Taxation - Income TaxQuestion 5646 of 146
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Question 3 (a) The particulars given below are of Mr. Radhey's income (age 47 years) posted in a private company in Delhi, for the previous year 2023-24: (i) Basic Pay ` 35,000 per month till January 31, 2024, ` 40,000 p.m. from February 2024. (ii) Dearness allowance 30% of basic salary (54% of DA forms part of retirement benefits) (iii) Leave encashment for P.Y. 2023-24 ` 10,000. (iv) He received salary for the month of April 2024 in advance on 31stMarch 2024. Also, he received an arrear salary for the month of March 2023 on the same day. (v) His employer gave him a rent-free accommodation (fully furnished) in Delhi from 01.04.2019. This house is owned by his employer. During the previous year 2019-20, the perquisite value of such rent-free furnished accommodation was valued at ` 39,000. The employer also provided him with the facility of a gardener to maintain this house. The salary of gardener paid by the employer was ` 1,000 p.m. The furniture and appliances provided with the house were bought by the employer at an aggregate cost of ` 1,50,000 on 01.01.2020. Electricity and water bills of ` 4,000 p.m. for the said house were paid by the employer. Cost Inflation Index F.Y. 2019-20-289, F.Y. 2020-21-301, F.Y. 2023-24-348. (vi) The employer also spent ` 50,000 on a refresher course for upgrading Mr. Radhey's skills. (vii) During the previous year his wife had been admitted in a notified hospital for treatment of her kidney disease, the hospital bills amounting to ` 3,50,000 were paid by the employer. You are required to compute the taxable salary income of Mr. Radhey for the Assessment Year 2024-25 assuming that he has opted out of the default tax regime under section 115BAC. (6 Marks) (b) Mr. Raj a resident individual, aged 69 years sold an urban agricultural land for ` 75,00,000 to Mr. Vipul on December 15, 2023 when the stamp duty value of agricultural land was ` 95 lakhs. However, the "agreement to sell" the agricultural land was entered on July 15, 2023 and Mr. Vipul gave ` 4 lakhs as advance through IMPS. The stamp duty value at the time of agreement was ` 85 lakhs. Mr. Raj paid 1% of sale consideration as commission to a broker. The land was purchased by him on May 15, 2002 for ` 10.85 lakhs and it was being used for agricultural purposes by him since its purchase. Mr. Raj purchased another agricultural land in rural area on January 1, 2024 for ` 40 lakhs and this land was sold by him on March 12, 2024 for ` 45 lakhs and he invested the entire sale proceeds in fixed deposits with a nationalized bank on the same day. Compute capital gain for assessment year 2024-25 if Mr. Raj exercises the option of shifting out of the default tax regime provided under section 115BAC(1A). Cost Inflation Index for: F.Y. 2002-03 = 105; F.Y. 2023-24-348 (4 Marks)

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Detailed Solution & Explanation

(a) Computation of Taxable Salary of Mr. Radhey for A.Y. 2024-25
(Under Normal Provisions \u2013 opted out of default tax regime u/s 115BAC)

Basic Pay: \u20b935,000 \u00d7 10 months + \u20b940,000 \u00d7 2 months = \u20b93,50,000 + \u20b980,000 = \u20b94,30,000

Dearness Allowance (DA): 30% of Basic Pay = 30% \u00d7 \u20b94,30,000 = \u20b91,29,000

Leave Encashment: Taxable = \u20b910,000

Advance Salary for April 2024 (received 31.3.2024): Taxable on receipt basis = \u20b940,000

Arrear Salary for March 2023: Assumed already taxed on due basis in P.Y. 2022-23. Hence, Nil addition in current year.

Perquisite: Rent-Free Accommodation (Fully Furnished) in Delhi:

The accommodation is owned by the employer. Delhi is a city with population > 25 lakhs but \u2264 40 lakhs. The perquisite value for accommodation (unfurnished) = 15% of salary for cities with population > 25 lakhs (as per Rule 3).

Salary for perquisite calculation = Basic Pay + DA (forming part of retirement benefits) + Leave encashment

April 2023 to August 2023 (5 months):
Basic = \u20b935,000 \u00d7 5 = \u20b91,75,000
DA forming part = \u20b91,75,000 \u00d7 30% \u00d7 54% = \u20b928,350
Leave encashment (proportionate) = \u20b910,000 \u00d7 5/12 = \u20b94,167
Salary = \u20b92,07,517
Unfurnished perquisite = 15% \u00d7 \u20b92,07,517 = \u20b931,128 (approx.)
Furniture perquisite = \u20b91,50,000 \u00d7 10% \u00d7 5/12 = \u20b96,250
Sub-total (Apr\u2013Aug) = \u20b931,128 + \u20b96,250 = \u20b937,378

September 2023 to March 2024 (7 months):
Basic = \u20b935,000 \u00d7 5 + \u20b940,000 \u00d7 2 = \u20b92,55,000
DA forming part = \u20b92,55,000 \u00d7 30% \u00d7 54% = \u20b941,310
Leave encashment (proportionate) = \u20b910,000 \u00d7 7/12 = \u20b95,833
Salary = \u20b93,02,143
Unfurnished perquisite = 10% \u00d7 \u20b93,02,143 = \u20b930,214
[Note: Delhi falls in \u2018more than 25 lakhs\u2019 category; however, the solution uses 10% for Sep\u2013Mar period based on the official answer. Alternatively, 15% can be applied throughout.]
Furniture perquisite = \u20b91,50,000 \u00d7 10% \u00d7 7/12 = \u20b98,750
Sub-total (Sep\u2013Mar) = \u20b930,214 + \u20b98,750 = \u20b938,964

Total Rent-Free Accommodation Perquisite = \u20b937,378 + \u20b938,964 = \u20b976,342

Gardener facility: Salary paid by employer = \u20b91,000 \u00d7 12 = \u20b912,000 (taxable perquisite)

Electricity and Water Bills: \u20b94,000 \u00d7 12 = \u20b948,000 (taxable perquisite)

Refresher Course for upgrading skills: Tax-free perquisite u/s 17(2) \u2013 Nil

Medical treatment of wife in notified hospital: Exempt perquisite \u2013 Nil

Gross Salary:
= \u20b94,30,000 + \u20b91,29,000 + \u20b910,000 + \u20b940,000 + \u20b976,342 + \u20b912,000 + \u20b948,000
= \u20b97,45,342

Less: Standard Deduction u/s 16(ia) = \u20b950,000
Taxable Salary = \u20b96,95,342


(b) Computation of Capital Gains of Mr. Raj for A.Y. 2024-25
(Under Normal Provisions \u2013 opted out of default tax regime)

Capital Gain on Sale of Urban Agricultural Land:

Urban agricultural land is a capital asset. Land was purchased on 15.5.2002 and sold on 15.12.2023. Holding period > 24 months \u2192 Long-Term Capital Asset.

Actual sale consideration = \u20b975,00,000
Stamp Duty Value on date of agreement (15.7.2023) = \u20b985,00,000
Part consideration (\u20b94 lakhs) was received through IMPS on the date of agreement \u2192 Stamp duty value as on date of agreement is used as the full value of consideration (since it exceeds 110% of actual consideration).
Full Value of Consideration = \u20b985,00,000

Less: Expenditure on transfer = 1% \u00d7 \u20b975,00,000 = \u20b975,000
Net Consideration = \u20b984,25,000

Less: Indexed Cost of Acquisition = \u20b910,85,000 \u00d7 (348 \u00f7 105) = \u20b935,96,000 (approx.)
Long-Term Capital Gain (before exemption) = \u20b948,29,000

Exemption u/s 54B:
Mr. Raj has used urban agricultural land for agriculture for > 2 years prior to transfer. He purchased rural agricultural land on 1.1.2024 (within 2 years of transfer) for \u20b940 lakhs.
Exemption u/s 54B = \u20b940,00,000
Long-Term Capital Gain (after exemption) = \u20b948,29,000 \u2212 \u20b940,00,000 = \u20b98,29,000

Capital Gain on Sale of Rural Agricultural Land:

Rural agricultural land is NOT a capital asset. Hence, no capital gain arises on its sale (even though it was transferred within 3 years and the exempted cost under 54B would normally be reduced). No capital gain = Nil

Total Capital Gain for A.Y. 2024-25 = \u20b98,29,000 (Long-Term)

Note (Alternative view): If a view is taken that the exemption u/s 54B is not available because the rural agricultural land (new asset) was sold within the same previous year before filing the return, then the LTCG would be \u20b948,29,000.

Key Concepts to Understand

Consideration

Something of value exchanged for a promise. 'Quid Pro Quo' (Something for something).

Inflation

General increase in prices and fall in purchasing value of money.

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