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CA Final MAY/NOV-2025
Test Paper – 1 Solu?on
Topics: Tax rates, Capital Gain & IFOS
1.
(c) Nil and ₹ 95 lakhs, respectively

2.
(i) (c) ₹ 50 lakh is taxable as his business income (iii) (c) ₹ 38 lakh is taxable as short-term capital gains
No amount is taxable in the hands of Mr. ₹ 20 lakh is taxable under the head “Income from Other
(ii) (a) (iv) (b)
Rajesh Sources”
3.
(d) Long-term capital gains of Mr. Rajan ₹ 2,10,000; Long-term capital loss of Mr. Ravi ₹ 1,20,000
4.
(B) ₹ 2,15,13,050

5.
(i) (d) ₹ 1155 lakhs and ₹ 165 lakhs, respectively
(ii) (b) ₹ 45,90,300
(iii) (c) ₹ 1845 lakhs and ₹ 429.81 lakhs, respectively
6.
(d) Value of gold ring is taxable in the hands of Mr. Vikas but value of gold chain is not taxable in the hands of Ms. Kavya

7.
(i) (a) Short term capital gains ` 10,833
(ii) (c) ₹ 8,16,813
(iii) (a) ₹ 1,51,000
8.
(d) ` 81 lakhs

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Descrip)ve
1. Computa)on of “Capital Gains” of Mrs. Yuvika for A.Y.2025-26
Particulars ` (in lakhs) ` (in lakhs)
Capital Gains on sale of residential building
Actual sale consideration ` 810 lakhs
Value adopted by Stamp Valuation Authority ` 890 lakhs [Where the actual
sale consideration is less than the value adopted by the Stamp Valuation
Authority for the purpose of charging stamp duty, and such stamp duty value
exceeds 110% of the actual sale consideration, then, the value adopted by the
Stamp Valuation Authority shall be taken to be the full value of consideration
as per section 50C.
However, where the date of agreement is different from the date of
registration, stamp duty value on the date of agreement can be considered
provided the whole or part of the consideration is received by way of account
payee cheque/bank draft or by way of ECS through bank account or through
prescribed electronic modes on or before the date of agreement.
In this case, since advance of ` 80 lakh is received by RTGS, i.e., one of the
prescribed modes, stamp duty value on the date of agreement can be
adopted as the full value of consideration. However, in the present case since
stamp duty value on the date of agreement does not exceed 110% of the
actual consideration, actual sale consideration would be taken as the full
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value of consideration) 810.00
Gross Sale consideration (actual consideration, since stamp duty value on the
date of agreement does not exceed 110% of the actual consideration)
Less: Brokerage @1% of sale consideration (1% of ` 810 lakhs)
Net Sale consideration 8.10
Less: Indexed cost of acquisition
801.90
- Cost of vacant land, ` 80 lakhs, plus registration and other expenses i.e.,
` 8 lakhs, being 10% of cost of land [` 88 lakhs] 88.00
- Construction cost of residential building (` 100 lakhs)
Long-term capital gains 100.00 188.00
Since the residential house property was held by Mrs. Yuvika for more than
24 months immediately preceding the date of its transfer, the resultant gain 613.90
is a long-term capital gain]
Less: Exemption under section 54 130.00
Where long-term capital gains exceed ` 2 crore, the capital gain arising on
transfer of a long-term residential property shall not be chargeable to tax to
the extent such capital gain is invested in the purchase of one residential
house property in India, one year before or two years after the date of
transfer of original asset.
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Particulars ` (in lakhs) ` (in lakhs)

Therefore, in the present case, the exemption would be available only in
respect of the one residential house acquired in India and not in respect of
the residential house in UK. It would be more beneficial for her to claim the
cost of acquisition of residential house at Delhi, i.e., ` 130 lakhs as exemption.
Less: Exemption under section 54EC
50.00
Amount invested in capital gains bonds of NHAI within six months after the
date of transfer (i.e., on or before 13.7.2025), of long-term capital asset, being
land or building or both, would qualify for exemption, to the maximum extent
of ` 50 lakhs, whether such investment is made in the current financial year
or subsequent financial year.
Therefore, in the present case, exemption can be availed only to the extent
of ` 50 lakh out of ` 90 lakhs, even if the both the investments are made on
or before 13.7.2025(i.e., within six months after the date of transfer).
Long term capital gains chargeable to tax 433.90
Note: Advance of ` 20 lakhs received from Mr. Johar, would have been chargeable to tax under the head
“Income from other sources”, in the A.Y. 2016-17, as per section 56(2)(ix), since the same was forfeited
on or after 01.4.2014 as a result of failure of negotiation. Hence, the same should not be deducted while
computing indexed cost of acquisition.

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2. Computation of capital gains chargeable to tax for PY 21-22 AY 22-23

Par)culars `

Full value of consideradon received on sale of residendal house in Noida 1,57,00,000

Less: Indexed cost of acquisidon [` 30,00,000 x 317/220] 43,22,727

Long-term capital gain 1,13,77,273

Less: Exemp)on under sec)on 54

Purchase of new residendal house property at Panchkula for ` 2,05,00,000 on
20.7.2022 i.e., within two years from the date of transfer of residendal house in
Noida; exempdon restricted to long term capital gain, since cost of new house
exceeds long-term capital gain 1,13,77,273

Taxable long term capital gain Nil

Computa)on of capital gains chargeable to tax for PY 24-25 AY 25-26

Par)culars `
Full value of consideradon received on sale of residendal house at Panchkula 3,25,00,000
Less: Cost of acquisidon [As per secdon 54, if the new residendal house
purchased (i.e., on 20.7.2022, in this case) is transferred within 3 years of its
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purchase (i.e., on 31.10.2024, in this case), and the cost of acquisidon of the
new house (i.e., ` 2,05,00,000) is higher than the long-term capital gain (i.e.,
1,13,77,273) then, the cost of acquisidon of such new residendal house shall
be reduced by long term capital gain exempted earlier, while compudng capital
gains on sale of the new residendal house] 91,22,727
[` 91,22,727 (`2,05,00,000 – `1,13,77,273)]
Long-term capital gain [Since the residendal house is held for more than 24 2,33,77,273
months]
Less: Exemp)on under sec)on 54
Purchase of new residendal house property in Delhi for ` 2,57,00,000 on
2.3.2025 i.e., within two years from 31.10.2024, being the date of transfer of
residendal house at Panchkula; exempdon restricted to long term capital gain,
2,33,77,273
since cost of new house exceeds long-term capital gains
Taxable long term capital gain Nil

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 iii [Link]
Topic wise Test Papers of CA FINAL - Direct Tax – MAY/NOV - 25 Exams
Paper - 2
Topic: Income from Capital Gain, IFOS, Dividend, Liquidation & BuyBack
Total Marks: 45 Marks
Time Allowed: 75 minute

Questions:

Part-A Multiple Choice Questions

[Total 14 Marks – 2 Marks for each MCQ]
1. In P.Y. 2024-2025, Mr. A has transferred the following assets:
Asset transferred Full Value of Cost of Acquisition Transfer
Consideration (`) [Assets held for Date
(`) more than 24 months]

Residential house property 8 crores 6 crores 25.11.2024

Jewellery 3 crores 2 crores 05.01.2025

Mr. A bought a new residential house property on 01.04.2023 for ` 1 crore and on 28.02.2025 deposited
` 3 crores in a capital gains deposit account scheme. On 30.07.2025, Mr. A has withdrawn ` 3 crores
from capital gains deposit account and acquired a residential house property worth ` 2.5 crore. What
would be the capital gains in the hands of Mr. A for A.Y. 2025-26, if the expenses in connection with

(a) ` 80,50,000
E
transfer of jewellery were ` 2,00,000?

t
(b) ` 81,55,705
(c) ` 98,00,000

(d) ` 48,00,000
2. Mr. Ram, an Indian resident, purchased a residential house property at Gwalior on 28.05.1999 for ` 28.4
lakhs. The fair market value and the stamp duty value of such house property as on 1.4.2001 was ` 33.5
lakhs and ` 32.4 lakhs, respectively. On 05.02.2012, Mr. Ram entered into an agreement with Mr.
Byomkesh for sale of such property for ` 74 lakhs and received an amount of ` 3.9 lakhs as advance.
However, as Mr. Byomkesh did not pay the balance amount, Mr. Ram forfeited the advance. What would
be the indexed cost of acquisition of Mr. Ram if he sells the property on 22nd July 2024 ?
Cost Inflation Index for F.Y. 2001-02: 100; F.Y. 2024-25: 363
(a) ` 1,65,58,000
(b) ` 1,03,45,500
(c) ` 1,07,44,800 WE 3240.000 390000
(d) ` 1,17,61,200

2850.000 78 10345 50
CA BHANWAR BORANA BB VIRTUALS
 2 Test Papers of CA Final - Direct Tax - MAY/NOV-25 Exams — Questions
3. Mr. X, aged 61 years, earned dividend of ` 12,00,000 from ABC Ltd. in P.Y. 2024-25. Interest on loan
taken for the purpose of investment in ABC Ltd., is ` 3,00,000. Income includible in the hands of Mr. X
for P.Y. 2024-25 would be -
(a) ` 12,00,000
1200000
(b) ` 9,60,000
(c) ` 9,00,000

4.
(d) ` 2,00,000
2TEur
Mr. Vikas transferred 600 unlisted shares of XYZ (P) Ltd. to ABC (P) Ltd. on 15.07.2024 for ` 3,50,000
when its fair market value was ` 5,15,000. The indexed cost of acquisition of shares for Mr. Vikas was
computed at ` 4,25,000.

5010 Determine the income chargeable to tax in the hands of Mr. Vikas and ABC (P) Ltd. in respect of the
above transaction.
16500
515000 (a) ` 90,000 chargeable to tax in the hands of Mr. Vikas as long-term capital gains and nothing is If
roof taxable in the hands of ABC (P) Ltd.

GA425L(b) ` 75,000 chargeable to tax in the hands of Mr. Vikas as long-term capital gains and nothing is
taxable in the hands of ABC (P) Ltd.
56N
(c) ` 90,000 chargeable to tax in the hands of Mr. Vikas as long-term capital gains and ` 1,65,000 is
taxable under the head “Income from other sources” in the hands of ABC (P) Ltd.
(d) ` 75,000 chargeable to tax in the hands of Mr. Vikas as long-term capital gains and ` 1,65,000 is
taxable under the head “Income from other sources” in the hands of ABC (P) Ltd.
5. Mr. Jay Acquired Market Linked debentures of ` 20,00,000 on 16/07/2019. On 10/12/2024 he transfers
such debentures at ` 28,00,000. What is the amount of capital gain on sale of MLD? CII of FY 19-20 is
289 and FY 24-25 is 363.__

500 (a) LTCG of ` 8,00,000

ma 01
Of
11
(b) STCG of ` 8,00,000
(c) LTCG of ` 3,91,696 Force
(d) LTCL of (` 8,00,000)
6. Gamma Ltd. has distributed on 30.6.2025, dividend of ₹130 lakhs to its shareholders. During the
F.Y.2024-25, Gamma Ltd. has received dividend of ₹ 108 lakhs (Net of TDS) from domestic companies
and ₹ 30 lakhs (gross) from a foreign company in which it has 5% shareholding. What is the deduction,
if any, available to Gamma Ltd. in respect of such dividend?
(a) ₹ 138 lakhs (b) ₹ 120 lakhs
(c) ₹ 130 lakhs (d) ₹ 150 lakhs
7. Delta Ltd., a domestic company, declared interim dividend of ₹ 85 lakh for the year F.Y.2024-25 and
distributed the same on 27.11.2024. Dividend of ₹ 12.75 lakh is payable to Mr. Ganesh, a resident,
holding 15% shares in Delta Ltd. and dividend of ₹ 8.50 lakh is payable to Mr. Rajesh, a resident, holding
10% shares in Delta Ltd. Which of the following statements is correct?

(a) Dividend distribution tax is payable by Delta Ltd. There would be no tax on dividend received
by Mr. Ganesh and Mr. Rajesh in their individual hands
(b) Dividend distribution tax is payable by Delta Ltd. Further, dividend of ₹ 2.75 lakhs receivable
by Mr. Ganesh i.e., dividend in excess of ₹ 10 lakhs will be taxable at 10%
(c) Tax is deductible by Delta Ltd. before making payment of dividend. Also, the same shall be
CA BHANWAR BORANA BB VIRTUALS
 Test Papers of CA Final - Direct Tax - MAY/NOV-24 Exams — Questions 3
taxable in the hands of both Mr. Ganesh and Rajesh at 10%

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(d) Tax is deductible by Delta Ltd. before making payment of dividend. The dividend income
would be included in the total income of both Mr. Ganesh and Rajesh and subject to tax in

E
their hands at their respective slab rates

Part-B Descriptive Questions

[Total 31 Marks]

Question-1 Cost 850000

Mr. Gopal acquired a house property for ` 7,00,000 during PY 1982-83 & paid stamp duty 1,50,000 at the
time of registration of property. He incurred following expenses for improvement of property,
PY 96-97 - 3,50,000
Ian
PY 12-13 - 4,00,000
PY 23-24 - 3,50,000
FMV as on 01/04/2001 of such property is ` 18,20,000 & Stamp Duty Value on same date is `16,00,000.
Mr. Gopal sold this property as on 10/12/2024 for ` 1,25,00,000.
Mr. Gopal’s income from other sources__ is ` 10,00,000. Compute Total Income and Tax liability. Assume he
opted out from section 115BAC.
Cost Inflation Index for F.Y. 2001-02: 100; F.Y. 2012-13: 200, F.Y. 2023-24: 348, F.Y. 2024-25: 363
[8 Marks]
Question-2
Mr. BB Purchased a house property on 10/12/2002 for ` 50,00,000. He sold this property on ` 1,20,00,000 on
14/02/2025. Income from Business and profession of assessee is ` 40,00,000.
CII for PY 2002-03 : 105 & PY 2024-25 : 363.
Answers the followings
(a) Capital Gain or loss for AY 2025-26.
LTI 70.00.000
NI [Link] 70.00.000
(b) Losses to be Carry forward for next A.Y.
(c) Compute Total Income of Mr. BB
(d) Compute Tax liability assume assessee opted [Link]
out from section 115BAC.
_1210 950 [8 Marks]
Question-3

28
Compute Capital Gain and IFOS of Mr. Raghav for the A.Y. 2024-25 from the following details:
He was holding 30% equity shares in TSP (P) Ltd., an Indian company. The paid up share capital of company
as on 31st March, 2023 was ` 20 lakh divided into 2 lakh shares of` 10 each which were issued at a premium
of ` 30 each. Company allotted shares to shareholders on 1st October, 2014.
He sold all these shares on 30th April, 2024 for ` 60 per share. Equity shares of TSP (P) Ltd. are listed on
National Stock Exchange and Mr. Raghav has paid STT both at the time of acquisition and transfer of such
shares. FMV on 31.1.2018 was ` 50 per share.
On 12.2.2025, interest of fixed deposits with SBI of ` 1,00,000. On 30.4.2024,` 5,500 and on 30.12.2024, `
8,500 credited to interest on saving bank A/c with SBI Bank.

[Link] F6I 1 102014

[5 Marks]

CA BHANWAR BORANA Froe 60.00 60 3609000 BB VIRTUALS

60.000 50 30 00 [Link]
ftp.t cost 64 9125200
 9
2
55 L need
4 Test Papers of CA Final - Direct Tax - MAY/NOV-25 Exams — Questions
Question-4
Aries Tubes Private Ltd. went into liquidation on 1.6.2024. The company was seized and possessed of the
[Link] following funds prior to the distribution of assets to the shareholders:
Share Capital (issued on 1.4.2013)
`
5,00,000
Deemed Reserves prior to 1.6.2024 3,00,000
Excess realization in the course of liquidation 5,00,000
Total 13,00,000
There are 5 shareholders, each of whom received ` 2,60,000 from the liquidator in full settlement. The
shareholders desire to invest the resultant element of capital gain in long term specified assets as defined in
section 54EC. You are required to examine the various issues and advice the shareholders about their liability
to income tax.
900000
Question-5
GET ELA BREE B 30 300.00
[5 Marks]
Tax 23.296
Avimanyu, a resident individual held 25% equity shares in FMC Ltd, an unlisted Indian company. The

_ED
company's paid up share capital as on 31st March, 2023 was 10,00,000 divided into 1,00,000 equity shares of `
E
Ess
10 each issued at a premium of ` 20 each. The shares were allotted to the shareholders on 1st October, 2012.
The company had gone for buy back of 30% of its shares on 30th April, 2024 as per the provisions of the
Companies Act, 2013.
The company paid ` 60 per share on buy back.
Explain and compute the tax effect in the hands of FMC Ltd and Avimanyu. Would there be change in the tax
liability if FMC Ltd. was listed on a stock exchange.
[5 Marks]
101311
MR Gopal 1424254425 26
Computation of Canter gain Computam
ofTotalIncome
Froe [Link] 1714 V 51 1 2 [Link]
Hears
NI 12.50.0000 me

850000 NET WINNER

[Link] froe 125.0000

b 5011461 1690160000
Ffmpeg 5800000

12.13 60
350000
2324 wife 426000
[Link]
CA BHANWAR BORANA
111 23 4 BB VIRTUALS
350000 363 36 006
Computation
ofTax liab s
7am 4101112
9 Tax 12 se without Index 10150000 12.57 1268750
b Tax
[Link] Note1 5600914 200 1120183 1120183

TICBINI
[Link] 250000
250000Unto500000 57 12500
Sooooo [Link] 20 112500
100dg
1232683

Add SC 151 sirce MM

Add Heeley 56703

Net tax liability 289

14
91

Gland offronetose

Assessee Res Ind HUF 12,5 without Index

Imm Bop with Index
line
Acquired before 23 7124
Transfer on or after 2317124
 Explana'on of MCQ Test Paper No 4 PGBP

2 i) As per section 44AD, eligible assessee for this section are resident firms (excluding
LLP)/individual/HUF having Turnover/Gross Receipts upto Rs.2 Cr. and not in the
business of section 44AE, agency, commission and brokerage.

Resident assessee is eligible for 44ADA if he is engaged in profession as referred in

Sec 44AA and Gross Receipt is upto Rs. 50 Lakhs

For the business of plying, hiring, leasing such goods carriage presumptive income
will be calculated as per Sec44AE.
44AE is applicable only if assessee owns Max 10 Vehicles.
Therefore, in the given case eligible firms for declaring income on presumptive basis
are AB & Co., LM & Co. and XY & Co.

ii) As per section 44AD, income on presumptive basis is Turnover/Gross Receipts *6%
(for account payee cheque/DD/ECS received upto due date of ROI) and for remaining
modes it is Turnover/GR *8%.
Therefore, in the given cases income will be calculated as follows -:

AB & Co.
Presumptive Income = (150+20) *6% + 30*8% = Rs. 12,60,000
Working Partner’s Salary and Interest shall not be deductible while computing
income as per Sec 44AD

PQ & Co.
Since sec 44AD is not applicable therefore book profits of Rs.4,50,000

iii) As per section 44AE, presumptive income (after deducting partners

remuneration, salary, interest, etc. as per 40(b)) in case of transporters is as follows
–
Heavy Goods Vehicle (more than 12000 kgs) = Rs.1,000 per ton per vehicle for every
month or part thereof.
Other Vehicle = Rs.7500 per vehicle per month or part thereof.

Purchase Date (not put to use) is considered under Sec 44AE.

In the given case presumptive income for LM & Co. is as follows -:
= (11*3*7500 + 9*2*7500 + 8*1*7500 + 7*1*7500 + 5*1*7500 + 4*2*13*1000) –
(1,50,000 + 50,000)
= 6,36,500 – 2,00,000
=4,36,500.

iv) As per section 44ADA, presumptive income in case of professional is (Gross

Receipt*50%). Therefore, income of XY & Co. for AY 22-23 would be =
50,00,000*50% = Rs.25,00,000
 v) Yes, since in both the cases, presumptive income is more than the income
calculated as per books of accounts. Hence, if assessee wishes to get their books of
accounts audited, then they can declare income as per books of accounts
maintained.
3 M/s TPS is eligible for presumptive taxation as per Sec 44AD, since his turnover is
upto 2Cr. Presumptive PGBP income = Turnover/ Gross Receipt x 8% but if
turnover or gross receipt is received by account payee cheque/DD/ECS upto due
date of return of return filing then PGBP Income = Turnover/ Gross Receipts x 6%.

M/s TPS have not got the books of a/c audited so they can opt for presumptive
[Link] 7,20,000 i.e. [(6% of 80,00,000) +(8% of 30,00,000)]
4. Interest allowed on payment basis as per section 43B. Restructuring of Interest
into loan is not treated as actual payment.
 Topic wise Test Papers of CA Final - Direct Tax – MAY/NOV-25 Exams

Topic: PGBP

Total Marks: 44 Marks

Time Allowed: 88 minutes

Answers:

Part-A Multiple Choice Questions

1. Answer : C
2. Answer
(i) D
(ii) A
(iii) C
(iv) C
(v) B
3. Answer: C
4. Answer: D

Part- B Descriptive Questions

Solution 1:

Computation of total income of Parik hospitality Ltd. For the A.Y.2025-26

Particular Amount (`)

Profits and Gains from Business and Profession

Profit as per Statement of profit and loss 1,52,00,000

Add: Items debited but to be considered separately or to be
disallowed

(a) Payment to middleman for purchase of crab etc. in an amount 30,000

exceeding `10,000

[U/s 40A(3), disallowance is attracted in respect of expenditure for

which cash payment exceeding `10,000 is made on a day to a person.
Payment of `25,000 to fishermen for purchase of crab etc. is
covered by exception under Rule 6DD. However, payment of
`30,000 to middlemen for purchase of crab etc. is not covered under
the exception - CBDT Circular 10/2008 dated 5/12/2008].

CA BHANWAR BORANA BB VIRTUALS

2 Test Papers of CA Inter - Direct Tax - MAY/NOV-25 Exams — Answers

Particular Amount (`)

(b) Contribution towards employees’ pension scheme in excess of 14% 90,000
of salary disallowed u/s 40A(9) [Contribution to the extent of 14%
of salary (basic salary + dearness allowance, if it forms part of pay
for retirement benefits) is allowable as deduction u/s 36(1)(iva). In
this case, it is presumed that dearness allowance forms part of pay
for retirement benefits]

(c) Payment to transport contractor without deduction of tax at source

[Since the contractor opts for presumptive taxation u/s 44AE and
furnished a declaration to this effect, tax is not required to be
deducted at source u/s 194C in respect of payment to transport Nil
contractor].

(d) Expenses on foreign travel of two directors for a collaboration 10,00,000

agreement which failed to materialize
[Where expenditure is incurred for a project not related the existing
business and the project was abandoned without creating a new asset,
the expenses are capital in nature as per Mc Gaw-Ravindra
Laboratories (India) Ltd. (1994) (Guj.). Brewery project is not
related to the existing business of running three star hotels]

(e) Fees paid to directors without deducting tax at source [30% of `1 30,000 11,50,000
lakh] [Disallowance@30% would be attracted u/s 40(a)(ia) for non-
deduction of tax at source from director’s remuneration on which tax
is deductible u/s 194J]

1,63,50,000
Less: Items credited but to be considered separately/Expenditure to
be allowed
(i) Profit on sale of plot of land to 100% subsidiary 12,00,000
[Short-term capital gains arises on sale of plot of land held for less
than 24 months. However, in this case, since the transfer is to a 100%
subsidiary company and the subsidiary company is an Indian
company, the same would not constitute a transfer for levy of capital
gains tax as per section 47(iv).
Since this amount has been credited to the statement of profit and
loss, the same has to be deducted for computing business income).
(ii) Depreciation 5,00,000
[Depreciation allowable under the Income-tax Act, 1961 is `15 lakhs
whereas the depreciation as per books of account debited to the
statement of profit and loss is `10 lakhs. Hence, the additional
amount of `5 lakhs has to be deducted while computing business
income]
(iii) Additional compensation received from State Government [Since the 10,00,000
additional compensation has been received pursuant to an interim
order of the Court, the same would be deemed as income chargeable
to tax under the head “Capital Gains” in the year of final order as per
section 45(5). Since the compensation has been credited to the
CA BHANWAR BORANA BB VIRTUALS
 Test Papers of CA Inter - Direct Tax - MAY/NOV-25 Exams — Answers 3

Particular Amount (`)

statement of profit and loss, the same has to be deducted while
computing business income]
(iv) Dividend received from foreign company [Dividend received from
foreign company is taxable under the head “Income from other
sources”. Since the said dividend has been credited to the statement
5,00,000
of profit and loss, the same has to be deducted while computing
business income]
(v) Interest paid during the year [Conversion of unpaid interest into loan 2,00,000
shall not be construed as payment of interest for the purpose section
43B. The amount of unpaid interest converted into a new loan will
be allowable as deduction only in the year in which such converted
loan is actually paid. Since `2 lakhs has been paid in the P.Y.2024-
25, the same is allowable as deduction]
(vi) Purchases omitted to be recorded in the books [Since the purchase 2,00,000 36,00,000
is made in March, 2025 (i.e., P.Y.2024-25), in respect of which bill
of `2 lakhs received on 31.3.2024 has been omitted to be recorded
in the books in that year, it has to be deducted to compute the
business income [Kedarnath Jute Manufacturing Company Ltd.
(1971) (SC)]. It is logical to assume that the company is following
mercantile system of accounting].
Income under the head “Profits and Gains of Business or Profession” 1,27,50,000
Income from Other Sources
Dividend received from foreign company [Dividend received from a
foreign company is chargeable to tax under the head “income from other 5,00,000
sources”.]

Gross total Income 1,32,50,000

Less: Deduction under Chapter VI-A 5,00,000

Deduction u/s 80M in respect of inter-corporate dividends [to the
extent of dividend distributed by it on or before the due date
specified u/s 139(1) of filing return of income
Total Income 1,27,50,000

Solution 2:

CA BHANWAR BORANA BB VIRTUALS

Answer
Computation of Total Income and Tax Payable by M/s Breeze Dental Care Pvt. Ltd.
for the A.Y. 2025-26
Particulars Amount (in `)
I Profits and gains of business and profession
Net profit as per profit and loss account 79,50,000
Add: Items debited but to be considered separately
or to be disallowed
(a) Depreciation as per Companies Act 85,00,000
(b) Loss due to destruction of machinery by fire 25,00,000
 Loss of ` 25 lakhs due to destruction of old
machinery caused by fire is not deductible since it is
capital in nature. Since the loss has been debited to
profit and loss account, the same is required to be
added back while computing business income
(c) Tax paid (including surcharge and cess) 5,70,000
Tax paid including surcharge and cess is not
allowed while computing business income under
section 40(a)(ii). Since the tax paid has been debited
to profit and loss account, the same is required to
added back while computing business income]
(f) Purchase price of raw material for in-house Nil
research
Purchase price of raw material used for the purpose
of in-house research and development qualifies for
100% deduction u/s 35(2AB) or 35(1)(i). GST on
which ITC is not admissible is an expense and can
be claimed as deduction under section 37. As the
amount has already been debited to profit and loss
account, no further adjustment is necessary
(g) Payment to JAPA Inc. for online digital 12,00,000
advertisement
Disallowance @ 100% would be attracted under
section 40(a)(ib) for non-deduction of equalization
levy on payment for online digital advertisement to
JAPA Inc.
Since the payment has been debited to profit and
loss account, the same is required to added back
while computing business income
(h) Expenses on earning dividend income 15,000
The allowability or otherwise of expenses on
dividend income has to be considered while
computing income under the head “Income from
other sources”. Since the same has been debited to
the profit and loss account, it has to be added back
while computing business income]
 (i) Interest2 settled by issuing debentures 20,00,000
As per section 43B, conversion of interest into a
debenture shall not be deemed as actual payment,
and hence would not be allowed as deduction.
Since the interest has been debited to the profit and
loss account, it has to be added back while
computing business income]
1,47,85,000
2,27,35,000
Less: Items credited but not taxable or chargeable to
tax under another head
(b) Scrap value of machinery 7,80,000
Scrap value of machinery, being capital in nature,
has to be reduced from WDV of machinery. Since
the same has been credited to the profit and loss
account, it has to be deducted while computing
business income
(d) Power Subsidy received from Central Nil
Government
As per ICDS VII, Government grant (subsidy) which
is receivable as compensation for expenses or
losses incurred in a previous financial year shall be
recognised as income of the period in which it is
received. Since the subsidy is received in the
P.Y. 2024-25, it would be taxable in P.Y. 2024-25.
Since such subsidy has been credited to profit and
loss account, no further adjustment is required.
(e) Interest on margin money deposited with Bank Nil
Interest income received on funds kept as margin
money for obtaining the bank guarantee would be
taxable under the head “Profits and gains of
business or profession”3. Since such interest has
already been credited to profit and loss account, no
further adjustment is required.

2 It is assumed that interest is on any loan or borrowing from any public financial institution or a State Financial
Corporation or a State Industrial Investment Corporation or a deposit taking non-banking financial company or
systemically important non-deposit taking non-banking financial company or a scheduled bank or co-operative bank other
than a primary agricultural credit society or a primary co-operative agricultural and rural development bank
3 As decided in CIT v. K and Co. (2014) 364 ITR 93 (Del)
 (h) Dividend received from foreign company 2,50,750
Dividend received from foreign company is taxable
under “Income from other sources”. Since the same
has been credited to the profit and loss account, it
has to be deducted while computing business
income.
10,30,750
2,17,04,250
Less: Depreciation as per Income-tax Act, 1961
Normal depreciation [Refer Note below for
alternative]
- Depreciation on assets other than on air 32,50,000
compressor, air pollution control equipment & lorries
stated in A (2), (3) & (4)
- On Air Compressor machine [74,00,000 x 15%] 11,10,000
- On Air Pollution Control Equipment [23,45,000 x 9,38,000
40%]
- On Lorries for transporting goods to sales depots 7,12,500
[95,00,000 x 15% x 50%, since it is used for less
than 180 days]
- On Machine imported from Germany [Nil, since it is Nil
not installed in P.Y. 2024-25]
60,10,500
Additional depreciation
- On Air Compressor machine [74,00,000 x 20%] 14,80,000
- On Air Pollution Control Equipment [23,45,000 x 4,69,000 19,49,000
20%]
1,37,44,750
II Income from Other Sources
Dividend received from foreign company 2,50,750
[Dividend received from a foreign company is chargeable
to tax under the head” Income from other sources”.
` 15,000, being an expense other than interest payment
is not allowable as deduction from dividend income.]
Gross Total Income/ Total Income 1,39,95,500
 Computation of Tax payable
Tax on ` 1,39,95,500 @30% (since the turnover exceed 41,98,650
` 400 crores in the P.Y. 202 -2 )
Add: Surcharge @ 7% (since total income exceeds ` 1 2,93,906
crore but less than ` 10 crore)
44,92,556
Add: Health and Education cess @ 4% 1,79,702
Tax Payable 46,72,258
Tax Payable (Rounded off) 46,72,260
Note – The above solution has been worked out on the assumption that scrap value of
machine ` 7,80,000 has already been adjusted in computing the depreciation of ` 32,50,000.
However, if it is assumed that adjustment in respect of scrap value of machine is not
considered in the depreciation amount of ` 32,50,000, the business income, total income and
tax payable would be ` 1,38,61,750, ` 1,41,12,500 and ` 47,11,320, respectively.

@ The Institute of Chartered Accountants of India

 Explana'on of Test Paper- 5

Question:1

As per Section 115UB, PGBP income of investment funds is taxable in hands of investment
funds. As per amendment made by FA 2019, Losses other than PGBP of Investment Fund shall
be distributed to unit holders and unit holder can set off and carry forward such loss if unit
holder hold such units for 12 months or more. So, long term capital loss of Rs. 3 Crores shall
be carrying forward by unit holders.

Question:2

(i) The business trust has to deduct tax at source under section194LBA– - @10%, on
interest component of income distributed to resident unit holders; and - @5%
(plus cess), on interest component of income distributed to non- corporate Non-
resident unit holders and foreign companies. Interest component of income
distributed to unit holders is taxable in the hands of the unit holders – @5%, in
case of unit holders, being non-corporate non- residents or foreign companies;
and at normal rates of tax, in case of resident unit holders.

Therefore, tax is deductible at 10% for Mr. X (Resident) and 5.2% (including HEC)
for Mr. Y (Non-resident).

(ii) As per section 115UA(2), the business trust is liable to pay tax@15% under section
111A in respect of short-term capital gains on sale of listed shares and MMR for
sale of developmental properties.
(iii) Section 10(23FC) - Interest & Dividend from SPV shall be fully exempt in hands of
REIT. Any other income (except interest from SPV & Rental income from REIT)
received by unit Holders for Business Trust shall be exempt in hands of Unitholders
u/s 10(23FD). Dividend taxable only when SPV paid taxes as per 115BAA.
Therefore, no tax payable by REIT or unit holder.
(iv) Since, tax is paid by SPV as per section 115BAA. Dividend will be taxable in hands
of unitholder. Dividend exempt in hands of business trust due to its pass-through
status.
(v) Such interest is taxable at maximum marginal rate, in the hands of the Business
trust, asper section 115UA(2). However, there would be no tax liability in the
hands of the unit holders on the interest component of income distributed to
them, by virtue of section 10(23FD).
(vi) The distributed income or any part thereof, received by a unit holder from the
REIT, which is in the nature of income by way of renting or leasing or letting out
any real estate asset owned directly by such REIT is deemed income of the unit
holder as per section 115UA(3). The business trust has to deduct tax at
source@10% under section 194LBA in case of distribution to a resident unit holder
and at rates in force in case of distribution to a non- resident unit holder.
Question:3

As per Section 115UB, PGBP income of investment funds is taxable in hands of investment
funds.
Section 115UB – All income received by unit holders from investment fund are taxable in
hands of unit holders (except PGBP).

As per amendment made by FA 2019, Losses other than PGBP of Investment Fund shall be
distributed to unit holders and unit holder can set off and carry forward such loss if unit holder
hold such units for 12 months or more.

(i) As per taxation on investment fund, PGBP income of Rs.14,00,000 will be taxable
in the hands of investment fund and remaining income of Rs.28,00,000 (Capital
Gain-21,00,000 + IFOS – 7,00,000) will be taxable in the hands of unit holder i.e.
Rs.80,000 to each holder (28,00,000/35).
(ii) As per taxation on investment fund, PGBP income of Rs, 14,00,000 will be taxable
@30%plus HEC 4% since it is LLP.
(iii) As per taxation on investment fund PGBP loss of Rs. 4,00,000 (PGBP loss 10,00,000
– IFOS6,00,000) will be carried forward by Investment Fund II and since units have
been hold by holders for a period of atleast 12 months therefore capital loss of
Rs.40,000 (20,00,000/50) can be c/f by each unit holder.
(iv) As per taxation on investment fund PGBP income will be Rs. 11,00,000 for A.Y. 24-
25 as PBGP income for current year is Rs. 15,00,000 and carried forward loss of
previous year is Rs.4,00,000.

Question:4

Business Trust

Rental income received by unitholder from REIT and interest received by unitholder from
business trust (which was received from SPV) shall be taxable in hands of unitholder.
Therefore, taxable amount = 18 lakh x 10% share = 1.8 lakh.

Securitisation Trust

Section 115TCA - Any income accruing or arising to, or received by, a person, being an investor
of a securitisation trust, out of investments made in the securitisation trust, shall be
chargeable to income-tax in the same manner as if it were the income accruing or arising to,
or received by, such person, had the investments by the securitisation trust been made
directly by him.

Therefore, taxable amount = 6 lakh x 7.5% share = 0.45 lakh.

Investment Fund

Section 115UB – All income received by unit holders from investment fund are taxable in
hands of unit holders (except PGBP).
Loss other than PGBP is allowed to be carried forward by Unit holder.
Therefore, taxable amount = 2 lakh x 5% share = 0.10 lakh. Share in capital loss = 12.50 lakh
x5% share = 0.625 lakh.

Total Income = 1.8+0.45+0.10+2.70-0.625 = 4.425 lakhs.

Question:5

Section10AA-Since,itisthe 6 year of operations, 50% of export profit will be

th
(i)
exempt. Deduction = 60 lakh * 120 lakh/160 lakhs * 50% = 22.50 lakhs

Section 35AD - 100% deduction is allowed in respect of all capital expenses except
a) Land b)Goodwill c) Financial Instruments.
Therefore, deduction = 65 lakhs.

(ii)

Profit of unit located in SEZ : 60 Lakhs

Less: Deduction u/s 10AA : 22.50 Lakhs

A : 37.50 Lakhs

Profit from warehouse : 160 lakhs

Less: Deduction u/s 35AD : 65 lakhs
B : 95 lakhs
A+B : 132.50 lakhs

Tax Liability 132.50*30%*1.12*1.04 : 46.3008 lakhs

(iii)

Taxable Income
Add: Deduction u/s 10AA : 132.50 Lakhs

Add: Deduction u/s 35AD : 22.50 lakhs

Less: Dep u/s 32 (65 Lakhs*10%) : 6.5 lakhs

Adjusted Total Income: : 213.5 lakhs

Tax Liability 213.50*18.50%*1.12*1.04 : 46,00,670

(iv) Tax as per normal provision was higher. Therefore, no AMT credit will be there.
(v) As per section 44AD, income on presumptive basis is Turnover/Gross Receipts *6% (for
account payee cheque/DD/ECS received upto due date of ROI) and for remaining modes, it is
Turnover/GR *8%.

Therefore, in the given cases income will be calculated as follows -: 190 lakhs*6% + 10
lakhs*8% = 12.20 lakhs.

(vi) Section 44AB - Every person, carrying on business shall, if his total sales, turnover or gross
receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous
year shall get its books audited.

Since, income declared as per books is less than presumptive profit, hence, Audit is
mandatory.

Question:6

AMT = 11,00,530 (5200000*18.50% + 10% surcharge + 4% HEC)

Normal Tax = 3,35,400 ((52 lakh – 35 lakh) @ slab rates)

AMT credit to be carried forward is Rs. 7,65,130 (1100530-335400)

Question:7

Ab ye to tum hi kar lo…hahaha 😊

Question 9

Following benefits available under 115BAC

(i) Deduction for Interest on housing loan in respect of let-out property

(ii) Exemption in respect of agricultural income
(iii) Deduction under section 80JJAA

Question 8
All the best, Do the Best, God will do the rest 😊
 Topic wise Test Papers of CA Final - Direct Tax – MAY/NOV-25 Exams

Topic: VDA, DTAA & TP

Total Marks: 44 Marks

Time Allowed: 80 minutes

Answers:

Multiple Choice Questions

1. Answers:
(i) D
(ii) B
(iii) D
(iv) D
(v) D
(vi) C
2. Answer: D
3. Answer: A
4. Answer: C
5. Answer: A

Descriptive
1.
Computation of total income and tax liability of Miss Vivitha for the A.Y. 2025-26
Particulars ` `
Indian Income [Income from playing snooker tournaments in India] 19,20,000
Foreign Income [Income from playing snooker matches in country L] 12,00,000
Gross Total Income 31,20,000
Less: Deduction under Chapter VIA `
Deduction u/s 80C
Life insurance premium of `1,10,000 paid during the previous year 1,10,000
deduction, is within the overall limit of `1.5 lakh. Hence, fully allowable
as deduction
Deduction u/s 80D
Medical insurance premium of `30,000 paid for her father aged 62
years. Since her father is a senior citizen, the deduction is allowable to
a maximum of `50,000 (assuming that her father is also a resident in

CA BHANWAR BORANA BB VIRTUALS

2 Test Papers of CA Inter - Direct Tax - MAY/NOV-25 Exams — Answers
Particulars ` `
India).
Further, deduction is allowable where payment is made by any mode 30,000 1,40,000
other than cash. Here payment is made by credit card hence, eligible for
deduction.
Total Income 29,80,000
Tax on Total Income
Income-tax 7,06,500
Add : HEC@4% 28,260
Average rate of tax in India 24.66%
é `7, 34, 760 ù
ê ×100 ú
` 29,80, 000
ê ú
ëêi.e. ûú
Average rate of tax in foreign country 15.00%
é `1,80, 000 ù
ê ×100 ú
`12, 00, 000
ê ú
êëi.e. úû
Rebate u/s 91 on `12 lakh @ 15% (lower of average Indian-tax rate or 1,80,000
average foreign tax rate)
Tax payable in India (`7,34,760 — `1,80,000) 5,54,760
Notes:
Miss Vivitha shall be allowed deduction u/s 91, since the following conditions are fulfilled:—
(a) She is a resident in India during the relevant previous year.
(b) The income accrues or arises to her outside India during that previous year and such income is not
deemed to accrue or arise in India during the previous year.
(c) The income in question has been subjected to income-tax in the foreign country L in her hands and
she has paid tax on such income in the foreign country L.
(d) There is no agreement u/s 90 for the relief or avoidance of double taxation between India and
country L where the income has accrued or arisen.

2.
Computation of total income and tax liability of Smt. Laxmi for A.Y. 2025-26
Particulars ` `
Income from house property
Rental income from property at Mumbai (computed) 1,80,000
Less: Loss from let out property at Chennai (4,40,000) (2,60,000)
Profits and gains from business and profession
Business income in India 6,00,000
Business income in Country B 4,00,000
10,00,000

CA BHANWAR BORANA BB VIRTUALS

 Test Papers of CA Inter - Direct Tax - MAY/NOV-25 Exams — Answers 3
Particulars ` `
Less: Loss from house property of `2,60,000 allowed to be set-off to the (2,00,000) 8,00,000
extent of `2,00,000
Balance loss of `60,000 from house property to be carried forward to
A.Y. 2026-27
Income from other sources
Dividend received from domestic company 2,00,000
Gross Total Income/Total Income 10,00,000
Tax on total income
Tax on `10,00,000 [20% x `5,00,000 + `10,000] 1,10,000
Add: HEC @4% 4,400
1,14,400
Average rate of tax in India [i.e., `1,14,400 /`10,00,000 x 100] 11.44%
Average rate of tax in Country B 20%
Doubly taxed income 4,00,000
Rebate u/s 91 on `4,00,000 @11.44%
[lower of average Indian tax rate and rate of tax in Country B] 45,760
Tax payable in India 68,640
Note:
(1) Since Smt. Laxmi is resident in India for the P.Y.2024-25, her global income would be subject to
tax in India.
(2) She would be allowed deduction u/s 91 provided all the following conditions are fulfilled:
(a) She is a resident in India during the relevant previous year.
(b) Income accrues or arises to her outside India during that previous year.
(c) Such income is not deemed to accrue or arise in India during the previous year.
(d) The income in question has been subjected to income-tax in Country B in her hands and she
has paid tax on such income in Country B.
(e) There is no agreement u/s 90 for the relief or avoidance of double taxation between India and
Country B, where the income has accrued or arisen.
Accordingly, Smt. Laxmi is eligible for deduction u/s 91 since all the conditions thereunder are fulfilled.

3.
Determination of Gross Margin of Comparable Uncontrolled transaction i.e., of SAK Ltd.
Particulars Amt in USD
Direct Cost (USD 100 x 8 hours x 15 days) 12,000
Indirect Cost (USD 200 x 8 hours x 15 days) 24,000
Total Direct and Indirect cost 36,000
Add: Cost of warranty [1% of direct cost of USD 12,000] 120
Total Cost 36,120

CA BHANWAR BORANA BB VIRTUALS

4 Test Papers of CA Inter - Direct Tax - MAY/NOV-25 Exams — Answers
Billing per month 70,000
Margin after cost of warranty being profit margin [70,000 - 36,120] 33,880
Profit margin to cost (%) [after considering functional difference on account of 93.80
cost of warranty [33,880 x 100/36,120]
Computation of Arm’s Length Price by applying Cost Plus Method
ABC Inc (USD)
Direct Cost (USD 100 x 9 hours x 15 days) 13,500
Indirect Cost (USD 200 x 9 hours x 15 days) 27,000
Total Direct and Indirect cost 40,500
Add: Interest on loan of USD 1,00,000 borrowed for purchase of hardware 250
[USD 3,000 (i.e., USD 1,00,000@3%)/12]
Total Cost 40,750
Profit margin by applying the margin of 93.80% of total cost of USD 40,750 38,224
Arm’s length price of billing per month 78,974
Arm’s length price (in `) [USD 78,974 x 64] = `50,54,336 Actual Billing 85,000
per month
In the present case, since actual billing of USD 85,000 per month to the ABC Inc, an AE, is higher than
the Arm’s length price of USD 78,974 determined by applying cost plus method, no adjustment is to
be made to the income of Amar P Ltd.

4.
LMN Ltd, an Indian company and ABC Ltd., a Canadian company, are deemed to associated
enterprises as per section 92A(2), since ABC Ltd. holds shares carrying 35% of the voting power (i.e.,
not less than 26% of voting power) in LMN Ltd. Further, the transaction of developing software and
providing consultancy services (both onsite and offsite) fall within the meaning of “international
transaction” u/s 92B. Hence, transfer pricing provisions would be attracted in this case.

Computation of Arm’s Length Price as per Cost Plus Method

Gross Profit mark-up on cost in case of XYZ Ltd. [an unrelated party] 50%
Less: Adjustments for functional and other differences
- Value of technology support [ABC Ltd. provides technology support, but XYZ 9%
Ltd. does not provide such support. Therefore, value of technology support shall
be adjusted] [18% of 50%, being gross profit]

- Quantity discount to ABC Ltd. [Quantity discount is allowed to ABC Ltd. as it 5%

gives business in large volumes, but the same is not provided to XYZ Ltd.
Therefore, it shall be adjusted] [10% of 50%, being gross profit]
- Risk and cost associated with marketing [LMN Ltd. has to bear all the risk and 6%
costs associated with the marketing function in case of XYZ Ltd., while there is
no such risk in case of services to ABC Ltd. Therefore, market risk and cost shall
be adjusted] [12% of 50%, being gross profit] 20%

30%

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 Test Papers of CA Inter - Direct Tax - MAY/NOV-25 Exams — Answers 5

Computation of Arm’s Length Price as per Cost Plus Method

Add: Cost of credit to ABC Ltd. [LMN Ltd has provided credit of 1 month to ABC
Ltd. but not to the unrelated party. Therefore, adjustment for the cost of such
credit has to be carried out to arrive at the ALP] [(2% of 50%, being gross profit]
1%
Arm’s length gross profit mark up to cost
Cost incurred by LMN Ltd. for executing ABC Ltd.’s work 31%
2,25,000
Add: Adjusted gross profit (` 2,25,000 x 31%) 69,750
Arm’s length billed value 2,94,750
Less: Actual Billed Income from ABC Ltd. (` 1800 x 120 man hours) 2,16,000
Total Income of LMN Ltd to be increased by 78,750

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