CMA Inter Suggested Answers | Dec 24 Paper 07 Direct and Indirect Taxation (DITX)

Table of Contents

1. MCQs
2. 2 (a) Briefly discuss with reference to Income Tax Act, 1961 whether the
3. 2 (b) Mr. Kaul, aged 60 years, retired from a private company on 1st
4. 3 (a) Mr. Ramesh aged 55 years, is an owner of a residential house
5. 3 (b) M/s T and U & Co. is a partnership firm having 2 equal partners,
6. 4 (a) Mrs. Parul sold her commercial plot (land) on 1st January, 2024
7. 4 (b) Mr. Ajit, a resident Indian aged 55 years, a Cost and Management
8. 5 (a) Mr. Sumeet, a resident individual aged 35 years, gives the following
9. 5 (b) Mr. Ram, a resident individual, aged 46 years, owns 2 residential house
10. 6 (a) Explain the concept and features of indirect taxation. 
11. 6 (b) What are the benefits of the GST Council? State any five
12. 7 (a) State, with reason, the person liable to pay GST in each of the
13. 7 (b) Self & Life Insurance Company has collected premium from policy
14. 8 (a) Shyam Ltd. is a registered manufacturer of cars. Shyam Ltd. provides
15. 8 (b) Palak Trade Ltd. of Mumbai has imported a machine by air from
16. CMA Inter Dec 24 Paper 7 : Direct and Indirect Taxation detailed analysis

CMA Inter Dec 24 Suggested Answer Other Subjects Blogs :

1. Suggested Answer Dec 24 Paper 5 : Business Laws and Ethics
2. Suggested Answer Dec 24 Paper 6 : Financial Accounting
3. Suggested Answer Dec 24 Paper 8 : Cost Accounting (CA)
4. Suggested Answer Dec 24 Paper 9 : Operations Management and Strategic Management
5. Suggested Answer Dec 24 Paper 10 : Corporate Accounting and Auditing
6. Suggested Answer Dec 24 Paper 11 : Financial Management and Business Data Analytics
7. Suggested Answer Dec 24 Paper 12 : Management Accounting
8. CMA Inter Syllabus (New Updates)

Section - A

MCQs

(i) Mr. Sunil’s minor daughter earned ₹ 50,000 from her special talent. Under the Income Tax Act, 1961, this income will be clubbed with—

1. The income of Mr. Sunil
2. The income of Mrs. Sunil
3. Mr. Sunil or Mrs. Sunil, whoever’s income is higher
4. It will not be clubbed

Solution :

(D) It will not be clubbed.

The income earned by a minor child from their special talent (such as acting, singing, or any other unique capability) is not clubbed with the income of the parent under Section 10(32) of the Income Tax Act, 1961. This income qualifies as an exemption since it is earned using the child's own skill or talent.

Hence, the correct answer is:
For a detailed reference, this is explained under the provision of clubbing of income under Section 64(1A) and the related exemption under Section 10(32)​.

(Similar Question was part of www.konceptca.com Question Library)

(ii) As per the Income Tax Act, 1961, in case of loss, a partnership firm may claim deduction in respect of remuneration paid to partner to the extent of

1.  ₹ 1,50,000/-
2. ₹ 1,50,000/- or actual remuneration, whichever is lower.
3. ₹ 1,50,000/- or 90% of book profit, whichever is lower.
4. Nil

Solution :

(B) ₹ 1,50,000/- or actual remuneration, whichever is lower.

Under Section 40(b)(v) of the Income Tax Act, 1961, a partnership firm can claim a deduction for remuneration paid to its partners. However, in case of loss, the maximum permissible deduction for remuneration is ₹ 1,50,000 or actual remuneration paid, whichever is lower.

(iii) As per the Income Tax Act, 1961, income from saplings shall be considered as

1. Agricultural income
2. Business income
3. Partly agricultural income and partly business income
4. Income from other sources

Solution : 

(A) Agricultural income

Income from saplings or seedlings grown in a nursery is considered agricultural income under the Income Tax Act, 1961, as per Section 2(1A). This holds true regardless of whether the nursery is maintained on agricultural land or not.

(iv) Exemption under section 54 of the Income Tax Act, 1961 is available to

1. All assessees.
2. Individuals only.
3. Individuals as well as HUF.
4. All assessees other than a company.

Solution : 

(C) Individuals as well as HUF.

Exemption under Section 54 of the Income Tax Act, 1961, is available to Individuals and Hindu Undivided Families (HUFs). This section allows for exemption on the capital gains arising from the transfer of a residential house, provided the proceeds are reinvested in another residential property within the specified period.

(v) Mr. Nitin had bought a laptop for ₹ 50,000 on 01.04.2021 for his personal use. He started using this laptop for his business purposes only since 02.05.2023. On that date, the market value of the laptop was ₹ 40,000. What is the amount of depreciation allowable to him under the Income Tax Act, 1961 for the financial year 2023-24 assuming the rate of depreciation to be 40%?
(A) ₹ 20,000
(B) ₹ 16,000
(C) ₹ 7,200
(D) ₹ 2,880

Solution : 

(A) ₹ 20,000 

As per Section 43(1) of the Income Tax Act, 1961, the actual cost of the asset is defined as the cost at which the asset was acquired by the assessee. When an asset is initially used for personal purposes and subsequently brought into business use, the original purchase price is considered as the actual cost, not the market value on the date it is brought into business use.

In this case:

• Purchase Price: ₹ 50,000
• Date of Business Use: 02.05.2023
• Rate of Depreciation: 40%
• Usage Period: Since the laptop was used for more than 180 days during the financial year 2023-24, depreciation for the full year is allowed.

Depreciation Calculation: Depreciation = ₹ 50,000 × 40% = ₹ 20,000

Notes:

1. Market value of ₹ 40,000 on the date of business use is not relevant for depreciation purposes.
2. Explanation 5 to Section 43(1), which provides for reduction of notional depreciation from the cost of the asset, applies only to buildings that were initially used for personal purposes. It does not apply to other assets such as laptops.

(vi) Mr. Raina, a resident individual, files all his income tax returns on time. He has opted for default tax regime under section 115BAC of the Income Tax Act, 1961 for the Assessment year 2024-25. During the year he withdrew the following sums in cash from his savings bank account maintained with ABC Bank (ABC Bank is not a co-operative bank):

• 23rd June, 2023: ₹ 1.50 Crore
• 26th September, 2023: ₹ 1 Crore

Which of the following statements is correct in this respect?

1. There is no tax/TDS implication in this case.
2. ABC Bank will need to deduct TDS at the rate of 2%.
3. ABC Bank will need to deduct TDS at the rate of 5%.
4. ABC Bank will need to deduct TDS at the rate of 1%.

Solution :

(B) ABC Bank will need to deduct TDS at the rate of 2%.

Relevant Provisions of Section 194N:

1. Applicability: TDS is required to be deducted by the bank if cash withdrawals exceed:
• ₹1 crore in a financial year, in case of a taxpayer filing income tax returns regularly.
2. Rate of TDS:
• For cash withdrawals exceeding ₹1 crore in a financial year: TDS at 2% for non defaulters is applicable on the amount exceeding ₹1 crore.
3. Calculation for Mr. Raina:
• Total cash withdrawals during the year:
• 23rd June 2023: ₹ 1.50 crore
• 26th September 2023: ₹ 1 crore
• Total: ₹ 2.50 crore

(vii) As per the GST law, renting of precincts of a religious place meant for general public owned or managed by a charitable or religious trust u/s 12AA of the Income Tax Act, 1961, shall be exempt if

1. Renting of rooms where per day charges are less than ₹ 1,000.
2. Renting of shops or other spaces for business or commerce where charges per month are less than ₹ 10,000.
3. Renting of community premises, community halls or open area, where charges per day are less than ₹ 10,000.
4. All of the above

Solution :

(D) All of the above

Exemptions on Renting of Premises:

1. Rooms:
   Exempt if the rent per day is less than ₹ 1,000.
2. Shops or Other Spaces for Business or Commerce:
   Exempt if the rent per month is less than ₹ 10,000.
3. Community Halls, Premises, or Open Areas:
   Exempt if the rent per day is less than ₹ 10,000.

(viii) A hotel owner provided accommodation in Haryana, through an Electronic Commerce Operator (ECO). The hotel owner is not liable to get registered as per the provisions of section 22(1) of the CGST Act, 2017. Who is the person liable to pay GST in this case?

1. Hotel Owner
2. Electronic Commerce Operator (ECO)
3. Customer
4. Both by Hotel owner and Electronic Commerce Operator (ECO)

Solution :

(B) Electronic Commerce Operator (ECO)

Under Section 9(5) of the CGST Act, 2017, for certain services provided through an Electronic Commerce Operator (ECO), the liability to pay GST is shifted to the ECO. This is applicable to services such as:

1. Passenger transportation services.
2. Accommodation services.
3. Housekeeping services.

Applicability in the Given Scenario:

• The hotel owner is providing accommodation services through an ECO (e.g., an online platform like OYO or MakeMyTrip).
• As per Section 9(5), if the hotel owner is not liable to register under Section 22(1) of the CGST Act due to turnover below the threshold, the GST liability shifts to the Electronic Commerce Operator (ECO).

(ix) The items which will be taxable both under current central excise law and new GST even after the implementation of the GST law:

1. Motor Spirit
2. Alcoholic Liquor for Human Consumption
3. Tobacco and Tobacco products
4. Natural Gas

Solution :

(C) Tobacco and Tobacco products

Taxability of Specific Items:

1. Motor Spirit (Petrol): Taxable under Central Excise Law (for excise duties) and State VAT laws, but GST does not apply to this item yet.
2. Alcoholic Liquor for Human Consumption: Excluded entirely from GST and taxed under State Excise and VAT laws.
3. Tobacco and Tobacco Products: Taxable under both GST and Central Excise laws.
4. Natural Gas: Taxable under Central Excise Law for some uses and GST for others, depending on its end-use.

(x) As per the GST law, tax invoice shall be prepared in _______ in case of supply of goods and in _______ in case of supply of services.

1. duplicate, duplicate
2. duplicate, triplicate
3. triplicate, duplicate
4. triplicate, triplicate

Solution :

(C) triplicate, duplicate

Under the GST law, the requirement for the preparation of tax invoices is outlined in Rule 46 of the CGST Rules, 2017. The number of copies required depends on whether the supply involves goods or services:

Requirements:

1. For Supply of Goods:
• The tax invoice must be prepared in triplicate:
• Original for the recipient.
• Duplicate for the transporter.
• Triplicate for the supplier.
2. For Supply of Services:
• The tax invoice must be prepared in duplicate:
• Original for the recipient.
• Duplicate for the supplier.

(xi) As per the Customs Act, 1962, Goods which are same in all respects, including physical quantity is known as:

1. Identical Goods
2. Similar Goods
3. Alike Goods
4. None of the above

Solution :

(A) Identical Goods

• Identical goods are those that are same in all respects, including:
• Physical characteristics.
• Quality.
• Reputation.
• These goods must be produced in the same country as the goods being valued and by the same manufacturer (if possible).

If goods meet these criteria but are not exactly identical, they might qualify as similar goods instead.

(xii) The maximum threshold limit for eligibility under composition scheme for supplier of services under section 10(2A) of the CGST Act, 2017 is

1. ₹ 40 lakh
2. ₹ 50 lakh
3. ₹ 1 crore
4. ₹ 1.50 crore

Solution :

(B) ₹ 50 lakh

• Section 10(2A) was introduced to extend the composition scheme to service providers.
• Under this provision:
• Service providers with an aggregate turnover not exceeding ₹ 50 lakh in the preceding financial year are eligible.

(xiii) Mr. Prashant works with ABC Ltd. as a Senior Manager since 1.4.2019. On 11.05.2023, the company gave him a cash gift of ₹ 55,000 for his contribution in acquiring a new client. Which of the following statements is correct with reference to GST law?

1. The gift received from employer is fully exempt from GST.
2. The gift received from employer is fully taxable under GST as the amount exceeds ₹ 50,000.
3. The gift received from employer is exempt under GST as the amount does not exceed ₹ 1,00,000.
4. The gift received from employer is fully taxable under GST as the amount exceeds ₹ 25,000.

Solution :

(B) The gift received from employer is fully taxable under GST as the amount exceeds ₹ 50,000

Further, proviso to Para 2 of Schedule I provides that gifts upto ₹ 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. However, gifts of value more than ₹ 50,000 made without consideration are supply and are subject to GST, when made in the course or furtherance of business. 

(xiv) As per section 2(28) of the Customs Act, 1962, "Indian customs waters" means the waters extending into the sea up to

1. The limit of Exclusive Economic Zone.
2. 24 NM from baseline.
3. 12 NM from baseline.
4. 100 NM from baseline.

Solution :

(B) 24 NM from baseline

Under Section 2(28) of the Customs Act, 1962, "Indian customs waters" are defined as the waters extending into the sea up to 24 nautical miles (NM) from the baseline of the coast of India.

(xv) Mr. Nitesh, a composition dealer under GST exceeded the specified turnover to be eligible for composition scheme on 1st December 2023. Which of the following statements is correct in this respect?

1. He has to intimate the tax authorities and start paying tax under the regular scheme from the first day of the next financial year, i.e., 1st April 2024.
2. The permission granted to him is deemed to be withdrawn from the day his turnover crosses the specified limit and he shall be liable to pay tax under the regular scheme from that day itself, i.e., 1st December 2023.
3. He has to intimate the tax authorities and start paying tax under the regular scheme from the first day of the next month, i.e., 1st January 2024.
4. The permission granted to him is deemed to be withdrawn from the day his turnover crosses the specified limit and he shall be liable to pay tax under the regular scheme from the first day of the next financial year, i.e., 1st April 2024.

Solution :

(B) The permission granted to him is deemed to be withdrawn from the day his turnover crosses the specified limit and he shall be liable to pay tax under the regular scheme from that day itself, i.e., 1st December 2023.

This is in accordance with the provisions of Section 10(5) of the CGST Act, 2017, which automatically shifts the dealer to the regular scheme upon exceeding the threshold​.

Key Points:

• Turnover Limit Exceeded:

• In this case, Mr. Nitesh exceeded the turnover limit on 1st December 2023.

• The composition scheme ceases to apply from that very day, i.e., 1st December 2023.

• Liability to Pay Tax Under the Regular Scheme:

• From 1st December 2023 onwards, Mr. Nitesh is required to comply with the regular GST regime.

• He must start collecting tax and filing returns under the regular scheme immediately.

• Intimation Requirement:

• He must inform the tax authorities about the change, but the withdrawal is automatic as per GST law.

Section - B

Question 2 (a)

Briefly discuss with reference to Income Tax Act, 1961 whether the followings are capital / revenue receipts/ expenditure for the Assessment Year 2024-25:
(i) Mr. Ratan was employed with a start-up company. The company paid ₹ 12 lakhs as salary to him out of the capital account balance.
(ii) Miss Sunita entered into a bond with her employer company whereby the employer company paid her salary in advance for 3 years, ₹ 30 lakh, on 30.06.2023.
(iii) Mr. Desai purchased a car for the purpose of his business from Mr. Dhawal, who is a car dealer.
(iv) Miss Shreya operates her profession from a rented office. She got the office painted and spent ₹ 1,00,000 on such painting. The paint will last for 5 years.
(v) M/s ABC Ltd. entered into a purchase agreement with the builder of a factory building. On 31st October, 2023, the builder paid ₹ 10 lakh to M/s ABC Ltd. as compensation for delay in giving possession of the factory building. The compensation was decided as per the terms of the agreement between them.

Answer : 

(i) The source of payment (capital account) does not determine the nature of the transaction. Salary paid to an employee is a revenue expenditure for the employer and a revenue receipt for the employee.Conclusion: For the employer: Revenue expenditure For Mr. Ratan: Revenue receipt.

(ii) Salary received in advance by the employee is considered revenue in nature for the employee, as it represents compensation for services rendered.Conclusion: For Miss Sunita: Revenue receipt For the employer: Revenue expenditure

(iii) The purchase of a car is a capital expenditure for Mr. Desai as it results in the acquisition of a fixed asset for business use Conclusion: For Mr. Desai: Capital expenditure. For Mr. Dhawal: Revenue receipt

(iv) Miss Shreya: The ₹1,00,000 spent on painting the rented office is revenue expenditure and deductible under Section 37(1). Reasoning: The painting enhances usability but does not create a new asset or provide enduring benefit in the capital sense.

(v) As per judicial rulings, such compensation is treated as a revenue receipt and is taxable under Income from Other Sources (Section 56) For M/s ABC Ltd.: Revenue receipt, taxable under Income from Other Sources.

Question 2 (b)

Mr. Kaul, aged 60 years, retired from a private company on 1st February, 2024. He served as a General Manager in this company for 25 years and 6 months. He was drawing a basic salary of ₹ 95,000 p.m. since 1st January, 2022, dearness allowance of 12% of basic salary (30% forms part of the salary for retirement benefits). He received the following amounts upon retirement:
(i) Gratuity: ₹ 25,00,000 (he is covered by the Payment of Gratuity Act.)
(ii) Leave Salary: ₹ 12,00,000
(He was entitled to 2 months leave per year of service. He took a total of 12 months leave.)
(iii) Commuted pension: ₹ 4,50,000

You are required to compute his income chargeable under the head ‘Salary’ for the Assessment Year 2024-25 assuming he opted out of default tax regime under section 115BAC of the Income Tax Act, 1961.

Answer : 

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Question 3 (a)

Mr. Ramesh aged 55 years, is an owner of a residential house property. The following particulars of the house for the previous year 2023-24 are as under:

The above property was let out for ₹ 70,000 per month for the period April 2023 to January 2024.
Thereafter, the tenant vacated the property and Mr. Ramesh used the house for self-occupation. Rent for the month of January, 2024 could not be realized from the tenant. Mr. Ramesh has not instituted any legal proceedings for recovery of the unpaid rent.

Mr. Ramesh paid municipal taxes @ 10% during the year and paid interest of ₹ 35,000 during the year for amount borrowed towards repairs of the house property.

Calculate the income from "House property" chargeable in the hands of Mr. Ramesh for the Assessment Year 2024-25. Assuming Mr. Ramesh exercise the option of shifting out of the default tax regime provided under section 115BAC of the Income Tax Act, 1961.

Indicate clearly the reasons for treatment of each item.

Answer : 

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Question 3 (b)

M/s T and U & Co. is a partnership firm having 2 equal partners, Taarak and Umesh. The firm furnishes the following Profit and Loss Account to you relating to the Financial Year 2023-24:

Additional Information:

1. The firm has a brought forward business loss amounting to ₹ 20,000 and unabsorbed depreciation of ₹ 40,000, both relating to Assessment Year 2023-24.
2. Interest is paid to Taresh at the rate of 16% p.a. The firm took a loan from Taresh. The Schedules and Rules in India charge interest at the rate of 20% for the similar loan. The partnership deed does not contain any clause relating to payment of interest to any partner.
3. The partnership deed authorises Umesh to receive salary as a working partner.
4. General expenses include ₹ 40,000 paid to Mr. Som on which TDS needed to be deducted but not deducted.
5. Depreciation as per the Income Tax Rules is ₹ 54,000.

You are required to compute the income under the head ‘Profits and gains from business or profession’ in the hands of M/s T and U & Co. for the Assessment Year 2024-25. 

Answer :

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Question 4 (a)

Mrs. Parul sold her commercial plot (land) on 1st January, 2024 for ₹ 86,00,000. Value determined for the purpose of stamp duty is ₹ 80,00,000.

Such plot is acquired on 1st April, 2006 for ₹ 1,05,000. Brokerage paid on purchase and transfer of said land are ₹ 5,000 and ₹ 86,000 respectively.

On 1st March, 2024, Mrs. Parul purchased Power Finance Corporation (PFC) Limited bonds of ₹ 60,00,000.

You are required to compute income taxable under the head ‘Capital Gains’ for the Assessment Year 2024-25 in the hands of Mrs. Parul. Assuming Mrs. Parul exercise the option of shifting out of the default tax regime provided under section 115BAC of the Income Tax Act, 1961.

Cost inflation index for the various financial years are as under:

• 2005-2006: 117
• 2006-2007: 122
• 2007-2008: 129
• 2023-2024: 348

Indicate clearly the reasons for treatment of each item. 

Answer :

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Question 4 (b)

Mr. Ajit, a resident Indian aged 55 years, a Cost and Management Accountant (CMA), shares the following information about his income during the financial year 2023-24:
(i) Amount received from evaluation of answer books of professional examinations: ₹ 70,000. Expenses incurred for earning this income like cost of stationery etc. ₹ 1,200.
(ii) Income from fixed deposit relating to A.Y. 2023-24: ₹ 45,000 including interest amounting to ₹ 7,000.
(iii) Gift received in cash from his son and his marriage anniversary: ₹ 76,000.
(iv) Gift received from his brother-in-law, Abhijit: ₹ 1,30,000 in cash.

(v) Amount received from letting out of residential house property: ₹ 50,000 p.m.
(vi) Dividend received (gross) from listed Indian companies: ₹ 65,000
(vii) Interest expenses on loan taken to buy the shares on which dividend is received: ₹ 15,000

Compute the income chargeable under the head ‘Income from other sources’ in the hands of Mr. Ajit for the Assessment Year 2024-25 by briefly giving reasons wherever applicable, assuming he has opted for default tax regime under section 115BAC of the Income Tax Act, 1961. 

Answer :

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Question 5 (a)

Mr. Sumeet, a resident individual aged 35 years, gives the following information to you relating to financial year 2023-24:
(i) Loss from self-occupied property: ₹ 3,40,000
(ii) Income from the business of buying and selling shares of listed companies (there were no delivery of shares involved): ₹ 4,50,000
(iii) Loss from other speculative business: ₹ 13,00,000
(iv) Salary income: ₹ 10,00,000 (Computed)
(v) Short-term capital loss on sale of depreciable assets: ₹ 3,60,000
(vi) Long-term capital gain on sale of residential building: ₹ 1,30,000
(vii) Lottery income (Gross): ₹ 55,000
(viii) Brought forward business loss: ₹ 33,000 (this loss relates to Assessment Year 2021-22. This business was discontinued on 31.03.2022.)

You are required to compute the total income of Mr. Sumeet for the Assessment Year 2024-25 assuming he has opted for the default tax regime under section 115BAC of the Income Tax Act, 1961.
Also specify the amount of losses to be carried forward and up to which assessment year, if any. 

Answer :

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Question 5 (b)

Mr. Ram, a resident individual, aged 46 years, owns 2 residential house properties of which, one is used for own residential purpose and the other is let out for a monthly rent of ₹ 65,000. He bought these houses by taking housing loan from a nationalized bank. During the financial year 2023-24, he paid interest on housing loan of ₹ 2,10,000 each for both houses and total principal repayment of ₹ 2,50,000 for each house.

Mr. Ram is Doing iron business by name M/s Ram Enterprises in which his income (Computed) amount to ₹ 9,60,000 

You are required to calculate total taxable income and tax liability of Mr. Ram for the Assessment Year 2024-25 under the default tax regime under section 115BAC of the Income Tax Act, 1961 and also optional tax regime as per the Regular provisions (old regime) of the Income Tax Act, 1961.

Advise Mr. Ram whether he should pay tax under default tax regime under section 115BAC of the Income Tax Act, 1961 or Regular provisions (old regime) of the Income Tax Act, 1961 for the assessment year 2024-25. 

Answer :

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Question 6 (a)

Explain the concept and features of indirect taxation. 

Answer :

Concept of Indirect Taxation:

• Indirect taxes are taxes levied on goods and services, rather than on income or profits.
• The liability to pay the tax is on the seller or service provider, but the burden of the tax is passed on to the final consumer.
• Examples of indirect taxes include Goods and Services Tax (GST), customs duty, and excise duty.

Features of Indirect Taxation:

1. Shift of Tax Burden:
• The person who pays the tax to the government (e.g., manufacturer, supplier) shifts the burden of the tax to the end consumer through the price of goods or services.
2. Tax on Consumption:
• Indirect taxes are levied on the consumption of goods and services, making them applicable only when there is a purchase or use.
3. Broad Coverage:
• These taxes apply to a wide range of goods and services, ensuring a broad tax base.
4. Regressive Nature:
• Indirect taxes are considered regressive because they affect all consumers equally, regardless of their income level.
5. Multi-Stage Levy:
• Indirect taxes, such as GST, are levied at multiple stages of production and distribution but are ultimately borne by the consumer.
6. Revenue Generation for Governments:
• Indirect taxes are a significant source of revenue for both central and state governments, contributing to infrastructure development and public welfare.
7. Compliance Through Returns:
• Businesses registered under indirect tax laws are required to file regular returns, such as GSTR-1 and GSTR-3B under GST.
8. Encourages Documentation:
• Indirect taxes promote better documentation and transparency, as every transaction along the supply chain is recorded.
9. Uniformity in Taxation:
• Taxes like GST have replaced multiple indirect taxes, ensuring uniform rates across the country.
10. Impact on Prices:
• Indirect taxes directly influence the price of goods and services, as they are added to the base price.

Question 6 (b)

What are the benefits of the GST Council? State any five recommendations that can be made by the GST Council. 

Answer :

Benefits of the GST Council

The GST Council, established under Article 279A of the Constitution, is the apex decision-making body for the Goods and Services Tax (GST). It ensures the smooth implementation and evolution of GST across India, fostering cooperative federalism. Below are the key benefits of the GST Council:

1. Uniformity in Tax Structure:
   • The Council ensures a uniform tax structure across states, minimizing disputes and fostering a single national market.
2. Harmonized Decision-Making:
   • It facilitates collective decision-making among the Centre and states, promoting a cooperative approach to taxation.
3. Revenue Neutrality:
   • The Council works to balance the revenue needs of both the Centre and states, ensuring that GST reforms do not lead to revenue losses.
4. Ease of Compliance:
   • Recommendations from the GST Council aim to simplify tax processes, making compliance easier for taxpayers.
5. Reduction in Cascading Effect:
   • Through its policy decisions, the Council ensures seamless input tax credit across the value chain, reducing the cascading effect of taxes.
6. Dynamic Policy Framework:
   • The Council regularly reviews tax rates, exemptions, and compliance mechanisms, keeping the GST framework responsive to economic changes.
7. Addressing Disputes:
   • The GST Council provides a platform to resolve disputes between states or between states and the Centre regarding GST-related issues.

Five Recommendations That Can Be Made by the GST Council

1. Tax Rates and Slabs
2. Exemptions
3. Threshold Limits for Registration:
4. Model GST Law Amendments:
5. Special Provisions for Specific States

Question 7 (a)

State, with reason, the person liable to pay GST in each of the following independent cases, where the supplier and recipient are located in the taxable territory. Ignore the aggregate turnover and exemption available, if any:
(i) Money Save Bank Ltd. located in Kolkata, appointed Ms. Sakshi as a recovery agent for collecting outstanding balance amount of loan from its customers. Ms. Sakshi provided service to Money Save Bank Ltd. for which she has raised a bill of ₹ 15,000.
(ii) Whether your answer will change in case of (i), if Ms. Sakshi provided recovery agent services to a car dealer company instead of Money Save Bank Ltd.
(iii) Mr. Mohit has taken a loan from Diwakar Bank Ltd. and for this he has taken a service of an individual Mr. Prakash who is a Direct Selling Agent of Diwakar Bank Ltd. and has paid the commission to Mr. Prakash for giving a customer to the bank @ 1% loan granted to Mr. Mohit.

Answer :

(i) Recovery agent services provided to a bank

Scenario: Ms. Sakshi, a recovery agent, provides services to Money Save Bank Ltd.

Analysis:

• As per Notification No. 13/2017-Central Tax (Rate), services provided by a recovery agent to a banking company or a financial institution are covered under the reverse charge mechanism (RCM).
• Under RCM, the recipient of the service (the bank) is liable to pay GST, not the recovery agent.

Conclusion:

• The Money Save Bank Ltd. is liable to pay GST under the reverse charge mechanism.

(ii) Recovery agent services provided to a car dealer

Scenario: Ms. Sakshi provides recovery agent services to a car dealer company instead of a bank.

Analysis:

• Recovery agent services provided to entities other than a banking company or a financial institution do not fall under the RCM provisions.
• In this case, Ms. Sakshi, being the supplier of the service, is liable to pay GST.

Conclusion:

• The recovery agent (Ms. Sakshi) is liable to pay GST, as the recipient is a car dealer, not a banking company.

(iii) Commission paid to a Direct Selling Agent (DSA)

Scenario: Mr. Prakash, an individual Direct Selling Agent, provides services to Diwakar Bank Ltd. and earns commission for bringing a customer to the bank.

Analysis:

• As per Notification No. 13/2017-Central Tax (Rate), services provided by an individual DSA to a banking company are covered under the reverse charge mechanism (RCM).
• Consequently, the banking company (Diwakar Bank Ltd.) is liable to pay GST, not the DSA.

Conclusion:

• The Diwakar Bank Ltd. is liable to pay GST under RCM for the commission paid to Mr. Prakash.

Question 7 (b)

Self & Life Insurance Company has collected premium from policy subscribers It does not maintain a separate allocation for investment of subscribers of the policy of the policy at the time of supply of insurance services. The company has provided the following details in relation to its receipts for the month of May, 2024:
(i) Renewal policyholders: Premiums collected ₹ 50,00,000
(ii) New policyholders: Premiums collected ₹ 75,00,000
(iii) Group Risk Cover policies: Premiums collected ₹ 30,00,000
(iv) Single premium annuity policies: Premiums collected ₹ 95,00,000
(v) Life micro-insurance policies as approved by the Insurance Regulatory and Development Authority, where amount insured does not exceed ₹ 2,00,000: Premiums collected ₹ 10,00,000

All amounts are exclusive of tax. You are required to compute the value of taxable supply of service by Self & Family Life Insurance Company in terms of rule 32(4) of the CGST Rules, 2017 by giving necessary explanations for treatment of various items. 

Answer :

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Question 8 (a)

Shyam Ltd. is a registered manufacturer of cars. Shyam Ltd. provides the following information of GST paid on the purchases made/input services availed by it during the month of May, 2024:

Determine the amount of Input tax credit (ITC) available with Shyam Ltd. for the month of May, 2024 by giving necessary explanations for treatment of various items. All the conditions necessary for availing the input tax credit except mentioned above have been fulfilled. 

Answer :

ITC Computation for Shyam Ltd. for May 2024

Total Input Tax Credit (ITC) Available: ₹83,000

Computation Table

Explanation for ITC on Inputs

As per the First Proviso to Section 16(2), ITC for goods received in lots can only be claimed upon the receipt of the last lot. In this case, one lot out of four is pending, so the ITC of ₹65,000 is not available for May 2024.

Revised Final Computation of Total Eligible ITC

Question 8 (b)

Palak Trade Ltd. of Mumbai has imported a machine by air from UK. The details in this regard are as under:

Other Information

You are required to compute the total customs duties and integrated tax payable by Palak Trade Ltd. under the Customs Act, 1962 with appropriate working notes from the above information.

Relevant legal reasoning should form part of your answer.

Answer :

Computation of Customs Duties and Integrated Tax Payable

Step 1: FOB and CIF Values

• FOB Value (Free on Board):
• Machine Price: ₹10,40,000
• Design Charges: ₹31,200
• Royalties: ₹52,000
• Total FOB Value = ₹11,23,200
• Add Adjustments to FOB for CIF Value:
• Air Freight: ₹2,08,000
• Insurance: ₹12,636
• Total CIF Value (Assessable Value) = ₹13,43,836

Step 2: Basic Customs Duty (BCD)

The rate of BCD is 20% based on the arrival date of the aircraft (21-05-2024).

BCD Amount = 20% of ₹13,43,836 = ₹2,68,767

Step 3: Social Welfare Surcharge (SWS)

SWS is calculated at 10% of BCD.

SWS = 10% of ₹2,68,767 = ₹26,877

Step 4: Value for Integrated Tax (IGST)

The value for IGST includes CIF Value, BCD, and SWS.

Value for IGST = ₹13,43,836 + ₹2,68,767 + ₹26,877 = ₹16,39,480

Step 5: Integrated Tax Payable (IGST)

IGST is levied at 12% on the value for IGST.

IGST = 12% of ₹16,39,480 = ₹1,96,738

Step 6: Total Customs Duties and Taxes Payable

Legal Reasoning

• Customs Valuation Rules, 2007: Design charges and royalties paid abroad are included in the FOB value as a condition of sale. Insurance is assumed at 1.125% of FOB value if not explicitly provided.
• Customs Act, 1962: The applicable BCD rate is determined by the arrival date of the aircraft for pre-filed bills of entry. Exchange rate is based on the actual bill of entry filing date.
• Integrated Tax: Levied under Section 3(7) of the Customs Tariff Act, 1975, on the cumulative value of CIF, BCD, and SWS.

Final Answer: Total Customs Duties and Taxes Payable = ₹4,92,382

Direct and Indirect Taxation detailed analysis

CMA Intermediate Paper 7: December 2024 Question-wise Analysis

This analysis categorizes the questions in the CMA Intermediate Paper 7 into three levels of difficulty: Easy, Medium, and Hard. Questions are marked "Easy" if they are directly based on ICMAI study material or past papers. "Medium" questions require intermediate-level application, while "Hard" questions involve complex, multi-step analysis.

This analysis reveals that 53% of the paper is easy, making it accessible to students who have studied the ICMAI material thoroughly. Medium and hard questions account for 33% and 14% respectively, emphasizing the importance of a balanced preparation strategy.