Taxation: Income Tax | TDS/Deferred Tax | PAPER III – ACCOUNTING & FINANCIAL MANAGEMENT FOR BANKERS | MODULE D: TAXATION AND FUNDAMENTALS OF COSTING
Taxation: Income Tax / TDS / Deferred Tax
Overview of Income Tax Act
The Income Tax Act, 1961 is the statute under which income tax is levied and collected in India. It covers all aspects of taxation including income classification, computation, deductions, TDS/TCS, filing of returns, penalties, and recovery of taxes.
Basic Overview of Deductions under Chapter VI-A
- Section 80QQB: Deduction for royalty income earned by Indian authors on books (other than textbooks), up to ₹3 lakhs per annum.
- Section 80RRB: Deduction for royalty on patents registered under the Patents Act, 1970 – maximum ₹3 lakhs.
- Section 80TTA: Deduction of interest on savings bank accounts up to ₹10,000 per annum (for non-senior citizens).
- Section 80U: Fixed deduction for individuals with disability – ₹75,000 for normal disability and ₹1,25,000 for severe disability.
TDS/TCS
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are mechanisms to collect tax at the source of income. TDS is deducted by the payer, while TCS is collected by the seller.
- Applicable on salaries, interest, commission, rent, etc.
- Form 16 is issued for TDS on salary; Form 26AS is a consolidated TDS statement.
Income Tax Returns, Refund & Recovery
Taxpayers are required to file income tax returns (ITRs) annually. Overpaid taxes can be claimed as refunds. The IT Department can recover tax dues through notices, adjustment against refunds, or attachment of assets.
Mathematical Examples
- If an author earns ₹4,50,000 as royalty income from eligible books, how much can be claimed under 80QQB?
Answer: ₹3,00,000 (maximum limit) - Mr. X has savings account interest income of ₹12,000. How much deduction is allowed under 80TTA?
Answer: ₹10,000 - Patent royalty income = ₹4,50,000. Deduction under 80RRB?
Answer: ₹3,00,000 - If a taxpayer's net taxable income is ₹6,50,000 after deductions, calculate tax liability for FY 2024-25 under old regime.
Answer:
₹2.5L–5L: 5% = ₹12,500
₹5L–6.5L: 20% of ₹1.5L = ₹30,000
Total = ₹42,500 + 4% cess = ₹44,200 - TDS @10% is applicable on ₹1,00,000. What is TDS?
Answer: ₹10,000 - If an individual earns ₹8,000 as interest on savings, what is the 80TTA deduction?
Answer: ₹8,000 (actual amount, since it's less than ₹10,000) - An employee received ₹50,000 as commission. TDS @5% applies. Compute TDS.
Answer: ₹2,500 - Refund due = ₹12,000; actual refund received = ₹10,500. What is the shortfall?
Answer: ₹1,500 - Deferred Tax Asset arises due to excess depreciation charged in books than under tax law. If book depreciation = ₹50,000, tax depreciation = ₹80,000, tax rate = 30%, compute deferred tax.
Answer: Temporary difference = ₹30,000; DTA = ₹9,000 - If a disabled individual has ₹4,50,000 income and claims ₹75,000 under 80U, what is taxable income?
Answer: ₹3,75,000
MCQs on Taxation
- Under Section 80QQB, the maximum deduction allowed is:
a) ₹2,00,000
b) ₹3,00,000 ✅
c) ₹5,00,000
d) ₹1,50,000 - Which section provides deduction for royalty from patents?
a) 80QQB
b) 80RRB ✅
c) 80TTA
d) 80U - Interest on savings accounts is deductible under:
a) 80C
b) 80TTA ✅
c) 80D
d) 80G - What is the TDS rate on commission above threshold limit under Section 194H?
a) 1%
b) 5% ✅
c) 10%
d) 2% - Deferred Tax Asset arises when:
a) Tax expense > accounting expense
b) Tax expense < accounting expense ✅
c) No difference
d) All of the above - Form used for TDS return filing for salary is:
a) Form 24Q ✅
b) Form 26Q
c) Form 15CA
d) Form 27Q - Which of the following is issued by employer for TDS on salary?
a) Form 16 ✅
b) Form 10E
c) Form 15G
d) Form 26AS - Refund of income tax is claimed through:
a) Form 16
b) ITR filing ✅
c) Form 15H
d) PAN card - Section 80U provides deduction to:
a) Senior citizens
b) Disabled individuals ✅
c) Authors
d) Farmers - 80RRB deduction is restricted to:
a) ₹1,00,000
b) ₹2,50,000
c) ₹3,00,000 ✅
d) ₹5,00,000
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