Problems & solutions with the explanations of important terms in Income Tax

1. ACCOUNTING TREATMENT ON
CASUAL INCOMES & INTEREST ON
SECURITIES IN INCOME TAX
DR. C. SAFFINA
ASSISTANT PROFESSOR OF COMMERCE (CA)
BON SECOURS COLLEGE FOR WOMEN
THANJAVUR.
HOSTED BY:

3. PROBLEM 1:
Compute ‘Income from other sources ’from the following information
for the financial year 2018-19:
a) Amounts won from: Rs.
Lottery 70,000
Betting on House Racing 7,000
b) Amounts received from:
Lottery 63,000
Betting on Horse Racing 42,000
c) Income from:
Lottery 3,500
Betting on Horse Racing 1,000

4. Solution:
Computation of Income from other sources for the previous year 2018-19
Particulars Rs.
I. Winnings from lottery 70,000
Winnings from betting on Horse Racing 7,000 77,000
II. Amount received from lottery:
Net: Rs. 63,000
Gross: 63,000 x 100/100-30 90,000
Amount received from betting on Horse racing:
Net: Rs. 42,000
Gross: 42,000 x 100/100-30 60,000 1,50,000
III. Income from Lottery 3,500
Income from betting on Horse racing 1,000 4,500
Income from other sources 2,31,500

5. NOTES:
1)When ‘Amounts won’ are given in relation to lottery and
betting on horse races, they represent gross amounts.
Grossing up is not needed.
2)When ‘Amounts received’ are given in relation to lottery
and betting on horse races, they represent ‘Net’ amounts.
Grossing up is required at the rate applicable to the
previous year concerned.
3)When the income is less than Rs. 10,000 in case of
lotteries and Rs. 5,000 in case of income from betting on
horse racing, grossing up can be ignored.

6. Problem : 2
Mr. X owns horses at Bangalore and Delhi. The horses run in races at the Respective race
courses. During the year 2018-19, Mr. X submits the following information.
Rs.
a) Expenses on race horses at Bangalore 4,00,000
b) Expenses on race horses at Delhi 6,00,000
c) Stake money earned by horses at:
i) Bangalore 5,00,000
ii) Delhi 3,00,000
d) Mr. X received Rs, 1,26,000 on betting during horse races at
Bangalore
e) X also received Rs. 49,000 as lottery winnings and his winnings
from card games were Rs. 20,000 during the year.
Compute the income from other sources of Mr.X for the assessment
Year 2019-20.

7. Computation of Income from other sources of Mr. X.for the Assessment year 2019-20
Particulars Rs Rs
i) Income from maintenance of horses:
Stake money earned at Bangalore 5,00,000
Stake money earned at Delhi 3,00,000
8,00,000
less: Expenses:
At Bangalore 4,00,000
At Delhi 6,00,000 10,00,000
Loss from maintenance of horses carried
forward for 4 year -2,00,000 NIL
ii) Casual income:
Income from betting on horses: Net: Rs. 1,26,000
Gross Amount: 1,26,000 x 100/100-30 1,80,000
Lottery winnings : Net Rs. 49,000
Gross Amount: 49,000 x 100/100-30 70,000
Income from card games 20,000 90,000 2,70,000
Income from other sources 2,70,000

8. Stake Money :
Income by way of stake money means the gross
amount of prize money received on a race horse or
race horses by the owner thereof on account of the
horse or horses or any one or more of the horses
winning or being placed second or in any lower
position in horse races
NOTE: Expenditure on horse maintenance can
be set off only against stake money. It cannot be
set off against any other income.

10. Problem no :3.
a) Investment in tax free 10% debentures in A limited
(unlisted) Rs. 1,00,000.
b) Rs. 1,000 as interest on central government bonds.
c) Rs. 2,700 has interest on tax free debentures of C
limited.
d) Interest receive on debentures in Y limited (listed)
Rs. 45,000.
Determine Mr. James interest on securities under the
head income from other sources for the assessment
year 2019-20.

11. Computation of income from other sources of Mr. James for the AY 2019-20
Particulars Rs. Rs.
Interest on tax free 10% debentures in A limited
(unlisted) (1,00,000 x 10 / 100) Net: 10,000
Gross : 10,000 x 100 / 100 – 10
= 10,00,000 / 90 11,111
Interest on central government bonds. (no TDS) 1,000
Interest on tax free debentures of C limited .
2,700 x 100 / 100 - 10 3,000
Interest receive on debentures in Y limited (listed)
Net:45,000
Gross: 45,000 x 100 / 100 – 10 50,000
Income from other sources 65,111

12. Note:
1. Interest received indicates the net amount and it
should be grossed up
2. Rate of tax is 10% on listed securities and
unlisted securities.
3. Gross amount of Interest = Net amount x 100 /
100 – 10.

13. THANK YOU
suggestions can be send to
dr.saffina@gmail.com