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CA Final · Direct Tax Laws & International Taxation · Income of Other Persons included in Assessee's Total Income

Ms. Tara Nair's total income for the tax year is ₹12,00,000, and income-tax of ₹1,20,000 is calculated on it. This total income includes ₹3,00,000 on which no income-tax is payable under the Act. Applying the provision for determining tax where total income includes such income, what tax remains payable on her total income, before any other relief or cess?

The tax payable is ₹90,000. The average rate is 10% (₹1,20,000 on ₹12,00,000), so the deduction on the ₹3,00,000 of income on which no tax is payable is ₹30,000. Subtracting this from ₹1,20,000 leaves ₹90,000.

  1. A₹1,20,000
  2. B₹90,000Correct
  3. C₹30,000
  4. D₹1,50,000

Explanation

Section 101 includes in total income all income on which no tax is payable. Section 190 then gives a deduction from tax at the average rate on that income. The average rate is 1,20,000 ÷ 12,00,000 = 10%. The deduction is 10% × ₹3,00,000 = ₹30,000, so the tax payable is ₹1,20,000 − ₹30,000 = ₹90,000. The ₹1,20,000 option ignores the deduction. The ₹30,000 option mistakes the deduction for the tax payable.

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