Practical Questions

1. “Tax is compulsory contribution by a person to the government.” Explain

 refer to chapter one
2. “An indirect tax is a form of tax imposed on one person but partly or wholly paid by another.”
Discuss this statement with suitable illustration.
 Refer to chapter one.
3. Write, in short, the objectives of tax.
 Refer to chapter one.
4. Mr. Ajit Kumar, an Indian National, is a resident of India as per Indian Income Tax Act. He is
businessman in Mumbai and also stayed for 190 days in Nepal in last 365 days ended in
Ashad and thereafter he returned back to India. Is he considered a resident in Nepal?
 Refer to Residential status of natural person.
5. What are the incomes that the tax exempted entity will be exempted?
 Refer exemption of income tax chapter
6. Mr. Z, a Candian citizen is deputed by the Canadian government to work on a Canadian aided
project and he stays in Nepal for 94 days. He receives his salary in Canada and he is provided
free accommodation and daily allowances of Rs. 2000 to meet his boarding and other
expenses. You are required to :
a. Examine the liability to tax as per Income Tax Act, 2058.
b. Will your answer be different if Mr. Z comes to Nepal under the services of private sector
instead of Canadian government in the above case?
 Refer exemption of income tax chapter
7. Mrs. Sharma, CEO of a finance company has taxable income Rs. 40,00,000. She elected as
couple for tax purpose. Calculate the tax liability.
 Hint

First slab 400,000 1% *400,000=4000

Next 100,000 15% * 100,000=15000
Next 20,00,000 25%*200,000=500000
Balance 1500000 35%*1500,000=525,000

8. Mr. Ghimire is working as an employee in manufacturing firm. He furnished following details

of income with respect to his employment pertaining to previous year.
 Salary Rs. 4,80,000 pm
 Cloth allowance Rs. 50,000 pm
 House rent allowance Rs. 25000 p.a (actual paid Rs. 200000)
 Bonus Rs. 80,000
 Dashain allowances equals to one month’s salary
 Over time pay Rs. 90,000
 Fuel allowances Rs. 40,000
 Entertainment allowances Rs. 2500 p.m
 Electricity and other utilities bill reimbursed by office Rs. 60,000
 A housekeeper was appointed by office at a monthly salary Rs. 2000.
 He contributed 10% of his salary to an unapproved retirement fund and the firm also
contributed an equal amount.
 He contributed Rs. 100,000 to Citizen Investment Trust.
 He donated Rs. 32,000 to political party registered in Election Commission.
 He also enjoyed free lunch at office provided to all staff on equal terms.
Required:
a. Assessable income from employment.
 b. Statement of taxable income
c. Tax Liability
Hints
Assessable Income = Rs. 77,65,000
Taxable Income =76,33,000

9. Ms. Saloni uses her property for her own business. Can she claim depreciation?
 Refer to Depreciation chapter (Income from Business)
10. What do you mean by personal or domestic expenses? Give any three examples.
 Refer to Income from Business

11. Define cash payment. Briefly describe the circumstances where cash payments are not fully
allowed.
 Refer to Income from Business

12. Define tax accounting. What are the provisions related to tax accounting in Income Tax Act,
2058?
 Refer to accounting of tax
13. Discuss the three principles for allowable expenses.
 Refer to Income from Business

14. The Trading and Profit & Loss A / C of a Ltd. Company for the previous income year is given
below:

Particulars Rs. Particulars Rs.

To Opening stock 150000 By Sales 5000000
To Purchase 2000000 By Rent from staff quarter 60000
To Freight 200000 By Bad debts recovered 40000
To Wages & salaries 1000000 By Commission received 100000
To Interest on loan 80000By Share transfer fees 10000
To Annual renewal 10000By Sales vacant land used in 500000
business
To Office and expenses 200000 By Sundry income 90000
To Depreciation 200000
To Repairs 30000
To Advertisement 50000
To Reserve fund 70000
To Bad debts 75000
To Miscellaneous expenses 180000
To Net profit 1555000
5800000 5800000
Additional information:

 Opening stock was overvalued by Rs. 30000.

 Rs. 20000 of bad debts recovered was not allowed to write off previously.
 1/3 of the bad debts shown are not accepted bt the IT officer.
 Allowable depreciation of pool ‘B’ assets of Rs. 50000 is not included in the above
statement.
 Loan was taken to construct office building.
 Repairs included Rs. 20000 relating to pool ‘B’ assets.
  Office expenses included Rs. 60000 cash payment at a time even though banking
service was available.
 Miscellaneous expenses include:
 Rs. 50000 dividend paid to the shareholders.
 Insurance premium for the office staff Rs. 50000.
 Income tax paid in advance Rs. 20000.
 Donation Rs. 30000.
 Sundry income include:
 Refund of custom duty Rs. 20000
 Refund of income tax Rs. 10000
 Cost of pollution control device Rs. 200000 and Rs. 25000 expenses for income tax
appeal are not included in above statement.
 Gain on sales of share of other company Rs. 120000 not included in above statement.

Required:
a. Assessable income from business
b. Tax liability
Hints
Assessable Income from business=1066000
Taxable Income= 1036000
Opening stock should be deducted by Rs. 30000
Refund of income tax and custom duty is not included in income
Sale of land used for business is business assets so it should not be included in
business income. It is treated as capital gain where this treatment will be separately
done.
Transfer to reserve fund is not allowed for deduction
Interest is allowed expenses as this is borrowed to construct assets used for business
Gain on Sale of Share is also business assets. It is treated as capital gain where this
treatment will be separately done.

15. Given below is the trading and profit and loss account of Mr. S., a Trader, for the previous
year.
 Particular Rs. Particular Rs.
To opening stock 150000 By sales 1850000
To purchase 750000 By closing stock 250000
To Freight 100000
To Custom duty 50000
To gross profit 1050000
2100000 2100000
To staff salaries 4000000 By gross profit b/d 1050000
To Office expenses 50000 By gain on sales of business 100000
assets
To bonus to staff 20000 By income from natural 100000
resource
To commission on sales 10000 By amount accepted for 50000
business restriction
To bad debts 4000 By bad debts recovered 20000
To telephone charges 10000 By commission 2000
To pollution control 300000
cost
To discount 20000
To advertisement 20000
expenses
To donation to Bir 200000
Hospital
To traveling and daily 50000
expenses
To advance income tax 40000
for the year
To net profit 198000
Total 1322000 Total 1322000

Additional information:

 Office expenses include Rs. 10000 spent by the proprietor for his domestic use.
 25% of bad debts have no evidence.
 A car was purchased in Kartik of previous year at a cost of Rs. 1200000. It was used
equally for private as well as official purpose. Depreciation of car is charged.
 Only 30% of bad debts recovered was allowed previously.

Required:
a. Assessable income from business
b. Assessable income from investment
c. Statement of Total taxable income
d. Tax liability ( assuming couple status )

Assessable income from business= Rs. 257,500

Assessable income from Investment= 100,000
Taxable Income=326750
Hint: 50% value of Car should be added in Depreciable assets as it is used for office purpose
up to that percentage only.