This document details a comprehensive income tax problem for an individual, Mr. A, for the Assessment Year 2025-2026, incorporating the latest amendments from the Finance Act, 2024. The problem analyzes various income streams, including salary, business profits from manufacturing and a partnership, rental income from a house property, and capital gains from diverse assets like listed and unlisted shares, units, and real estate. The provided solution demonstrates the application of specific tax treatments for each income source. It highlights how rental income is taxed under the new regime and applies different tax rates to capital gains based on the asset type and holding period. The solution also accounts for relevant deductions under Chapter VI-A, such as contributions to pension schemes and additional employee costs, while noting that donations are not deductible under the new tax regime. Finally, it calculates the total tax liability, including surcharge and cess, and subtracts the tax deducted at source (TDS) to determine the net tax payable.
Master example on Amendment by Finance Act, 2024 – Provisions applicable for Individuals
Question:
Mr. A (aged 32 years) has the following income during the PY 2024-2025.
1.He earned salary of Rs.12,00,000 from his employer. His employer (Vini Ltd.) contributed Rs.1,44,000 for recognized provident fund and Rs.1,82,000 towards pension scheme as notified by the Central government.
2. He entered into 2 new businesses during the PY
Manufacturing of footwear – His earning from this business is Rs.3,20,00,000 out of which Rs.20,00,000 is received in cash.
Letting out of house property – Rental income earned is Rs.56,00,000 and he also paid municipal taxes of Rs.75,000.
He hired 6 employees on 16.04.2024 for both the business out of which 2 employees were exclusively engaged in searching for customers for renting of house property. He paid salary of Rs.22,000 per month to each of his employees and also contributed Rs.3,200 per month for each employee into pension scheme as notified by Central government under section 80CCD(2).
3. He also received remuneration from a firm Kishan & Co. (where he is a partner) Rs.60,000 per month. Book profit of the firm is Rs.8,00,000.
4. He has following transactions in capital assets
| Capital asset | Acquired on | Qty. & rate | Sold on | Qty. & rate |
| A. Shares of listed company | 04.05.2024 | 1,200 @ Rs.220 | 20.06.2024 | 1,200 @ Rs.275 |
| B. Shares of listed company | 08.05.2024 | 700 @ Rs.105 | 16.08.2024 | 700 @ Rs.142 |
| C. Listed units | 24.06.2024 | 312 @ Rs.2,041 | 12.07.2024 | 312 @ Rs.2,140 |
| D. Listed units | 25.07.2023 | 645 @ Rs.1,154 | 06.08.2024 | 645 @ Rs.1,287 |
| E. Listed units | 25.05.2024 | 1,500 @ Rs.54 | 06.08.2024 | 1,500 @ Rs.61 |
| F. Shares of listed company | 04.04.2023 | 450 @ Rs.650 | 24.07.2024 | 450 @ Rs.701 |
| G. Shares of listed company | 16.06.2023 | 675 @ Rs.108 | 12.07.2024 | 675 @ Rs.142 |
| H. Unlisted shares | 04.11.2011 | 40 @ Rs.7,500 | 16.06.2024 | 40 @ Rs.16,000 |
| I. Unlisted shares | 17.03.2014 | 30 @ Rs.4,200 | 10.10.2024 | 30 @ Rs.4,300 |
| J. Land and Building | 12.08.2015 | Rs.15,00,000 | 16.06.2024 | Rs.22,00,000 |
| K. Land and Building | 04.03.2016 | Rs.18,00,000 | 10.10.2024 | Rs.26,00,000 |
| L. Land and Building | 04.09.2022 | Rs.12,00,000 | 10.12.2024 | Rs.16,00,000 |
Land and Building sold on 10.10.2024 was under co-ownership with Mr. G and consideration in respect of Mr. G is Rs.39,00,000. SDV of this property was Rs.72,00,000.
Cost inflation index
| FY | CII |
| 2011-2012 | 184 |
| 2013-2014 | 220 |
| 2015-2016 | 254 |
| 2022-2023 | 331 |
| 2024-2025 | 363 |
5. He also acquired 1,000 shares of listed company Goyal Ltd. on 01.4.2023 @ Rs.650 each. Goyal Ltd. bought back its shares in 2 phases in the manner of 600 shares @ Rs.854 each on 28.07.2024 and 400 shares @ Rs.902 each on 22.11.2024. Accumulated profit of Goyal Ltd. was Rs.10,00,000.
He is a director (non-employee) in Pimpare Ltd. where he earned Rs.15,00,000 under a contract for not sharing know-how of the Company on 12.06.2024 and Rs.8,00,000 vide another contract on 10.11.2024.
6. He earned interest Rs.6,000 on 8% saving taxable bonds and Rs.13,000 on floating rate saving bond.
7. He donated Rs.8,000 each to PM National Relief fund and National Sport Development Fund.
Assume he has not opted out of section 115BAC. TDS has been deducted at applicable rates wherever required.
Compute net tax liability of Mr. A for the AY 2025-2026.
Solution:
| Sl | Particulars | Amount (Rs.) | Amount (Rs.) | Amount (Rs.) |
| 1. | Income from Salary | |||
| Gross salary [12,00,000 + 1,82,000] | 13,82,000 | |||
| Less: Standard Deduction | (75,000) | 13,07,000 | ||
| 2. | Income from House property | |||
| Gross annual value [As per amendment by Finance Act 2024, rental income should not be treated as business income] | 56,00,000 | |||
| Less: Municipal taxes | (75,000) | 55,25,000 | ||
| Less: Deduction u/s 24(a) (52,50,000 * 30%) | (16,57,500) | 38,67,500 | ||
| 3. | Profit and Gain from Business or Profession | |||
| Footwear manufacturing [Section 44AB is applicable since the turnover is more than Rs.1 crore and cash receipt exceeds 5% of total receipts] | 3,20,00,000 | |||
| Remuneration from firm [Amount which is allowable to firm as deduction is taxable in the hands of partner.
Calculation of allowable amount for firm- Book profit = Rs.8,00,000 Upto first Rs.6,00,000 = Rs.3,00,000 or 90%, whichever is higher On remaining book profit = Rs.2,00,000 * 60% Thus, maximum remuneration allowed to firm is Rs.5,40,000 + Rs.1,20,000 = Rs.6,60,000 Here remuneration paid is Rs.7,20,000, thus, taxable in the hands of partner is Rs.6,60,000 and in the hands of firm is Rs.60,000.] |
6,60,000 | |||
| Income for not sharing know-how [This is treated as business income and TDS is deductible under section 194J and not under section 194C] | 23,00,000 | 3,49,60,000 | ||
| Less: Business expenses | ||||
| Salary to employees [6 * 22,000 * 12] | 15,84,000 | |||
| Section 36(1)(iv)(a)- Contribution to pension [4 * 3,080 * 12]
Contribution is allowed to the extent of 14% of salary. It will be allowed for 4 employees as only 4 employees are related to business. |
1,47,840 | 3,32,28,160 | ||
| 4. | Income from Capital Gain | |||
| A. Shares of listed company [It is a short-term capital asset which is sold prior to 23.07.2024, tax rate @15%]
1,200 shares * (275-220) |
66,000 | |||
| B. Shares of listed company [It is a short-term capital asset which is sold on or after 23.07.2024, tax rate @20%]
700 * (142-105) |
25,900 | |||
| C. Listed units [It is a short-term capital asset which is sold prior to 23.07.2024, tax rate @15%]
312 * (2140-2041) |
30,888 | |||
| D. Listed units [It is a long-term capital asset as per amendment by Finance Act 2024 which is sold on or after 23.07.2024, it will be taxable as per section 112A @ 12.5% but exempt upto 1,25,000]
645 * (1287-1154) |
85,785 | – | ||
| E. Listed units [It is a short-term capital asset which is sold on or after 23.07.2024, tax rate @20%]
1,500 * (61-54) |
10,500 | |||
| F. Shares of listed company [It is a long-term capital asset which is sold on or after 23.07.2024, it will be taxable as per section 112A @ 12.5% but exempt upto 1,25,000 including D above]
450 * (701-650) |
22,950 | – | ||
| G. Shares of listed company [It is a long-term capital asset as per amendment by Finance Act 2024 which is sold prior to 23.07.2024, it will be taxable as per section 112A @ 10% but exempt upto 1,25,000 including D and F above. First use it from where it gives you more tax saving]
675 * (142-108) |
22,950 | 6,685 | ||
| H. Unlisted shares [It is a long-term capital asset which is sold prior to 23.07.2024, it will be taxable as per section 112 @20% with indexation]
40 * (16,000 – 7500*363/184) |
48,152 | |||
| I. Unlisted shares [It is a long-term capital asset which is sold on or after 23.07.2024, it is taxable as per section 112 @12.5% without indexation]
30 * (4,300 – 4,200) |
3,000 | |||
| J. Land and Building [It is a long-term capital asset which is sold prior to 23.07.2024, it is taxable as per section 112 @20% with indexation]
22,00,000 – 15,00,000*363/254) |
56,300 | |||
| K. Land and Building [It is a long-term capital asset which is sold on or after 23.07.2024, it is taxable @ lower of 20% with indexation or 12.5% without indexation. Other conditions also needs to be checked here]
Mr. G and Mr. A has co-ownership in the ratio 2:3. SDV should be treated as actual sale consideration because the SDV is more than 110% of total consideration. Now SDV to be bifurcated between both owners Mr. A’s share = 72,00,000 * 40% = 28,80,000 Tax @20% with indexation = (28,80,000 – 18,00,000*363/254) * 20% = 61,512 Tax @12.5% without indexation = (28,80,000 – 18,00,000) * 12.5% = 1,35,000 Mr. A will choose 20% with indexation Gain = 28,80,000 – 25,72,440 |
3,07,560 | |||
| L. Land and Building [It is a long-term capital asset which is sold on or after 23.07.2024, it is taxable @ lower of 20% with indexation or 12.5% without indexation]
Tax @20% with indexation = (16,00,000 – 12,00,000*363/331) * 20% = 56,797 Tax @12.5% without indexation = (16,00,000 – 12,00,000) * 12.5% = 50,000 Mr. A will choose 12.5% without indexation Gain = 16,00,000 – 12,00,000 |
4,00,000 | |||
| Long term Capital loss [Cost of acquisition of shares bought back on or after 01.10.2024 is to be treated as capital loss and will be carried forward for 8 years]
It has been adjusted from long term capital gain. Buy back is done for long term capital asset as it is listed shares and period of holding is more than 1 year |
(2,60,000) | 6,94,985 | ||
| 5. | Income from other sources | |||
| Dividend [Buy back of shares prior to 01.10.2024 is taxable in the hands of the company @20% since section 115QA applied on buy back prior to 01.10.2024. Tax for company will be (600 * (854-650)) * 20%. Now buy back on or after 01.10.2024 is taxable as dividend in the hands of shareholder on gross amount received.
Taxable income in the hands of shareholder = 400 * 902 = 3,60,800 |
3,60,800 | |||
| Interest from bonds [6,000 + 13,000] | 19,000 | 3,79,800 | ||
| GROSS TOTAL INCOME | 3,94,77,445 |
–
| Deductions under Chapter VI-A | ||||
| 80CCD(2) – [Employer contribution to pension is allowed to the extent of 14% under new regime as per amendment subject to maximum limit of 1,50,000. Here limit of 50,000 under 80CCD(1B) is not allowed]
12,00,000 * 14% = 1,68,000 restricted to 1,50,000 Under old regime, it is still 10% but there you will get benefit of 80CCD(1B). Under old regime, deduction would have been (12,00,000 * 10%) + 50,000 restricted to maximum of 2,00,000 |
(1,50,000) | |||
| 80JJAA – [Additional employee cost related to business is allowed to the extent of 30% of salary paid. It will be allowed for 4 employees as 2 other employees are not related to business. He is engaged in manufacture of apparel, so we will check the condition of 150 days instead of 240 days]
4 * 22,000 * 12 * 30% |
(3,16,800) | |||
| 80G – [Donation is not allowed under new regime. If it would have been old regime then donation would have been allowed. Now, as per amendment, donation to National Sport Development Fund is also allowed under old regime] | – | |||
| Taxable Income | 3,90,10,645 | |||
| Taxes on total income | ||||
| Taxes on LTCG income | ||||
| STCG @ 15% [A and C] – (66,000 + 30,888) * 15% | 14,533 | |||
| STCG @ 20% [B and E] – (25,900 + 10,500) * 20% | 7,280 | |||
| LTCG 112A @ 10% [D, F and G] – 6,685 * 10% | 669 | |||
| LTCG 112 @ 20% [H, J and K] – (48,152 + 56,300 + 3,07,560 – 2,60,000) * 20%
Portion of 2,60,000 capital loss set off |
30,402 | |||
| LTCG 112 @ 12.5% [I and L] – (3,000 + 4,00,000) * 12.5% | 50,375 | 1,03,259 | ||
| Other income taxes at slab
Total other income is 3,90,10,645 – 6,94,985 = 3,83,15,660 Upto 3,00,000 – Nil 3,00,001 to 7,00,000 – 5% 7,00,001 to 10,00,000 – 10% 10,00,001 to 12,00,000 – 15% 12,00,001 to 15,00,000 – 20% Above 15,00,000 – 30% |
1,11,84,698 | |||
| Add: Surcharge | ||||
| On tax under 111A, 112, 112A and dividend
[1,03,259 + 1,11,84,698*3,60,800/3,83,15,660] @ 15% |
31,286 | |||
| On other taxes [1,11,84,698*3,79,54,860/3,83,15,660] @ 25% | 27,69,844 | 28,01,130 | ||
| Gross tax liability with surcharge | 1,40,89,087 | |||
| Add: Cess @ 4% | 5,63,563 | |||
| 1,46,52,650 | ||||
| Less: TDS | ||||
| 192 [TDS on salary is deducted at slab]
(1,07,000 * 20%) + 80,000 |
(1,01,400) | |||
| 194J [TDS for not sharing know-how is subject to TDS @ 10%]
23,00,000 * 10% |
(2,30,000) | |||
| 194-IA [Mr.A’s share of TDS = 26,00,000 * 1%] | (26,000) | |||
| 193 [TDS is not required on 8% saving taxable bond as the amount is below 10,000. But floating rate saving bond would have been exempt from TDS if amount was upto 10,000. Hence TDS @ 10% on 13,000] | (1,300) | (3,58,700) | 1,42,93,950 |
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