Miss. Meera, aged 28 years, a resident individual, provides management consultancy to small and medium-sized corporations in India and abroad. She…

CA Final · Direct Tax Laws and International Taxation · PYQS · May 2025
Miss. Meera, aged 28 years, a resident individual, provides management consultancy to small and medium-sized corporations in India and abroad. She regularly travels to country K for providing consultancy services to her clients. It provides the following information to you in respect of its income during the F.Y. 2024-25: (i) Amount received from providing consultancy: In India-35,70,000In Country K -12,00,000 (ii) Amount spent in earning these incomes: In India -9,60,000In Country K -2,50,000 (iii) Rent received from a shop in Country K-55,000 p.m. (iv) Expenses incurred in earing this rental income in Country K -1,20,000 Additional information (i) Country K provides 2 options to the assessee as far as taxation of income from management consultancy is concerned - Option 1 - at a flat rate of 20% without deduction of any expenses; orOption 2 - at the rate of 37% after deduction of expenses in earning the income. (ii) Country K taxes rental incomes at a flat rate of 27% after giving a standard deduction of 20% for regular expenses. No other expense is allowed to be deducted. (iii) Country K does not have any tax deduction regulations at the source. Miss Meera will opt for lowest possible tax in country K. You are required to compute the total income and tax payable by Miss Meera in India for A.Y. 2025-26 assuming she chooses to pay tax as per default tax regime as per section 115BAC(1A). Ignore the provisions of section 44ADA. India does not have any Double Taxation Avoidance Agreement with country K. Your calculations should be made upto 2 decimal points.

Suggested Answer and Working Notes:

Computation of total income and tax payable by Miss Meera for A.Y. 2025-26 under the default tax regime under section 115BAC Particulars ₹ ₹ Income from House Property Annual Value [₹ 55,000 x 12] 6,60,000 Less: Deduction under section 24(a) @30% 1,98,000 4,62,000 Profits and Gains of Business or Profession Amount for consultancy in India 35,70,000 Less: Expenses 9,60,000 26,10,000 Amount for consultancy in Country K 12,00,000 Less: Expenses 2,50,000 9,50,000 Gross total income/ Total income 40,22,000 Tax liability on 40,22,000 Tax on total income [30% of 25,22,000 +1,40,000] 8,96,600 Add: Health and Education cess@4% 35,864 9,32,464 Less: Deduction u/s 91 (See Working Note below) 3,12,617 Tax payable 6,19,847 Tax payable (Rounded off) 6,19,850 Working Note: Calculation of deduction under section 91 Average Rate of tax in Country K Tax on consultancy Option 1 - Tax @20% on 12 lakhs = 2,40,000 Option 2 - Tax @37% on 9,50,000 = 3,51,500 Option 1 is beneficial for Ms. Meera = 2,40,000 Tax on rental income 27% on 5,28,000 [₹ 6,60,000 – 20%] = 1,42,560 Total Tax Liability in Country K = 3,82,560 Total Income in Country K = 12,00,000 +5,28,000 = 17,28,000 Average Rate of tax in Country K = 3,82,560/17,28,000 x 100 = 22.14% Indian Rate of tax = 9,32,464/40,22,000 x 100 = 23.18% Doubly taxed income pertaining to Country K = Consultancy income of 9,50,000 [₹ 12,00,000 - 2,50,000] + Income of house property of 4,62,000 = 14,12,000 Deduction u/s 91 = Lower of average rate of tax in Country K and Indian rate of tax rate of tax x Doubly taxed income = [22.14% x 14,12,000] = 3,12,617

Topics: Double Taxation Relief

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