, being opening WDV of
` 84 lakhs and additions put to use for
more than 180 days of ` 14 lakhs +
@7.5% on ` 14,00,000, being additions
put to use for less than 180 days]
15,75,000
Business Income 93,12,500
Less: Set off of loss from house property
as per section 71(3A)
2,00,000
91,12,500
III Capital Gains
Long term capital gains taxable u/s 112A
[Since shares are held for 2 years and
STT has been paid]
3,15,000
Less: Set off of short term capital loss as
per section 70(2)
1,40,000 1,75,000
IV Income from Other Sources
Dividend from Domestic Companies 1,05,000
Winning from lotteries (` 31,500 +
` 73,500)
1,05,000
2,10,000
Gross Total Income 94,97,500
537
Less: Deduction under Chapter VI-A
Deduction under section 80C
Principal repayment of housing loan 50,000
Deduction under section 80EE
Interest on housing loan of ` 60,000
[` 2,60,000 – ` 2,00,000, allowed u/s
24(b)] allowable under section 80EEA
60,000
Deduction under section 80G
Contribution to Prime Minister’s Relief
Fund
10,000 1,20,000
Total Income 93,77,500
Tax Liability
Tax on LTCG of ` 50,000 exceeding
` 1.25 lakhs] u/s 112A @12.5%
6,250
Tax on winning from lotteries of
` 1,05,000 @30%
31,500
Tax on balance income of ` 90,97,500 at
slab rate
Upto ` 2,50,000 Nil
From ` 2,50,001 to ` 5,00,000 @5% 12,500
From ` 5,00,001 to ` 10,00,000 @20% 1,00,000
From ` 10,00,001 to ` 90,97,500 @30% 24,29,250 25,41,750
25,79,500
Add: Surcharge @10% since total income
exceeds ` 50 lakhs but does not exceed
` 1 crore
2,57,950
28,37,450
Add: Health and education cess @4% 1,13,498
Tax Liability 29,50,948
Tax liability (Rounded off) 29,50,950
2. (a) Computation of total income of Mr. Tilak for the A.Y. 2025-26
(if he is Resident and Ordinarily Resident - ROR)
Particulars `
(i) FTS for services rendered in Malaysia
Global income is taxable in case of a ROR.
50,000
(ii) Profit from business in England controlled from
Bombay
Global income is taxable in case of a ROR.
3,00,000
(iii) Past untaxed profits earned in Singapore and
brought to India in current year
Nil
538
(iv) Capital gain on sale of land in India but received in
Malaysia
Deemed to accrue or arises in India, since the property is
situated in India.
2,00,000
(v) Income from agricultural land in Nepal, received
there
Global income is taxable in case of a ROR
18,000
(vi) Interest on saving bank deposit in SBI
Taxable since it is deemed to accrue or arises in India.
12,000
Gross Total Income 5,80,000
Less: Deduction under Chapter VI-A
Deduction under section 80C - For repayment of
housing loan
50,000
Deduction under section 80TTA - Interest on savings
bank account subject to a maximum of ` 10,000
10,000
Total Income 5,20,000
Computation of total income of Mr. Tilak for the A.Y. 2025-26
(if he is Resident but Not Ordinarily Resident - RNOR)
Particulars `
(a) FTS for services rendered in Malaysia to a non-
resident
In case of RNOR, FTS would not be taxable in India
since neither services are utilised for business in
India nor FTS received in India.
Nil
(b) Profit from business in England controlled from
Bombay
In case of RNOR, whole profits of ` 3,00,000 from
business in England is taxable since business is
controlled from India.
3,00,000
(c) Past untaxed profits earned in Singapore and
brought to India in current year
Nil
(d) Capital gain on sale of land in India but received
in Malaysia
Deemed to accrue or arises in India, since the property
is situated in India.
2,00,000
(e) Income from agricultural land in Nepal, received
there
In case of RNOR, it would not be taxable in India,
since neither it is deemed to accrue or arise in India
nor received in India.
Nil
(f) Interest on saving bank deposit in SBI
Taxable since it is deemed to accrue or arises in
India.
12,000
539
Gross Total Income 5,12,000
Less: Deduction under Chapter VI-A
Deduction under section 80C - For repayment of
housing loan
50,000
Deduction under section 80TTA - Interest on
savings bank account subject to a maximum of
` 10,000
10,000
Total Income 4,52,000
(b) (i) ABC Limited is required to deduct tax at source under section 194-
I @10% on rent of ` 75,000 per month exclusive of GST
component, since the aggregate rent of ` 9,00,000 during the
financial year exceeds the threshold limit of ` 2,40,000.
Tax has to be deducted at the time of payment or credit, whichever
is earlier.
(ii) XYZ Pvt. Ltd. is not required to collect tax at source on sale of car
of ` 4,00,000 to Mrs. Anju since its value does not exceed ` 10
lakhs.
However, it is required to collect tax at source u/s 206C(1F) @1%
on the total sale consideration of ` 12 lakhs since the value of this
car exceeds ` 10 lakhs.
Tax has to be collected at the time of receipt of ` 12 lakhs.
3. (a) (i) In the present case, the amount of advance of ` 2,00,000 received
by Mr. Ravi from closely held manufacturing company would be
deemed as dividend to the extent of accumulated profit of
` 1,00,000, since Mr. Ravi holds 22% shareholding in the company
which is not less than 10% of the voting power in the company.
Accordingly, deemed dividend of ` 1,00,000 would be taxable in the
hands of Mr. Ravi under the head “Income from Other Sources” for
the A.Y. 2025-26.
(ii) Computation of deduction allowable u/s 35 for the
A.Y. 2025-26
Particulars `
(i) Revenue expenditure on scientific research
allowable as deduction u/s 35(1)(i), assuming
such expenditure is related to his business.
1,00,000
(ii) Capital expenditure allowable as deduction
u/s 35(1)(iv), assuming such expenditure is
incurred for his business.
3,00,000
(iii) Contribution to notified approved research
association for scientific research – 100% of
the amount paid is allowed as deduction u/s
35(1)(ii).
1,50,000
540
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