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1. TUTOR MARKED ASSIGNMENT
Course Code : ECO - 11
Course Title : Element of Income Tax
Assignment Code : ECO – 11/TMA/2014-15
Coverage : All Blocks
Maximum Marks: 100
Attempt all the questions.
Answer of Q.N.1.
Concept of Residential Status of Individuals
Under Section5,total income of an assessee isbe chargeable to tax depending upon the residential status
of a personandplace and time of accrual of suchincome andthe rulesfor determining residential status of various
typesof personsare containedinSection 6. Provisions for determination of the residential status are different for
different categories of the assessee viz:
a) individuals;
b) Hindu Undivided Families (HUF
c) Firms or Associations of Persons(AOP);
d) Companies; and
e) Every other person
Residential status of individual Section 6(1):
To determine the residentialstatusof anindividual,itisto be ascertained whether he is resident or a non –
residentduringthe previousyear. Anindividual will be aresidentinIndiainanypreviousyear,if he satisfies at least
one of the following TWO basic conditions:
1) He is in India in the previous year for a period of 182 days or more OR
2) He is in India for a period of 60 days or more during the previous year AND 365 days or more during 4
years immediately preceding the previous year
But there are certain exception to these basic conditions. The Second condition of 60 days or more is
extended to 182 days or more in following two circumstances:
i. An IndiancitizenleavesIndia during the previous year for the purpose of taking up employment outside
India. OR as a member of the crew of an Indian ship OR .
ii. An Indian citizen or a person of Indian origin comes on visit to India during the previous year. For this
purpose,apersonissaid to be of Indian originif eitherhe or any of his parents or any of his grandparents was born
inundividedIndia. Inboththe above cases,an individual needs to be present in India for a minimum of 182 days or
more to become resident in India instead of 60 days.

2. If the individual satisfies any of the two conditions, he is a resident in India and if he does not satisfy any of
the conditions, he is a non resident during that particular assessment year.
Resident and Ordinarily Resident [R & O R ]- Secion 6(6) :
Once an individual satisfiesanyof the above twobasic conditionsforaparticularassessmentyear,nextstep
wouldbe to determinewhetherhe will be a resident and ordinarily resident of India in that assessment year. Sec.
6(6) providesthata personwill be “resident and ordinarily resident” in India in any assessment year if he satisfies
BOTH of the following two conditions:
1) he hasbeen residentinIndiainatleast 2 out of 10 previousyears accordingtothe above basicconditions
immediately proceeding the relevant previous year. AND
2) in Indiafora periodof 730 daysor more during7 years immediatelyprecedingthe relevantpreviousyear.
Resident and Not Ordinarily Resident [R &N O R ]
A residentindividual,whodoesnotsatisfyBOTHof the above conditionsgivenabove,will be a Resident but
NotOrdinarily ResidentinIndia. Inotherwords,anindividual becomesresidentbutnot ordinarilyresidentinIndiaIf
he Satisfies at least one of the basic conditions but satisfies NONE of the additional conditions OR Satisfies ONLY
ONE of the two additional conditions.
Non Resident
An individual isanon-residentinIndiaif he satisfies none of the basic conditions. It must be noted that if a
personsatisfiesthe additional conditions but does not satisfy the basic conditions, he will still be treated as Non-
Resident. In such a case, additional conditions are not relevant.
From the above discussionitisbroughtoutthat an individual caneitherbe:
(a) residentandordinarilyresidentinIndia;
(b) residentbutnotordinarilyresidentinIndiaor
(c) non-resident
Answer of Q.N.2.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967

3. EMAIL: KUMARNIRMALPRASAD@GMAIL.COM
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM
Answer of Q.N.3.
Annual Value (Section 23)
The Annual Value of a house property is the inherent capacity of the property to earn income and it has
beendefinedasthe amountforwhichthe propertymay reasonablybe expectedtobe letoutfrom year to year. It is
not necessarythat the property should actually be let out. It is also not necessary that the reasonable return from
property should be equal to the actual rent realized when the property is, in fact, let out.
Computation of annual value: Computation of Annual Value for the determination of Income from House
property requires three steps.
 STEP 1 Determine the Gross Annual Value(GAV)
 STEP 2 Determine the value of Municipal taxes
 STEP 3 Compute the Net Annual Value
STEP 1- Determine the Gross Annual Value (GAV):
Calculation of GAV based on the following factors:
1) Fair Rental Value (FRV): The amount of rent which a similar property (similar to the house property the
GAV of which is to be determined) in the same locality would fetch.
2) Municipal Rental Value (MRV):The value of the house propertyunderconsiderationasdeterminedbythe
Municipal authorities for the purpose of levying Municipal taxes.
3) StandardRental Value (SRV):The maximum amount of rent which a person can recover from his tenant,
legally, as determined by the Rent Control Act.
4) Expected Rental Value (ERV): The Fair rent or Municipal value, whichever is higher, subject to the
Standard rent.
5) Unrealisedrent:The amountof rentwhichis notcapable of beingrealised. The amountof Unrealisedrent
shall not be included in the actual amount of rent receivable from the house property if all the following for
conditions are satisfied:
a) Tenancy is in good-faith.
b) The defaulting tenant has vacated or steps must have been taken to vacate such tenant.
c) The defaulting tenant doesn't continue to occupy any other property of the assessee.
d) Assesseehastaken all thereasonablesteps to proceed against the defaulting tenant legally or he
must satisfy the assessing officer that if such steps are taken, it will be of no use.
6) Actual rent receivable (ARR): The amount of rent which is equal to the difference between the Rent
receivable and the unrealised rent.
7) Unoccupied property: The House property which cannot be occupied by its owner by reason of his
employment,businessorprofessionbeinginsome otherplace andhe residesatthatplace in a property not owned
by him.

4. It shouldbe notedthatthe procedure fordeterminationof GrossAnnual Value isnotsame inall the cases. It
variesaccordingto the givensituation.Varioussituationsandthe respective proceduresforcomputationof GAV are
given below:
1) Property is letout throughout the previousyear (Section 23(1) (a)/ (b)): GAV = ERV or ARR, whichever is
higher.
2) Let out property is vacant for a part of the year (Section 23(1) (c)): If the ARR < ERV only because the
propertywasvacant for a part of the year,GAV = ERV. If the ARR < ERV forany otherreason, GAV = ERV. If the ARR
> ERV even though it was vacant for a part of the year, GAV = ARR. In all the cases, ARR is computed for the let out
period only and the ERV is for whole year as usual.
3) Self-occupied or Unoccupied property (Section 23(2)): GAV = Nil
4) Let out for a part of the year and self-occupied for a part of the year (Section 23(3)): GAV = Higher of
ERV (calculated for the whole year) and ARR (calculated for let out period only)
5) Deemed to be let out property (Section 23(4)): This case arises when the assessee has more than one
Self-occupiedpropertiesinapreviousyear.Insuchcase,onlyone of such properties istreated as self-occupied and
the remaining shall be treated as Deemed to be let out properties. Here, GAV = ERV.
6) A portion of the property is let out and the remaining portion is self-occupied: GAV is calculated
separatelyforself-occupiedpartandthe letoutpart. The valuesof FR,MV, SR and Municipal taxes are apportioned
on the given basis.
Thus, there is a scope for charging tax on Notional rent too. This happens when the GAV determined
according to the above steps is the ERV.
Now that the Gross Annual Value of the house property is determined, the next step is to determine the
value of Municipal taxes paid that is deductible from the Gross Annual Value.
STEP 2 - Determine the value of Municipal taxes:
The municipal tax or the property tax paid is allowed as deduction from the Gross Annual Value if the
following two conditions are satisfied.
(a) The property is let out during the whole or any part of the previous year,
(b) The Municipal taxesmustbe borne bythe landlord.If the Municipal taxesoranypart thereof are borne
by the tenant, it will not be allowed.
(c) The Municipal taxesmustbe paidduringthe year.Where the municipal taxesbecomedue buthave not
been actually paid, it will not be allowed.
STEP 3 - Compute the Net Annual Value:
Gross Annual Value ++++++
Less: Municipal Taxes ++++++
Net Annual Value ++++++
Deductions allowable under section 24 of the income tax act
Followingtwodeductionswill be allowable fromthe netannual value toarrive at the taxable income under
the head ‘income from house property’:-

5. (a) Statutorydeduction:30 percent of the netannual value will be allowedasadeductiontowards repairs
and collection of rent for the property, irrespective of the actual expenditure incurred.
(b) Interestonborrowed capital: The interest on borrowed capital will be allowable as a deduction on an
accrual basisif the money has been borrowed to buy or construct the house. It is immaterial whether the interest
has actually been paid during the year or not. If money is borrowed for some other purpose, interest payable
thereon cannot be claimed as deduction.
Limit of deduction u/s 24(b)
A. In case of Let out/ deemed to be let out house property: Interest on Money borrowed is allowed as
deduction without any limit. Here interest on money borrowed = interest of P/Y + 1/5 of Pre-construction period
(PCP) interest.PCPstartedfromthe date of borrowingandendedon31st
mar immediately preceeding (Before) the
year of completion.
B. In Case of Self Occupied House Property: Max. Rs. 1,50,000 is allowed as deduction if the following
conditions are satisfied:
 Loan taken after 1 – 4 – 99
 For construction/purchase (Capital expenditure) of house
 Construction completed within 3years from the end of financial year in which loan is borrowed.
 Loan certificate is obtained
For all other cases maximum allowed deduction is Rs. 30000
Answer of Q.N.4.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967
EMAIL: KUMARNIRMALPRASAD@GMAIL.COM
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM
Answerof Q.N.5.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)

6. CONTACT NO. 9577097967
EMAIL: KUMARNIRMALPRASAD@GMAIL.COM
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM
Notes:
1) Agricultural income is exemptbut it is integratedwithtotal income while calculatingIncome tax liability.
2) Rent from house property is assumedto be gross.
2) loss from speculationcan be setoff against income from speculation.