Accounting Treatment of Casual Incomes and Interest on Securities in Income Tax

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This content discusses the accounting treatment of casual incomes and interest on securities in income tax, presented through two problems with solutions. The first problem involves computing income from other sources based on lottery winnings and betting amounts. The second problem deals with calculating the income from other sources for Mr. X, who owns horses and engages in betting and lottery activities. Detailed computations and notes are provided for clarity.

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ACCOUNTING TREATMENT ON CASUAL INCOMES & INTEREST ON SECURITIES IN INCOME TAX HOSTED BY: DR. C. SAFFINA ASSISTANT PROFESSOR OF COMMERCE (CA) BON SECOURS COLLEGE FOR WOMEN THANJAVUR.

PROBLEM 1: Compute Income from other sources from the following information for the financial year 2018-19: a) Amounts won from: Lottery Betting on House Racing Rs. 70,000 7,000 b) Amounts received from: Lottery Betting on Horse Racing 63,000 42,000 c) Income from: Lottery Betting on Horse Racing 3,500 1,000

Solution: Computation of Income from other sources for the previous year 2018-19 Particulars Rs. Winnings from lottery Winnings from betting on Horse Racing II. Amount received from lottery: Net: Rs. 63,000 Gross: 63,000 x 100/100-30 Amount received from betting on Horse racing: Net: Rs. 42,000 Gross: 42,000 x 100/100-30 I. 70,000 7,000 77,000 90,000 60,000 1,50,000 III. Income from Lottery Income from betting on Horse racing Income from other sources 3,500 1,000 4,500 2,31,500

NOTES: 1)When Amounts won are given in relation to lottery and betting on horse races, they represent gross amounts. Grossing up is not needed. 2)When Amounts received are given in relation to lottery and betting on horse races, they represent Net amounts. Grossing up is required at the rate applicable to the previous year concerned. 3)When the income is less than Rs. 10,000 in case of lotteries and Rs. 5,000 in case of income from betting on horse racing, grossing up can be ignored.

Problem : 2 Mr. X owns horses at Bangalore and Delhi. The horses run in races at the Respective race courses. During the year 2018-19, Mr. X submits the following information. a) Expenses on race horses at Bangalore Rs. 4,00,000 b) Expenses on race horses at Delhi 6,00,000 c) Stake money earned by horses at: i) Bangalore ii) Delhi 5,00,000 3,00,000 d) Mr. X received Rs, 1,26,000 on betting during horse races at Bangalore e) X also received Rs. 49,000 as lottery winnings and his winnings from card games were Rs. 20,000 during the year. Compute the income from other sources of Mr.X for the assessment Year 2019-20.

Computation of Income from other sources of Mr. X.for the Assessment year 2019-20 Particulars Rs Rs i) Loss from maintenance of horses carried forward for 4 year Income from maintenance of horses: Stake money earned at Bangalore Stake money earned at Delhi less: Expenses: At Bangalore At Delhi 5,00,000 3,00,000 8,00,000 4,00,000 6,00,000 10,00,000 -2,00,000 NIL ii) Casual income: Income from betting on horses: Net: Rs. 1,26,000 Gross Amount: 1,26,000 x 100/100-30 Lottery winnings : Net Rs. 49,000 Gross Amount: 49,000 x 100/100-30 70,000 Income from card games Income from other sources 1,80,000 20,000 90,000 2,70,000 2,70,000

Stake Money : Income by way of stake money means the gross amount of prize money received on a race horse or race horses by the owner thereof on account of the horse or horses or any one or more of the horses winning or being placed second or in any lower position in horse races NOTE: Expenditure on horse maintenance can be set off only against stake money. It cannot be set off against any other income.

Problem no :3. a) Investment in tax free 10% debentures in A limited (unlisted) Rs. 1,00,000. b) Rs. 1,000 as interest on central government bonds. c) Rs. 2,700 has interest on tax free debentures of C limited. d) Interest receive on debentures in Y limited (listed) Rs. 45,000. Determine Mr. James interest on securities under the head income from other sources for the assessment year 2019-20.

Computation of income from other sources of Mr. James for the AY 2019-20 Particulars Rs. Rs. Interest on tax free 10% debentures in A limited (unlisted) (1,00,000 x 10 / 100) Gross : 10,000 x 100 / 100 10 = 10,00,000 / 90 Net: 10,000 11,111 Interest on central government bonds. (no TDS) 1,000 Interest on tax free debentures of C limited . 2,700 x 100 / 100 - 10 3,000 Interest receive on debentures in Y limited (listed) Net:45,000 Gross: 45,000 x 100 / 100 10 50,000 Income from other sources 65,111

Note: 1. Interest received indicates the net amount and it should be grossed up 2. Rate of tax is 10% on listed securities and unlisted securities. 3. Gross amount of Interest = Net amount x 100 / 100 10.