Question

Mr. siri worked in a manufacturing Company for 15 years and retired on March 2018 at his age of 65 years. He was the Managing Director of that Company when he retired. Presently he works as a non-executive Director of a Small medium level public company. His duties are attending Audit committee meetings and other meetings with relation to accounting on monthly basis and receive an allowance of Rs. 250,000/- per month. A house which he owns is given on a monthly rent to a family and earns Rs. 100,000 per month. Before the retirement, Mr. Nimal has invested on Fixed Deposits of Rs. 50 million with one- year maturity. He received Rs. 3 million interest in February 2019. Further he had invested in quoted corporate shares and sold all the shares in December 2019. (Investment cost Rs. 2 million, Sales Proceeds – Rs. 3.5 million). Requirement:

(1) Discuss the tax implications of Mr. Nimal and advise him on his Income tax liability for the Y/A 2018/19. ( Hint: marks will be allocated to compute the Income tax liability ) Mr. sirui wants to convert his rental income operation in to a Limited liability company.

(2) Discuss the advantages and disadvantages of converting this rent income operation to a limited liability company in terms of taxation point of view. Mr. siri wants you to clarify the following-

(3) Where the year of assessment ending on 31st March 2019. What are the due dates of installment payments and return submission?

4) Can he consider any final WHT payment as a deduction in calculating the amount of income tax liability

Answer 1

Calculation of Income Tax Liability of mr Nirmal for Previous Year 2018-19		Amount in RS
Particulars	Amount	Amount
Income Under Head Salaries
Allowance received		30,00,000
(2,50,000*12)
Income From House Property
Rent from House	12,00,000
(1,00,000*12)
Less: Standard Deduction (30%)	3,60,000	8,40,000
Income From Capital gains
Long Term Capital Gains
Sale Consideration	35,00,000
Less: Cost With Indexation	20,58,824
(20,00,000*280/272)
Capital gains	14,41,176
Less: Exempt U/s 10(38) as STT Paid on Quoted Shares	14,41,176	-
Income From Other Sources
Interest on Fixed Deposits		30,00,000
Gross Total Income		68,40,000
Less Standard Deduction		40,000
Taxable Income		68,00,000
Upto 3,00,000	Nil	Nil
3,00,000 to 5,00,000	5.00%	10,000
5,00,000 to 10,00,000	20.00%	1,00,000
10,00,000 to 68,00,000	30.00%	17,40,000
Total Tax		18,50,000
Health Cess @ 4%		74,000
Tax Liability		19,24,000
Advantages of Converting Rental Opertaion into Company
When we convert rental operation into company then there is tax savings of 5% because company profit is taxable @ 25% if turnover is upto 250 Crores So by way of converting it can save the tax.
Due Dates of installment payments & Return Submission for 31st March 2019 AY
15% of Total Tax	15th June 2017
45% of Total Tax	15th September 2017
75% of Total Tax	15th December 2017
100% of Total tax	15th March 2018
Return of Income	31st July 2018