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CA Final · Direct Tax Laws & International Taxation · Incomes which do not form part of Total Income

Kaveri Estates sells tea grown and manufactured by it in India. Its income from this sale, computed as business income before applying any special rule, is Rs 50,00,000. Under the Income-tax Rules, 2026 (Rule 271), the percentage of such income deemed to be income liable to tax is specified in the Table. What portion is NOT liable to tax on account of this rule?

Rs 30,00,000 is not liable to tax. Rule 271 deems 40% of income from sale of tea grown and manufactured by the seller in India to be taxable business income. Forty percent of Rs 50,00,000 is Rs 20,00,000, so the balance Rs 30,00,000 is outside tax.

  1. ARs 20,00,000
  2. BRs 30,00,000Correct
  3. CRs 32,50,000
  4. DRs 12,50,000

Explanation

For tea grown and manufactured by the seller in India, Rule 271(1) Table deems 40% of the income to be liable to tax. Taxable portion is 40% of Rs 50,00,000, which is Rs 20,00,000. The remainder, Rs 30,00,000, is not liable to tax. Rs 20,00,000 is the trap, as it is the taxable portion rather than the non-taxable one.

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