Mr. Advait, a resident individual aged 48 years, is engaged in the manufacturing of industrial chemicals as a sole proprietor. He follows mercantile…

CA Intermediate · Taxation · RTP · September 2026
Mr. Advait, a resident individual aged 48 years, is engaged in the manufacturing of industrial chemicals as a sole proprietor. He follows mercantile system of accounting. His net profit as per the Profit and Loss account for the financial year ended 31-03-2026 was ₹ 25,00,000 after debiting or crediting the following items: (i) ₹ 35,000 paid directly to a creditor for raw materials in cash. (ii) Gross interest received on corporate bonds amounting to ₹ 20,000. (iii) Contribution of ₹ 1,50,000 made to an approved university for social science research. (iv) Commission charges of ₹ 2,00,000 paid to a local sales agent via account payee cheque without deducting tax at source (TDS). (v) Normal depreciation of ₹ 5,00,000 including depreciation on total cost of new plant & machinery purchased and put to use on 12-07-2025 as per Income-tax Rules, 1962. (vi) Subsidy of 20% on the new machinery received from the State Government on 15.7.2025, amounting to ₹ 4,00,000. (vii) Medical expenses debited to the business include ₹ 60,000 paid to a hospital for the medical treatment of his dependent son, who is a person with a severe disability. (viii) ₹ 80,000 incurred for an advertisement published in a souvenir of a registered political party. (ix) On 15-03-2026, Mr. Advait purchased raw material worth ₹ 50,000 from M/s XYZ Industries registered as a micro-enterprise under the MSMED Act, 2006. The payment was outstanding as on 31-03-2026 and was subsequently settled on 25-05-2026. There was a written agreement between them specifying a 15-day payment period. Additional Information: (a) He received a gross annual rent of ₹ 4,80,000 from let-out house property. The municipal taxes of ₹ 50,000 for this property were paid by him on 10-04-2026. (b) He repaid a housing loan principal of ₹ 90,000 and interest of ₹ 1,10,000 on such loan to a financial institution availed for purchase of such house property. (c) He received ₹ 1,05,000 from the premature withdrawal of a 5-year Post Office Time Deposit, which include interest of ₹ 15,000. He had previously claimed deduction under section 80C at the time of making such time deposit. The amount of interest has not been included in his total income in any earlier previous year. (d) He sold a vacant commercial plot of land on 10-06-2025 for ₹ 15,00,000, which had been originally acquired on 05-04-2008 for ₹ 3,00,000. (Cost Inflation Index for F.Y. 2008-09 is 137 and for F.Y. 2025-26 is 376). Compute the total income and tax liability of Mr. Advait for the A.Y. 2026-27 under both default tax regime and the optional tax regime. The turnover for both the preceding and current financial years exceeds ₹ 3 crores.

Suggested Answer and Working Notes:

10. Computation of total income and tax liability of Mr. Advait for A.Y. 2026-27 under default tax regime Particulars Amount (₹) Amount (₹) I. Income from house property Gross Annual Value (GAV) 4,80,000 Less: Municipal Taxes paid (Nil, since taxes are paid by the owner after the relevant previous year 2025-26) Nil Net Annual Value (NAV) 4,80,000 Less: Statutory Deduction @ 30% of NAV (30% of ₹ 4,80,000) (144,000) Less: Interest on loan under section 24(b) (1,10,000) 2,26,000 II. Profits and gains of business or profession Net Profit as per profit and loss account 25,00,000 Add: Expenses either not allowable or to be considered separately but charged in the profit and loss account (i) Payment made to creditors in cash (disallowed under section 40A(3), since such cash payment exceeds ₹10,000) 35,000 (iii) Contribution to approved university for social science research (Not allowed under default tax regime u/s 115BAC) 1,50,000 (iv) 30% of commission charges paid to a resident without deduction of tax at source not allowable as per section 40(a)(ia) 60,000 (v) Normal depreciation [In respect of subsidy of ₹ 4,00,000 relatable to the cost of plant & machinery would not include in actual cost. Hence, depreciation on such amount not allowed i.e., ₹ 4,00,000 @15%] 60,000 (vii) Personal Medical Expenses of Dependent disabled son (Personal expenses not allowed as per section 37) 60,000 (viii) Advertisement in the souvenir of political party not allowable as per section 37(2B). 80,000 (ix) Sum payable for purchase of raw materials from M/s XYZ Industries, a micro enterprise. (Not allowable as per section 43B(h), since payment was made on 25th May 2026, which is beyond the agreed time limit) 50,000 29,95,000 Less: Incomes credited to profit and loss account but not taxable as business income (ii) Gross Interest received on corporate bonds (Considered separately under the head "Income from other sources") 20,000 (vi) Subsidy received on purchase of new plant & machinery (as per Explanation 10 to section 43(1), it will be reduced from actual cost of machinery). 4,00,000 Al(e) Additional Depreciation on new plant and machinery (not allowed under default tax regime under section 115BAC) - 25,75000 III. Capital Gains Full value of consideration 15,00,000 Less: Cost of acquisition 3,00,000 Long Term Capital gain (Since commercial plot of land is held for more than 24 months) 12,00,000 III. Income from Other Sources Gross Interest received on corporate bonds 20,000 Pre-mature withdrawal post office time deposit (It is taxable under section 80C(6A) in the year of withdrawal before the specified time) 1,05,000 1,25,000 Gross Total Income 41,26,000 Less: Deductions under chapter VI-A (Not allowable under default tax regime) Nil Total Income 41,26,000 Tax Liability Tax liability as per special rate u/s 112 1,35,328 Tax on capital gains without indexation benefit Tax on 12 lakhs @12.5% = ₹ 1,50,000 Tax on capital gains with indexation benefit ₹ 6,76,642 @ 20% = ₹1,35,328 ₹ 15,00,000 - (₹ 3,00,000x376/137) = ₹ 6,76,642 Tax at slab rate on balance income of ₹ 29,26,000 (₹ 41,26,000 - ₹12,00,000) Upto ₹ 4,00,000 Nil ₹ 4,00,001 to ₹ 8,00,000 @ 5% 20,000 ₹ 8,00,001 to ₹ 12,00,000 @ 10% 40,000 ₹ 12,00,000 to ₹ 16,00,000 @ 15% 60,000 ₹ 16,00,001 to ₹ 20,00,000 @ 20% 80,000 ₹ 20,00,001 to ₹ 24,00,000 @ 25% 1,00,000 ₹ 24,00,001 to ₹ 29,26,000 @ 30% 1,57,800 Tax Liability 5,93,128 Add: Health and education cess @ 4% 23,725 Tax Liability 6,16,853 Tax Liability (Rounded off) 6,16,850 Computation of total income and tax liability of Mr. Advait for A.Y. 2026-27 under optional tax regime Particulars Amount (₹) Amount (₹) Gross Total Income as per default tax regime 41,26,000 Less: Contribution to approved university for social science research [Allowed under section 35(1)(iii) under optional tax regime] 1,50,000 Less: Additional depreciation on new machinery [(₹ 20,00,000 - ₹ 4,00,000) x 20%] (allowed under optional tax regime) 3,20,000 4,70,000 Gross Total Income as per optional tax regime 36,56,000 Less: Deduction under Chapter VI-A Deduction under section 80C Housing loan repayment 90,000 Deduction under section 80DD Medical treatment of dependent with severe disability 1,25,000 2,15,000 Total Income as per optional tax regime 34,41,000 Tax Liability Tax liability as per special rate u/s 112 1,35,328 Tax on capital gains without indexation benefit: 12 lakhs @12.5% = ₹ 1,50,000 Tax on capital gains with indexation benefit: ₹ 6,76,642 @ 20% = ₹ 1,35,328 ₹ 15,00,000 - (₹ 3,00,000x376/137) = ₹ 6,76,642 Tax at slab rate on balance income of ₹ 22,41,000 (₹ 34,41,000 - ₹ 12,00,000) Upto ₹ 2,50,000 Nil ₹ 2,50,001 to 5,00,000 @ 5% (₹ 2,50,000 @5%) 12,500 ₹ 5,00,001 to ₹ 10,00,000 @ 20% (₹ 5,00,000 @ 20%) 1,00,000 ₹ 10,00,001 to ₹ 22,41,000 @ 30% (₹ 12,41,000@30%) 3,72,300 Tax Liability 6,20,128 Add: Health and education cess @ 4% 24,805 Total Tax Liability 6,44,933 Total Tax Liability (rounded off) 6,44,930

Topics: Paper 3A: Income Tax Laws, Paper 3B: Goods and Services Tax

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