aoc.pdf

Assessment of Companies
Dr. Gurumurthy K H
Asst. Prof. in Commerce
GFGC Magadi
9448226676
gurumurthykh@gmail.com
1

Scheme of taxing business income of companies,
a) Residential status of a company
Sec.2(26)Indian company Co.
(registered under the companies
act of India
Always resident
in India
Foreign company sec. 2(23A)
(not registered under the companies act
of India)
Part of mgt. and
control is in
India
If whole of its
Mgt. and
control is out
side India
2

Domestic Company and Corporate Tax
• A domestic company is a company formed and registered under the
Companies Act 1956 and also includes the company registered in
the foreign countries having control and management wholly
situated in India. It can be either a private or public company The
income of domestic co. is liable to tax in accordance with u/s194
– Current tax rate for Domestic companies PY 2018-19 (AY 2019-20)
Tax rate + Surcharge Cess
Gross turnover up
to Rs 250 crore
25% on
income
domestic co. 7% for book profit
between Rs 1 crore & Rs. 10 crore
(non domestic co. 2%)
4% of
income
tax plus
surcharge
Gross turnover
exceeding Rs 250
crore
30% on
income
domestic co. 12% if income
exceeds Rs 10 crore
(non domestic co. 5%)
3

Computation of Gross Total Income
of a company
1. Income under the head of “House property”
2. Income under the head of “profit and gain of
business or profession”
3. Income under the head of “Capital Gain”
4. Income under the head of “Income from
other sources”
4

Need to focus on
1. Set Off And Carry Forward Of Losses
2. Deductions out of Gross Total Income
• Set Off And Carry Forward Of Losses (Negative
income or loss)- Assessee can have negative income
i.e. loss under all the heads of income other than
income from salary is called negative income or loss.
– Deduction U/s 24 exceed annual value of house property
(HP), is a loss from HP.
– When allowed expenses exceed the business income, is a
loss from business.
– Cost of acquisition exceed net sales, it is a capital loss.
– Expenses U/S 57 exceeds the income then it is loss from
other source (individual income can show loss but not as a
whole head of income from other source).
5

Set off losses against Income
The Income-tax law in India does provide taxpayers some
benefits of incurring losses. The law contains provisions for .
1. Set off of losses- Set off of losses means adjusting the losses
against the profit/income of that particular year. Losses that
are not set off against income in the same year, can be carried
forward to the subsequent years for set off against income of
those years the following steps are followed to set of losses
– Intra-head set-off: setting-off losses under the same head of income. E.g if
one house property shows loss, sett-of such loss against income from another
HP.
– Inter-head set-off: setting-off losses under the different heads. E.g loss from
HP set off against income from salary
2. Carry forward of losses- After making the appropriate and
permissible intra-head and inter-head adjustments, there could
still be unadjusted losses. These unadjusted losses can be
carried forward to future years for adjustments against income
of these years
6

Carry forwarding provisions
• Loss from HP: can be carrying forward to next eight years and sett-off losses
against income from HP only.
• Loss from speculation: can be carrying forward to next four years and sett-off
losses against income from speculation only and not any other income from
business or profession.
• Loss from business specified U/S 35AD: can be carrying forward any number of
years and sett-off losses against income from business specified U/S 35AD
• Unabsorbed depreciation and unabsorbed capital expenditure on scientific
research : can be carrying forward any number of years and sett-off losses against
income from any heads except salary.
• Any other business loss: can be carrying forward to next eight years and sett-off
losses against any income from business and profession.
• Long term capital loss: can be carrying forward to next eight years and sett-off
losses against income from long term capital gain only.
• Short term capital loss: can be carrying forward to next eight years and sett-off
losses against any capital gain. (Short term or long term capital gain.)
• Loss from activity of owning and maintenance of race horses: can be carrying
forward to next four years and sett-off losses against income from horse race only.
– Order of preference set off loss
• B/F unabsorbed depreciation
• B/F business loss
• B/F capital expenditure on scientific research
7

80G
1. Without any qualifying limit
B category donations
 Jawaharlal Nehru Memorial Fund
 Prime Minister’s Drought Relief Fund
 National Children’s Fund
 Indira Gandhi Memorial Trust
 The Rajiv Gandhi Foundation
50% deduction
without any qualifying
limit
2. With qualifying limit
C category donations
 Donations to the Government or a local authority for the
purpose of promoting family planning.
 Sums paid by a company to Indian Olympic Association
100% deductions subject
to qualifying limit (i.e.
10% of adjusted gross
total income).
2. With qualifying limit
D category donations
 Donation to the Government or any local authority
to be utilized by them for any charitable purposes
other than the purpose of promoting family
planning.
 Any authority set up for providing housing
accommodation or for town planning
 Any notifies temple, mosque, gurudwara, church
or other place for renovation and repairs
50% deduction subject to
the qualifying limit (i.e.
10% of adjusted gross
total income) AGTI)
Donation under part C and D above shall not exceed the qualifying limit
(i.e. 10 % of AGTI)
AGTI=Gross total income- (LTCG-STCG-U/s 80C to 80U except 80G) 8

Summary of the deductions provision
80G
1. without any qualifying limit.
A category donations
 National defence fund , Prime minister’s national Relief fund
 Prime minister’s earth quake relief fund
 Africa (public contributions- India) fund
 National foundation of communal harmony
 A university or any educational institutional of national eminence
as may be approved by prescribed authority.
 Chief minister earth quake relief fund, Maharashtra
 Donations made to Zila Saksharta Samitis.
 The National or State Blood Transfusion Council
 The Army Central Welfare Fund or the Indian Naval Benevolent,
Fund or the Air Force Central Welfare Fund.
 Chief minister fund or lieutenant Governor ‘s relief fund
 National sport fund / National cultural fund set by central Govt.
 National illness assistance fund, Gujarat earth quake relief fund
 Any fund set by state gov to provide medical relief to poor
 Fund for technology development set by central gov.
 Trust for welfare of person with mental retradation
100%
deduction
without
any
qualifyin
g limit.
All
assessee
9

80GGA Donation for scientific research or rural development All Assessee100%
80GGB Contribution to political party or electoral trust Indian co.100%
80GGC Contribution to political party or electoral trust Any person100%
80JJA Business of collecting bio –degradable
waste
All assessee100% of
profit for 5yr
80JJAA Employment of new workmen Indian co. 30% of wages
80LA Income of off shore banking units/ 100% for 5 yrs &50 % for
next 5 yrs
80IA Profit from new infrastructure undertaking like
power , Roads, etc
Dedu.-100% of profit for 10
consecutive years
80-IAB Profit from enterprise engaged in development of
SEZ
Dedu.-100% of profit for 10
consecutive years
80-IB Profit from new undertaking like housing,
hospital, minerals, oil & natural Gas, food
processing
Dedu.-100% of profit for 1st
5 years & 30% profit for
next 5 years
80-IC Deduction for setting up undertaking in special
states
100% deduction is for the first
10 years. In case Himachal
Pradesh or Uttaranchal 100%
for the first 5 years and 30%
10

(Sec. 115JB) Book profit & Minimum Alternative Tax
• book profit” for the purposes of Section 115JB
means net profit as shown in the statement of
profit and loss prepared in accordance with
Schedule III to the Companies Act, 2013 as
increased and decreased by certain items
prescribed in this regard. The items to be
increased and decreased. The company shall
have to pay a minimum alternate tax at
18.5% on book profit (plus surcharge and
prescribed cess rate)
11

Format for computing book profit
Net profit as per P/L Account
(A). Positive Adjustment: Amount to be Added Back if Debited to Profit
and Loss Account:
1. Income-tax paid or payable, dividend distribution tax (DDT)
2. Amounts carried to any reserves, by whatever name called
3. Provision for unascertained liabilities
4. provision for losses of subsidiary companies
5. Amounts of dividends paid or proposed
6. Amount of expenditure relatable to certain incomes (if such income is
not subject to MAT or expenses relating to exempted income) u/s 10)
7. Amount of Depreciation debited to Profit & Loss A/C
8. Amount of deferred tax and the provisions thereof
9. Amounts set aside as provision for diminution in the value of any asset.
10. Amount standing in revaluation reserve relating to revalued asset on
the retirement or disposal of such asset
B Negative Adjustments -Amount to be Deducted from Net Profit:
1. Amount withdrawn from reserves or provisions credit to p/L a/c
2. Income exempt from tax (sec. 10,11, 12 & (10(38)
3. Depreciation as per IT & deferred tax
4. Withdrawn from revaluation reserve (it not exceed dept. on a/c of RV)
5. B/F loss or unabsorbed depreciation WHE as per books of accounts
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
xxx
Xxx
Xxx
Xxx
Xxx
xxx
Xxx
Xxx
Xxx
Xxx
Xxx
12

Format for Computation of assessable profits/loss for tax
Net profit as per P/L Account
Add: Amount debited to P/L A/c
1) *Inadmissible/Disallowed expenses
2) Overvaluation of opening stock and under valuation of closing stock
3) Business income not credited to P/L a/c, deemed income such as
bad debts recovered allowed earlier, sundry income/ sales commission
received/ discount received/ brokerage, interest from debtors, profit on
sale of import licence/refund of custom duty/ smuggling income/
export incentive/speculative income
Deduct:
1) *Admissible u/s 30 to 40A/Allowed Expenses but not deducted
2) Salary income (u/s 15) income from HP(u/s22), Capital gain(u/s 45)
3) Non-business income –Dividend, agricultural, int. rent LIC , rec. gift
4) Direct taxes refund such as Income tax, Wealth tax, estate duty,
5) Bad debts, excise duty recovered not allowed as expenditure PPY
6) Depreciation u/s 32,
7) Under valuation of opening stock and over valuation of closing stock
Income chargeable under income from business/profession.
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
xxx
Xxx
xxx
13

*Inadmissible/Disallowed expenses-
1) Capital losses (loss on sale of non- current assets) , Capital Exp.
(purchase of FA)
2) Personal expenses (drawings, marriage exp, life and medical insurance,
Premium, rent paid for own building contribution to NSC, PF, Interest on
loan for personal purpose, Charity and donation, and admission
expenses, speculative loss, Gifts and presents to others, family planning
exp. Excess dep. House hold exp.)
3) Income tax, gift tax, estate duty, tax penalty, fine wealth tax,
4) bonus &commission paid to employee, after due date of filing the returns,
5) contribution to staff welfare fund, political party,
6) preliminary expenses 4/5 is disallowed,
7) All reserves/provisions such as tax provision, Reserve for dividend,
provision for bad debts except provision for depreciation,
8) All expenses related to other heads of income,
9) Any payment made in excess of 10000 either in cash or bearer cheque
entire amount in inadmissible,
10) Non-business expenses, excess expenses debited
11) Sales tax, excise duty, custom duty, local taxes of the premises used for
business not paid on or before the due date (31st July of every year AY)
14

admissible/allowed expenses-
1) Repairs and renewals of business premises, Rent paid / rates related to
business, Bad debt, fire insurance paid for building and goods for business
2) Capital expenditure on scientific research carried by an assessee
3) Any contribution to approved institutions, university , college or other
institutions for the purpose of research in social science or statistical research is
deductable at the rate of 150% of actual contribution till Ay 2020. next 100%
4) Employer contribution to RPF, Group insurance for employee
5) sale tax paid before the due date
6) theft in office premises, poja expenses at office, demurrage (compensation for
delay) paid to railways, establishment expenses, audit fee, salary to employee,
office expenses, staff welfare expenses,
7) Interest on loan if taken for business, discount allowed, guest house and holiday
homes expenses, Post &Telegram, telephone bill related to bus. Loss of goods
or cash embezzled by an employee, legal exp. Fee filing income tax appeal.
Avoid bus. Liability
8) Festival exp., staff welfare expenses, tournament exp. Service charges
15

treatment of Tax free Incomes
Income which are exempted from tax are credited to
P/L a/c, such income should be deducted from net
profit to get taxable income
• Agricultural income,
• bad debts recovered but disallowed earlier,
• custom duty/ excise duty recovered but disallowed
earlier,
• dividend from an Indian company/ UTI,
• gift from father/relatives,
• income tax refund, refund from LIC, withdrawal from
PPF
16

Tax Holiday
• A tax holiday is a temporary reduction or elimination of a tax. It is
synonymous with tax abatement, tax subsidy or tax reduction.
Governments usually create tax holidays as incentives for business. Tax
holidays have been granted by governments at national, sub-national, and
local levels, and have included income, property, sales and other taxes.
Some tax holidays are extra-statutory concessions,
• Tax holidays forms (examples)- In developing countries governments
sometimes reduce or eliminate corporate taxes for the purpose of
– Attracting foreign direct investment or
– stimulating growth in selected industries.
– A tax holiday may be granted to particular activities or In particular to
develop a given area of business to particular taxpayers
– A tax holiday offers a period of exemption from income tax for new
industries in order to develop or diversify domestic industries.
– Tax holiday As per IT Act (80-IA, 80-IAB, 80-IB)
17

COMPUTATION OF TAX LIABILITY
• Step 1: Total Income-Compute total income of the company
as per the provisions of Income Tax Act, 1961
• Step 2: Regular Tax Liability-Regular tax rates 25% (less
than 250 cr co.) or @30% (more than 250 cr. Turnover co.)
• Step 3: Book Profit-as per Section 115JB
• Step 4: MAT Liability-tax @ 18.50% on Book Profit +
(Surcharge) + (Education Cess)
• Step 5: Tax Payable-Tax Liability shall be higher of the step
2 or step 4
18

Examples -1 Compute the tax payable by a company for the AY 2019-20 if
(a) Its total income is Rs 4,00,000 and book profit (sec 115JB) is Rs 15,00,000 or
(b) its total income is Rs 6,20,000 and book profit is Rs 10,00,000
(c) Both case company turnover exceeds Rs 250 cr. During the Previous Year
Solution Case (a) Rs
Tax on normal profit ,Steps -1 total income (given 4,00,000)
Steps -2 Tax on total income ( 4,00,000*.30)
Add; Surcharge
1.20,000
0
Tax
Add: health and education cess @4% on tax (120000*.04)
1,20,000
4,800
Steps-2 Total tax on normal rate 1,24,800
Tax on book profit Steps -3 book profit (given Rs 15,00,000)
Steps-4 Tax @18.5% of book profit (15,00,000*.185)
Add: surcharge
2,77,500
0
Tax
Add: cess 4% (277500*.04)
2,77,500
11,100
Steps-4 Total tax on MAT 2,88,600
Steps -5 tax liability higher the Steps -2 or steps-4 (MAT is higher than the normal
rate , hence co. tax liability shall be Rs 2,88,600)
19

Solution Case (b) Rs
Add; Surcharge
1.86,000
0
Tax
1,86,000
7,440
Steps-2 Total tax on normal rate 1,93,440
Add: surcharge
1,85,000
0
Tax
Add: cess 4% (277500*.04)
1,85,000
7,400
Steps -5 tax liability higher the Steps -2 or steps-4 (MAT is lesser than normal rate ,
hence co. tax liability shall Rs 1,93,400)
20

(a) Its total income of XYZ co. is Rs 2,50,000 and book profit (sec 115JB) is
Rs 8,15,000 company turnover did not exceeds Rs 250 cr. In the Previous year
Solution -2 Rs
Add; Surcharge
62,500
0
Tax
62,500
2,500
Steps-2 Total tax on normal rate 65,000
Add: surcharge
1,50,775
0
Tax
Add: cess 4% (1,50,775*.04)
1,50,775
6,031
21

Example-3 Rao limited a domestic Ltd, provides you following statement of profit and loss
showing a net profit of Rs 18,88,000 for computation of tax liability for Assessment year
2019-20
Expenses charged Rs Items included Rs
Purchases
Direct wages
Freight
Salaries
General Expenses
Sales expenses
Directors remuneration
Income tax
Penalty
Proposed dividend
Provision for loss of subsidiary co.
1875000
845000
12500
850000
435000
215000
832000
180000
10000
320000
200000
Sales
Closing stock
Dividends for Indian co,
7525000
110000
17500
Additional information
1. Purchases include one bill of Rs 60000 which payment was made in cash
2. Gen.exp. include Rs 15000 as interest on loan taken from . This interest not paid so far
3.
(i) Brought forward losses
(ii) Un absorbed depreciation
As per IT
280000
170000
As per Book
140000
50000
22

Solution 3 Step-1 calculation of tax liability under normal provision for income tax Act
Calculation of Income under profit & Gain Rs
Sales
Add: disallowed items/expenses
Purchases (cash )
General Expenses (o/s Interest)
Income tax
Penalty (excise)
Proposed dividend
60000
15000
180000
10000
320000
200000
1888000
785000
Less: exempted income /non -bus income credit to p/L
Dividend
2673000
17500
Balance 2655500
450000
Setoff losses: (i) Unabsorbed depreciation as per IT
(ii) B/F losses as per IT
170000
280000
Income under PGBP
Add: Income from HP , CG, IFOS
Gross total income
Less: deduction u/s 80
2205500
0
2205500
0
Taxable Income 2205500
23

Steps -2 Tax on normal profit : total income (2205500*.3)
Add; Surcharge
551375
0
Tax
551375
22055
Steps-2 Total tax on normal rate 573430
24

Step-3 calculation of Book profit (u/s 115JB)
Calculation of Income under profit & Gain Rs
Sales
Add: positive adjustment
Income tax
Proposed dividend
180000
320000
200000
1888000
700000
Less: negative adjustment
Dividend
2588000
17500
Income under head business and Profession 2570500
50000
Setoff (i) Unabsorbed depreciation as per book WEL
(ii) ) B/F losses as per book
50000
140000
Gross total income
Less: deduction u/s 80
2520500
0
Taxable Income 2520500
25

Steps-4 Tax @18.5% of book profit (2520500*.185)
Add: surcharge
466293
0
Tax
Add: cess 4% 466293*.04)
466293
18652
Steps-4 Total tax on MAT 484945
Steps -5 tax liability higher the Steps -2 or steps-4 (MAT is lesser than the normal
rate , hence co. tax liability shall be Rs 573430)
26

Example 4-PQR Ltd. is engaged in manufacturing of goods. It
provides following information for the previous year 2018-19.
Particular Rs Particular Rs
Cost of Goods sold
Entertainment Expenses
Travelling Expenses
Salary & Wages
Salary to Directors
Professional fee
Depreciation
Provision for bad and doubt debt
Penalty as per IT ACT
Interest for late filing
Wealth Tax ( PY 2013-14)
O/S custom duty
Prov. for unascertained Liability
Loss of subsidiary co.
Prov. For IT
Proposed dividend & CDT
Net profit
Total
7,02,52,000
19,500
31,500
1,75,000
4,50,000
29,000
5,17,000
16,000
10,000
2,000
15,000
21,000
75,000
39,000
2,25,000
64,350
19,99,000
7,39,40,350
Sales
Interest on FD
Dividend (from Indian
Companies)
Deferred Tax
Share from AOP (where
AOP had paid tax at
Maximum Marginal
Rate)
Total
7,36,19,350
1,54,900
1,00,000
25,000
41,100
7,39,40,350
27

Additional Information
• 1) Depreciation of Rs.5,17,000 includes depreciation of Rs.17,000
on account of upward revaluation of fixed asset.
• (2) Brought forward loss and unabsorbed depreciation as per books
of accounts is Rs.2,10,000 and Rs.6,000 respectively.
• (3) Depreciation allowable under section 32 of Income Tax Act was
Rs. 5,36,000
• (4) Brought forward business loss for tax purpose Rs. 13,52,000
• (5) Brought forward unabsorbed depreciation for tax purpose Rs.
13,000
• (6) Company is eligible for deduction under section 80-IC @ 30%
• (7) Total turnover of the company for the previous year 2018-19 was
Rs. 256.05 Cr.
• Compute tax liability.
28

Solution-Step 1: Computation of Total Income
Particular Rs Rs
Net Profit as per Profit & Loss Account
Add: Dis. allowed Exp.
Depreciation
Provision for Bad and doubtful Debts
Interest for late filing of income tax return
Provision for unascertained liabilities
Loss of subsidiary company
Penalty under Income Tax Act
Custom Duty (Assuming that it has not paid
before due date).
Wealth Tax (P.Y. 2013-14)
Provision for Income Tax
Proposed Dividend and CDT
Less: Allowed Exp./income
Dividend from Indian Companies
Interest on FD (to be considered under "IFOS")
Deferred Tax
Income of AOP (which is not subject to tax)
Depreciation as per 32 IT
Balance
5,17,000
16,000
2,000
75,000
39,000
10,000
21,000
2,25,000
15,000
64,350
(1,00,000)
(1,54,900)
(25,000)
(41,100)
(5,36,000)
19,99,000
9,84,350
(8,57,000)
21,26,350
29

Balance
Less: brought business loss
Balance
Less: un absorbed dep.
income under PGBP
Add: Interest on FD (to be considered under "IFOS")
Gross total Income
Less: Deduction under section 80IB (30% of PGBP)
Total Income
21,26,350
(13,52,000)
7,74,350
(13,000)
7,61,350
1,54,900
9,16,250
2,28,405
6,87,845
Step 2-Computation of Regular Tax Liability
Regular tax @ 30% of Total Income
Add: education Cess: (4%) on 2,06, 354
Tax liability in step -2
2,06,354
8254
2,14,608
30

Solution-Step 3: Computation of Book Profit
Particular Rs Rs
Add: Positive Adjustments/statutory additions
Depreciation
Provision for Bad and doubtful Debts
Interest for late filing of income tax return
Loss of subsidiary company
Provision for Income Tax
Proposed Dividend and CDT
Less: Negative Adjustments/ Statutory deductions
Dividend from Indian Companies (exempt)
Deferred Tax
Income of AOP (which is not subject to tax)
Depreciation (excl.dep. on a/c of revaluation)
Brought forward loss or unabsorbed dep. whichever is
lower [as per books of accounts]
Book Profit
5,17,000
16,000
2,000
75,000
39,000
2,25,000
64,350
(1,00,000)
(25,000)
(41,100)
(5,00,000)
(6,000)
19,99,000
9,38,350
(6,72,100)
22,65,250
Step 4-MAT Liability= MAT @18.5% of Book Profit Rs. 22,65,250
Educ.Cess 4% on 4,19,071
Mat liability
4,19,071
16,763
4,35,834

Step 5: Final Tax Payable
Particular Rs
Regular Tax Liability as per Step 2 which ever is higher
MAT Liability as per Step 4 is tax liability
2,14,608
4,35,834
Tax liability 4,35,834
32

Example-5-Sona Ltd., a resident company, earned a profit of Rs.15 lakhs
after debit/credit of the following items to its Statement of Profit and Loss
Items debited to Statement of Profit and Loss:
Particular RS
Provision for the loss of subsidiary
Provision for doubtful debts
Provision for income-tax
Provision for gratuity based on actuarial valuation
Depreciation
Interest to financial institution (unpaid before filing of return)
Penalty for infraction of law
70,000
75,000
1,05,000
2,00,000
3,60,000
1,00,000
50,000
Items credited to Statement of Profit and Loss:
Profit from unit established in special economic zone.
Share in income of an AOP as a member
Income from units of UTI
Long term capital gains
5,00,000
1,00,000
75,000
3,00,000
Other Information: (i) Depreciation includes Rs. 1,50,000 on account of revaluation of fixed assets.
(ii) Depreciation as per Income-tax Rules is Rs. 2,80,000.
(iii) Balance of Statement of Profit and Loss shown in Balance Sheet at the asset side was Rs. 10 lakhs which
includes unabsorbed depreciation of Rs. 4 lakhs.
(iv) The capital gain has been invested in specified assets under section 54EC.
(v) The AOP, of which the company is a member, has paid tax at maximum marginal rate.
(vi) Provision for income-tax includes Rs. 45,000 of interest payable on income-tax.
Compute minimum alternate tax under section 115JB of the Income-tax Act, 1961.
33

Solution -5 Computation of Book Profit
Particulars RS
Net Profit as per profit and loss account
Positive Adjustments/statutory additions
Provision for the loss of subsidiary
Provision for doubtful debts,
Provision for income-tax
Depreciation
Negative Adjustments/statutory deductions
Share in income of an AOP as a member
Income from units in UTI [Income from units in UTI shall be reduced while
computing the book profits, since the same is exempt under section 10(35)]
Depreciation other than dep. on revaluation of assets(Rs.3,60,000–Rs.1,50,000)
Unabsorbed dep. or b/f business loss, whichever is less, as per the books of
account.[Here, unabsorbed dep. is Rs.4,00,000 while b/f business loss Rs 6,00,000
15,00,00
70,000
75,000
1,05,000
3,60,000
(1,00,000)
(75,000)
(2,10,000)
(4,00,000)
Book Profit 13,25,000
MAT @18.5% of Book Profit (Rs. 13,25,000)
Add: education Cess: (4%)
2,45,125
9,805
MAT Liability
2,54,930
34

Example-6,
VPG Ltd, is domestic company, which shows a net profit of Rs
13,50,000 for the year ending 31-3-2019. this included the following
debits to income statements
1. Rs 3,50,000 has been distributed as dividend among the
shareholders during the PY 18-19
2. Interest amounting to Rs 10,000 paid on loan taken for the payment
of company liability for excise duty during the PY 2018-19
3. Interest amounting Rs 34,000 paid on the loan taken to pay income
tax
4. (a) Expenditure on foreign visit of a director of the company was
Rs 1,45,000 which was incurred in the following manner
1. England to finalize an agreement for out sourcing from India
Rs 70,000
2. Sweden to purchase machinery Rs 75,000
(b) His wife accompanied director on trip to England. A sum of Rs
24,000 was spent by the company towards her foreign trip expenses
which are included in the above expenditure
5. Company incurred Rs 1,45,000 on maintenance of holiday home
35

6. Company incurred expenditure of Rs 90,000 as follows
(a) advertisement in newspaper amount paid in cash Rs 22,000
(b) Advertisement in souvenir of political party Rs 20,000
7. Rs 18,000 paid as legal expenses in respect of proceedings
before income tax authorities
8. Penalty for Rs 36,000 for importing yarn in contravention of
import regulation
9. The total income included
(a) Long-term capital gain on the sale of investment Rs 1,20,000
(b) Short-term capital gains Rs 1,05,000
10. The company was maintaining a stud for race horses and there
was stake money of Rs 2,00,000 and expenditure on
maintenance of horse amounted to Rs 3,70,000. these amounts
have not been included in statement of profit and loss
11. Depreciation for the year amount to Rs 1,25,600 which have
not been debited
Compute tax liability as per normal provision (assume
company turnover not exceeding 250 cr)
36

Solution-6, Step 1: Computation of Total Income
Particular Rs Rs
Add: Dis. allowed Exp.
Dividend paid to share holder
Interest on loan for payment of income tax
Expenditure on wife trip to England
Expenditure on trips to Sweden to purchase machinery
Advertisement in cash (100%)
Advertisement in a souvenir of a political party
penalty
Less: Allowed Exp./Non-business income
Depreciation for the year
Long-term capital gain
Short-term capital gains
3,50,000
34,000
24,000
75,000
22,000
20,000
36,000
1,25,600
1,20,000
1,05,000
13,50,000
5,61,000
19,11,000
(3,50,600)
Balance
Less: brought business loss
Balance
Less: un absorbed dep.
Income from PGBP
0
0
15,60,400
0
0
15,60,400
37

income under PGBP
Add: (i) income from HP
(ii) income from PGBP
(iii) Income from capital gain
LTCG
STCG (not covered sec.111A ) taxable at normal rate
(iv) income from other source
Horse race stake money 2,00,000
Less: maintenance exp. 3,70,000
Loss to be carried forward
0
0
1,20,000
1,05,000
(1,70,000)
15,60,400
2,25,000
0
Gross total Income
Less: Deduction under section 80
Total taxable Income
17,85,400
0
17,85,400
LTCG (120000*.20)
Regular tax @ 25% of Total Income (17,85,400-1,20,000)1665400*.25)
Add: Surcharge
Add: education Cess: (4%) on 440350)
24,000
4,16,350
4,40,350
0
17,614
4,57,964
38

Example-7-Kwality Electronics ltd is a domestic
company in which public are substantially interested.
The following are the particulars of income in respect of
the previous 2018-19. compute company total income
and its net tax liability
Particular RS
Interest on Government securities (gross)
income from business
Long-term capital gains
Dividend from Indian co. (gross)
Dividend from foreign company
Book profit u/s 115JB
20,000
5,00,000
15,000
33,000
10,000
10,000
9,00,000
39

Solution-7- Steps-1 Computation of Total Income Rs
1. Income from HP
2. income from business
3. Income from capital gain
4. Income from other source
Interest on Government securities
Dividend from Indian co. (gross)
Dividend from foreign company
15,000
33,000
20,000
Exempt
10,000
0
5,00,000
48,000
30,000
Gross total Income
5,78,000
0
5,78,000
LTCG (33000*.20)
Regular tax @ 25% of Total Income (5,78,000-33,000)=(545000*.25)
Add: Surcharge
Add: education Cess: (4%) on 1,42,850)
6,600
1,36,250
1,42,850
0
5,714
1,48,564
40

Steps-3 book profit (given)
Add: surcharge
1,66,500
0
Tax
Add: cess 4% (166500*.04)
1,66,500
6,660
Steps -5 tax liability higher the Steps -2 or steps-4 (MAT is higher tax liability than
the normal rate , hence co. tax liability shall be Rs 1,73,160)
41

Example-8- A domestic company submit The following are the
particulars of income in respect of the previous 2018-19. compute company
total income and tax payable by it for the AY 2019-20
Particular RS
Profit of business after deduction of donations to approved
charitable institution
Donation to charitable institution by cheque
Interest on Govt. securities
Dividend from a domestic company (gross)
Long-term capital gain
Book profit u/s (115JB
4,00,000
50,000
20,000
60,000
1,00,000
10,00,000
During the financial year 2018-19 the company deposited in Industrial
development bank of India .
The company distributed a dividend of Rs 1,00,000 on 6-9-2018
42

Solution-8- Steps-1 Computation of Total Income of business Rs
1. Income from HP
Add: donation
Interest on Government securities
Dividend from domestic co.
4,00,000
50,000
20,000
Exempt
0
4,50,000
1,00,000
20,000
Gross total Income
Less: Deduction under section 80 G
Donation 50% AGTI (570000-100000=470000*.1)=47000*.5
5,70,000
23,500
5,46,500
LTCG (1,00,000*.20)
Regular tax @ 25% of Total Income (5,46,500-1,00,000)=(446500*.25)
Add: Surcharge
Add: education Cess: (4%) on 1,31625)
20,000
1,11,625
1,31,625
0
5,265
1,36,890
43

Steps-3 book profit (given)
Add: surcharge
1,85,000
0
Tax
Add: cess 4% (166500*.04)
1,85,000
7,400
Steps -5 tax liability higher the Steps -2 or steps-4 (MAT is higher tax liability than
44

Example-9- X ltd company submit The following are the
particulars of income in respect of the previous 2018-19. keeping in view the
provision of MAT u/s 115JB for AY 2019-20
Particular RS
Revenue from operation
Other income, Long-term capital gain
10,00,000
1,00,000
Expenses;
Expenses relating to business
other expenses- provision for contingent liability
Provision for diminution in value of an asset
Dividend distribution tax
Tax expenses- income tax paid
6,00,000
40,000
50,000
10,382
20,000
11,00,000
( 7,20,382)
Profit for the year
Add: deferred tax
Less: appropriation
Transfer to general Reserve
Dividend paid
Balance of profit carried to B/S
1,80,000
49,618
3,79,618
1,00,000
4,79,618
(2,29,618)
2,50,000
Additional information: (1) B/F loss as per gook of account Rs 3,00,000 (2) B/F depreciation as
per book Rs 2,80,000 (3) B/F loss under the head capital gains Rs 60,000 (4) B/F unabsorbed
depreciation Rs 4,50,000
45

Profit as per P/L a/c
Add: expenses disallowed
Income tax paid
General reserve
Provision for contingent liability
Dividends paid
20,000
1,80,000
40,000
50,000
49618
10382
2,50,000
3,50,000
Less: Non business income
Deferred tax
long-term capital gain
Business Income
1,00,000
1,00,000
6,00,000
2,00,000
4,00,000
46

1. Income from HP
0
4,00,000
1,00,000
0
Total Income
Less :set off (i) unabsorbed depreciation
Balance of profit
Less: set off B/F capital loss
Gross total Income
5,00,000
(4,50,000)
50,000
50,000
00
0
Tax liability in step -2 0
Note B/F loss under the head of capital Gain C/F to next year (60,000-50000) 10,000
47

Solution-9- Steps-3 Computation of book profit (sec. 115JB) Rs
Income tax paid
General reserve
Provision for contingent liability
Dividends paid
20,000
1,80,000
40,000
50,000
49618
10382
2,50,000
3,50,000
Less: Negative adjustment
Deferred tax
B/F loss as per book WEL
B/F depreciation as per book
Book profit
3,00,000
2,80,000
1,00,000
2,80,000
6,00,000
3,80,000
2,20,000
Add: surcharge
40,700
0
Tax
Add: cess 4% (40700*.04)
Tax payable
40700
1630
42330
48

Example-10- XYZ ltd company submit The following are the particulars of income in
respect of the previous 2018-19. keeping in view the provision of MAT u/s 115JB for AY 2019-20
Particular RS
Revenue from operation
Other income, Interest on Govt. securities
30,00,000
25,000
Expenses;
Depreciation and amortization
Expense related to sales
1,50,000
23,20,000
30,25,000
( 24,70,000)
Profit for the year before tax
Tax expenses-income tax paid
Profit for the year
5,55,000
1,00,000
4,55,000
Surplus statement
Profit /Loss as per last B/S
Current year profit
Less: appropriation
Proposed dividend
Balance of profit carried to B/S
0
4,55,000 4,55,000
(2,50,000)
2,05,000
Additional information: (1) B/F loss as per gook of account Rs 2,00,000 (2) B/F depreciation
as per book Rs 50,000 (3) B/F unabsorbed depreciation Rs 1,00,000 (4) the company revalued its
assets from Rs 3,00,000 to Rs 6,00,000 and provided depreciation on Rs 6,00,000 @ 25%. The
depreciation allowed under the Income tax Rs 80,000
49

Add: expenses disallowed
Transfer to General reserve
Income tax paid
Proposed dividend
Depreciation (6,00,000*.25)
0
0
1,00,000
2,50,000
1,50,000
2,05,000
5,00,000
Less: Non business income/ allowed Exp.
Transferred from General reserve
depreciation as per IT
Interest on securities
Business Income
0
80,000
25,000
7,05,000
1,05,000
6,00,000
50

1. Income from HP
0
6,00,000
0
25,000
Total Income
Less :set off (i) unabsorbed depreciation
Balance of profit
Less: set off B/F capital loss
Gross total Income
6,25,000
(1,00,000)
5,25,000
00
0
5,25,000
Tax liability in step -2 (5,25,000*.25)
Add: surcharge (131250*,04)
Add. Cess 4% (131250*.04)
1,31,250
0
1,31,250
5,250
Taxable payable under normal rate 1,36,500
51

Solution-9- Steps-3 Computation of book profit (sec. 115JB) Rs
Income tax paid
Proposed dividend
Depreciation (6,00,000*.25)
1,00,000
2,50,000
1,50,000
2,05,000
5,00,000
Less: Negative adjustment
Depreciation (300000*.25)
B/F loss as per book WEL
B/F depreciation as per book
Book profit
2,00,000
50,000
75,000
50,000
7,05,000
1,25,000
5,80,000
Add: surcharge
1,07,300
0
Tax
Add: cess 4% (107300*.04)
Tax payable
1,07,300
4,300
1,11,600
Steps -5 tax liability higher the Steps -2 or steps-4 (MAT is lesser tax liability than
(Note: total income does not exceeds Rs one core. Hence surcharge is not payable)
52

(a) Its total income of ABC co. is Rs 3,50,000 and book profit 2018-19 (sec 115JB) is
Rs 12,00,000 company turnover did not exceeds Rs 250 cr. In the Previous year
Solution -11 Rs
Add; Surcharge
87,500
0
Tax
87,500
3,500
Steps-2 Total tax on normal rate 91,000
Add: surcharge
2,22,000
0
Tax
Add: cess 4% (222000*.04)
2,22,000
8,880
(Note: total income does not exceeds Rs one core. Hence surcharge is not payable)
53

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