CMA (Cost & Management Accountancy) Intermediate: Direct and Indirect Taxation Syllabus

What is the maximum deduction for interest on borrowed capital for a self-occupied house property under Section 24(b)?

For a self-occupied property, interest on a loan taken for acquisition/construction is deductible up to $\rupee 2{,}00{,}000$ (if the construction is completed within 5 years from the end of the financial year of borrowing); otherwise the limit is $\rupee 30{,}000$.

How is the Net Annual Value of a self-occupied property treated under Section 23(2)?

The Net Annual Value (GAV) of a self-occupied property is taken as NIL. Consequently, no standard deduction applies, but interest on borrowed capital can still be claimed (subject to the $\rupee 2{,}00{,}000$ limit), which may create a loss under this head.

List the items deductible while computing 'Profits and Gains of Business or Profession' under Sections 30 to 37.

Rent, rates, repairs and insurance of building (Sec 30); repairs and insurance of machinery/plant/furniture (Sec 31); depreciation (Sec 32); specified deductions (Secs 33–35); other allowances (Sec 36); and general business expenditure not being capital/personal (Sec 37(1)).

What three conditions must an expense satisfy to be allowed under the general deduction of Section 37(1)?

It must be: (1) not covered under Sections 30–36, (2) not capital or personal in nature, and (3) incurred wholly and exclusively for the purpose of the business or profession (and not for any purpose that is an offence or prohibited by law).

Under Section 40A(3), what is the consequence of making a payment exceeding the cash limit?

If a payment for an expense exceeds $\rupee 10{,}000$ (or $\rupee 35{,}000$ for transporters) in a day other than by account-payee cheque/draft or electronic mode, 100% of that expenditure is disallowed.

Under Section 40(a)(ia), what happens if TDS is not deducted on a payment to a resident?

30% of the expenditure on which tax was deductible but not deducted (or not deposited) is disallowed. The disallowed amount is allowed in the year in which the TDS is subsequently deducted and paid.

What is the treatment of income tax paid as an expense in business computation?

Income tax paid is expressly disallowed under Section 40(a)(ii) as it is an application of profit, not an expense incurred to earn profit. It cannot be deducted while computing business income.

What method of depreciation is prescribed under Section 32 of the Income Tax Act for most assets?

The Written Down Value (WDV) method is prescribed, applied block-wise on the 'block of assets'. (The Straight Line Method is available only to certain power-generating undertakings under Section 32(1)(i).)

Define a 'block of assets' under Section 2(11) for depreciation purposes.

A block of assets is a group of assets falling within a class (tangible: buildings, machinery, plant, furniture; or intangible: know-how, patents, copyrights, trademarks, licences, franchises) in respect of which the same percentage of depreciation is prescribed.

What is the rule for 'half-depreciation' under the second proviso to Section 32(1)?

If an asset is acquired during the previous year and put to use for less than 180 days in that year, depreciation is allowed at 50% of the normal rate for that year.

What is 'additional depreciation' under Section 32(1)(iia) and at what rate?

An assessee engaged in manufacturing or production (or power generation) gets additional depreciation at 20% of the actual cost of new plant and machinery acquired and installed (10% if used for less than 180 days, with the balance 10% allowed in the next year).

How are capital gains classified, and what determines the classification for listed equity shares?

Capital gains are Short-Term (STCG) or Long-Term (LTCG) based on the holding period. For listed equity shares/units of equity-oriented funds, the holding period threshold is 12 months; holding beyond 12 months makes it a long-term capital asset.

What is the general formula for computing Long-Term Capital Gain (with indexation)?

$$\text{LTCG} = \text{Full value of consideration} - (\text{Indexed cost of acquisition} + \text{Indexed cost of improvement} + \text{Transfer expenses})$$ where indexed cost $= \text{Cost} \times \dfrac{\text{CII of year of transfer}}{\text{CII of year of acquisition}}$.

State the tax rates on STCG under Section 111A and LTCG under Section 112A for listed equity shares.

STCG on listed equity (with STT) under Section 111A is taxed at 15%. LTCG under Section 112A is taxed at 10% on gains exceeding $\rupee 1{,}00{,}000$ in a year, without indexation. (Rates were revised to 20% and 12.5% respectively by the Finance Act 2024.)

What is the exemption under Section 54 of the Income Tax Act?

Section 54 exempts LTCG arising on the transfer of a residential house property if the gain is reinvested in purchasing another residential house (within 1 year before or 2 years after) or constructing one (within 3 years). Unutilised amounts must be deposited in the Capital Gains Account Scheme.

Name three incomes that are charged under the head 'Income from Other Sources' under Section 56.

Examples: dividends, interest on securities, winnings from lotteries/crossword puzzles/races/gambling, family pension, and gifts of money or property exceeding $\rupee 50{,}000$ (Section 56(2)(x)) received without adequate consideration.

At what rate are casual incomes such as lottery winnings taxed under Section 115BB?

Winnings from lotteries, crossword puzzles, card games, races, and other games of chance are taxed at a flat rate of 30% (plus surcharge and cess), with no deduction for any expenditure or allowance and no basic exemption benefit.

What is 'clubbing of income' and give one example under Section 64.

Clubbing means including another person's income in the assessee's total income. Example: under Section 64(1)(ii), income arising to a spouse from a concern in which the individual has substantial interest is clubbed (unless the spouse possesses technical/professional qualifications and the income is attributable to it).

How is the income of a minor child treated under Section 64(1A)?

A minor child's income is clubbed with the income of the parent whose total income (before clubbing) is higher. An exemption of $\rupee 1{,}500$ per child is allowed under Section 10(32). Income from the minor's own skill, talent, or manual work is not clubbed.

State the rules for inter-head set-off of losses, including the two exceptions.

Generally, loss under one head can be set off against income under another head in the same year (Section 71). Exceptions: (1) business loss cannot be set off against salary income, and (2) loss from house property set-off against other heads is capped at $\rupee 2{,}00{,}000$ per year.

For how many years can business losses and unabsorbed depreciation be carried forward?

Business losses (non-speculative) can be carried forward for 8 assessment years and set off only against business income. Unabsorbed depreciation under Section 32(2) can be carried forward indefinitely and set off against any head of income except salary.

What is the maximum deduction under Section 80C, and name three eligible investments?

The maximum deduction under Section 80C is $\rupee 1{,}50{,}000$. Eligible items include LIC premium, PPF contributions, ELSS, repayment of housing loan principal, NSC, 5-year tax-saving fixed deposits, and tuition fees.

What deductions are available under Section 80D for medical insurance premiums?

Up to $\rupee 25{,}000$ for self, spouse and children; an additional $\rupee 25{,}000$ for parents ($\rupee 50{,}000$ if a parent is a senior citizen). Where the assessee himself is a senior citizen, the self limit also rises to $\rupee 50{,}000$. Includes up to $\rupee 5{,}000$ for preventive health check-ups within these limits.

What is the deduction under Section 80CCD(1B) for the National Pension System (NPS)?

An additional deduction of up to $\rupee 50{,}000$ is allowed under Section 80CCD(1B) for contributions to the NPS, over and above the $\rupee 1{,}50{,}000$ limit of Section 80C/80CCE.

What deduction is allowed under Section 80TTA, and how does it differ from Section 80TTB?

Section 80TTA allows a deduction up to $\rupee 10{,}000$ on interest from savings accounts for non-senior individuals/HUFs. Section 80TTB allows senior citizens a deduction up to $\rupee 50{,}000$ on interest from savings AND fixed/recurring deposits.

List the steps in computing total income and tax liability of an assessee.

(1) Compute income under each of the 5 heads, (2) apply clubbing and set-off of losses to get Gross Total Income, (3) subtract Chapter VI-A deductions to get Total Income, (4) apply the slab/special rates to compute tax, (5) add surcharge and 4% Health & Education Cess, and (6) deduct rebate (87A), TDS, TCS, and advance tax to get the net payable/refund.

What is the rebate available under Section 87A and its eligibility limit?

A resident individual whose total income does not exceed $\rupee 5{,}00{,}000$ gets a rebate of up to $\rupee 12{,}500$ under the old regime. Under the new regime (Section 115BAC), the rebate is up to $\rupee 25{,}000$ for total income up to $\rupee 7{,}00{,}000$.

What is the rate of Health and Education Cess and on what is it levied?

Health and Education Cess is levied at 4% on the amount of income tax plus surcharge (after rebate). It applies to all assessees.

Distinguish between TDS and TCS under the Income Tax Act.

TDS (Tax Deducted at Source) is tax deducted by the payer from a payment (e.g., salary, interest, rent) before paying the payee. TCS (Tax Collected at Source) is tax collected by the seller from the buyer at the time of sale of specified goods (e.g., scrap, timber, motor vehicles above a limit).

Who is liable to pay advance tax, and what are the due dates and instalments under Section 211?

Advance tax is payable if the estimated tax liability is $\geq \rupee 10{,}000$ in a year. For non-presumptive assessees, instalments are: 15% by 15 June, 45% by 15 Sept, 75% by 15 Dec, and 100% by 15 March (cumulative).

What type of tax is GST, and which earlier taxes did it subsume?

GST is a comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services. It subsumed central taxes (excise duty, service tax, CST) and state taxes (VAT, entry tax, luxury tax, octroi, entertainment tax).

What is the difference between CGST, SGST, IGST, and UTGST?

For intra-state supply, both CGST (collected by the Centre) and SGST (collected by the State) are levied. For inter-state supply (and imports), IGST is levied and collected by the Centre. UTGST replaces SGST for supplies within Union Territories without a legislature.