Mr. Subhash, a manufacturer and distributor of fertilizers and other agricultural products, aged 61 years, provides the following information for…

CA Intermediate · Taxation · MTP · September 2025
Mr. Subhash, a manufacturer and distributor of fertilizers and other agricultural products, aged 61 years, provides the following information for the A.Y. 2025-26: Trading and Profit and Loss Account of Mr. Subhash Particulars Amount in ₹ Particulars Amount in ₹ Trading Account To Opening Stock 24,21,000 By Sales 3,12,50,100 To Purchases 2,28,00,500 By Closing stock 26,00,100 To Direct expenses 4,12,040 To Freight inward 2,92,000 To Gross Profit c/d 79,24,660 3,38,50,200 3,38,50,200 Profit and Loss Account To Salaries and wages 17,12,000 By Gross Profit b/d 79,24,660 To General expenses 3,65,000 By Dividend income from Indian companies (Gross) 17,20,000 To Rates and taxes 2,20,000 By Interest received on FDs (Net of tax) 1,08,000 To Interest paid on late payment of GST 2,845 By Rent received 7,20,000 To Income-tax paid for F.Y. 2023-24 3,45,000 By Income-tax refund 18,000 To Interest paid to NBFC 1,20,000 To Depreciation 1,82,000 To Net Profit 75,43,815 1,04,90,660 1,04,90,660 Additional information: (a) The turnover of Mr. Subhash for the financial year ending 31st March 2024 was - 3.08 crores. (b) Closing stock of P.Y. 2024-25 was undervalued by - 25,000. (c) Rates and taxes include - 5,000 paid towards late filing of his Income-tax return for Assessment Year 2024-25 under section 234F of Income-tax Act, 1961. (d) Salaries include - 15,000 paid on single day by way of cash to his accountant. (e) Interest paid on loan of 10,00,000 taken from a Non-Banking Finance company. Out of the loan, amount of 2 lakhs was used for personal purpose and the balance was used for business purpose. No TDS was deducted while payment of interest. (f) Mr. Subhash paid - 45,000 by cheque during the year towards a health insurance premium for himself, his spouse, and his children. (g) General expenses include an amount of 20,000 paid by cheque towards an advertisement published in a souvenir released by a local political party. (h) He received an income-tax refund during the year, which includes - 2,000 towards interest. (i) Depreciation charged is as per Income-tax Rules, 1962, however, it does not include depreciation on a new machinery purchased and put to use on 23rd September, 2024 for manufacturing activity. The cost of the vehicle is 3,10,000. (j) Advance Tax paid during the year is 15 lakhs. You are required to compute the tax liability of Mr. Subhash for the A.Y. 2025-26 under both the regimes.

Suggested Answer and Working Notes:

Computation of Total Income of Mr. Subhash for the A.Y. 2025-26 under default tax regime Particulars ₹ ₹ Income from house property Annual value (Rent received has been taken as annual value, due to absence of information relating to expected rent in the question) 7,20,000 Less: Deduction u/s 24(a) 30% of Annual Value 2,16,000 5,04,000 Profits and gains of business or profession Net profit as per profit and loss account 75,43,815 Add: Expenses/Payments debited to profit and loss account but not allowed Fee for late filing of income-tax return for A.Y. 2024-25 – disallowed under section 37 5,000 Salary paid to an accountant in cash exceeding - 10,000 – disallowed under section 40A(3) 15,000 Interest paid to NBFC on loan which is used for personal purposes (₹ 1,20,000 x 2,00,000/10,00,000) – not allowed as per section 37 24,000 Interest paid to NBFC on which tax is not deducted attracts disallowance @30% of 96,000 [Since Mr. Subhash's turnover for the immediately preceding previous year i.e., P.Y. 2023-24 exceeds 1crore, he is required to deduct tax at source. Disallowance@30% of interest is attracted for non-deduction of tax at source] 28,800 Advertisement expenses towards an advertisement in a souvenir published by local political party [Disallowed under section 37(2B)] 20,000 Income-tax paid for F.Y. 2023-24 3,45,000 Interest paid on late payment of GST allowed, since it is not for infraction of law but is compensatory in nature. 4,37,800 Add: Undervaluation of Closing stock 25,000 80,06,615 Less: Income chargeable under other heads and income not chargeable to tax but credited to profit and loss account Dividend income from Indian companies 17,20,000 Interest on FDs (Net of taxes) (Taxable under the head "Income from other sources") 1,08,000 Rent received (Taxable under the head "Income from house property") 7,20,000 Income-tax refund 18,000 25,66,000 54,40,615 Less: Depreciation on machinery purchased and put to use on 23.9.2024 [₹ 3,10,000 x 15%] [Additional depreciation not available under default tax regime] 46,500 53,94,115 Income from Other Sources Dividend income 17,20,000 Interest on fixed deposits (₹ 1,08,000 x 100/90) 1,20,000 Interest on income-tax refund 2,000 18,42,000 Gross Total Income 77,40,115 Less: Deduction under Chapter VI-A Section 80D [Not available under default tax regime] - Section 80GGC [Not available under default tax regime] - Total Income 77,40,115 Total Income (Rounded off) 77,40,120 Computation of tax liability of Mr. Subhash for the A.Y.2025-26 under default tax regime Particulars ₹ Upto 3,00,000 Nil 3,00,001 - 7,00,000 [i.e.,4,00,000@5%] 20,000 7,00,001 - 10,00,000 [i.e.,3,00,000@10%] 30,000 10,00,001 - 12,00,000 [i.e.,2,00,000@15%] 30,000 12,00,001 - 15,00,000 [i.e.,3,00,000@20%] 60,000 15,00,001 above [i.e., 62,40,120 @30%] 18,72,036 20,12,036 Add: Surcharge @10%, since total income exceeds - 50,00,000 but does not exceed 1crore 2,01,204 22,13,240 Add: Health and Education cess@4% 88,530 Tax Liability 23,01,770 Computation of Total Income of Mr. Subhash for the A.Y. 2025-26 under optional tax regime Particulars ₹ ₹ Gross Total Income as per default tax regime 77,40,115 Less: Additional depreciation on machinery [₹ 3,10,000 x 20%] 62,000 Gross Total Income under optional tax regime 76,78,115 Less: Deduction under Chapter VI-A Section 80D Health insurance premium of 45,000 paid for self, spouse and his children allowable as deduction since Mr. Subhash is a senior citizen 45,000 Section 80GGC Expenditure towards advertisement in a souvenir published by local political party not allowable as deduction - 45,000 Total Income 76,33,115 Total Income (rounded off) 76,33,120 Computation of tax liability of Mr. Subhash for the A.Y.2025-26 under optional tax regime Particulars ₹ Upto 3,00,000 Nil 3,00,001 - 5,00,000 [i.e.,2,00,000@5%] 10,000 5,00,001 - 10,00,000 [i.e.,5,00,000@20%] 1,00,000 10,00,001 above [i.e.,66,33,120 @30%] 19,89,936 20,99,936 Add: Surcharge @10%, since total income exceeds - 50,00,000 but does not exceed 1crore 2,09,994 23,09,930 Add: Health and Education cess@4% 92,397 Tax Liability 24,02,327 Tax Liability (Rounded off) 24,02,330

Topics: Paper 3A: Income Tax Laws

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