Very Short Questions and Answers

1. How an investment has been defined in the Act?

Generally, investment refers to the purchase of an asset with the hope that it will generate income or appreciate in value in the future. Income Tax Act, 2058 has defined investment as an act of holding or investing one or more assets. But it excludes the act of holding assets for personal use and employment or business. However, the act of holding the non-business chargeable asset is considered n investment.

2. List out any two differences between investment and business?

 The major two differences between investment and business are listed below.

  • Business is an operation of an entity with the objective of making a profit while investment is the money or resources put in operation with the objective of earning a return.
  • Like in business, active engagement is normally not required in investment.
3. List out any four examples of investment.

The examples of investment are:

  • Dividend income
  • Interest income
  • Natural resource payment
  • Rent income
4. Mention any two incomes excluded from investment income.

Two incomes excluded from investment incomes are listed below.

  • Amounts exempted from income tax as per section 10.
  • Final withholding payments such as dividend income.
5. List out any four examples of investment income that are subject to final withholding tax.

The examples of investment income that are subject to final withholding tax are as follows:

  • Dividend income from the resident company.
  • Interest is paid by a resident bank or financial institution.
  • Rent income (not related to business)
  • Gain from investment insurance.
6. Point out any four incomes included in investment income.
  • Dividend (except final withholding payment)
  • Natural resource payment
  • Net gains from the disposal of non-business chargeable
  • Gift received in respect of the investment. asset.
7. Mention any two types of losses that are allowed for deduction from investment income.

Two types of losses that are allowed for deduction from investment income are as follows:

  • Any unrelieved loss of the year from a business or any other investment.
  • Any unrelieved loss of the previous seven years from any business or investment.

Short Questions and Answers

1. How has the term ‘investment’ been defined in the act? Give an illustration.

Generally, investment refers to the purchase of an asset or item with the hope that it will generate income or appreciate in the future. Income Tax Act, 2058 has defined investment as an act of holding or investing one or more assets. But, it excludes the act of holding assets for personal use by the person owning the asset and employment or business. However, the avocet of holding non-business chargeable assets by the person for personal use is considered an investment.

Income from investment refers to incomes generated from capital-related activities. It is, in fact, a residual income, which is computed only after computing business and employment income. A person’s income from an investment for an income year is the person’s profits and gains from conducting the investment for the year. Example: dividend, rent, natural resource payment, royalty, etc.

2. List any five incomes that are included under investment income.

A person’s profits and gains from an investment for an income year include the following amounts derived by the person during the year:

  • Any dividend, interest, natural resource payment, rent, royalty, gain from investment insurance, gain from an unapproved retirement fund interest or retirement payment made by an approved retirement fund
  • Net gains from the disposal of non-business chargeable assets of the investments
  •  Amounts treated as derived in respect of excess depreciation on the disposal of the person’s depreciable assets of the investment
  • Gifts received in respect of the investment and
  • Amounts are derived as consideration for accepting restrictions on the capacity to conduct the investment.
3. List any five expenses that are allowed for deduction while computing assessable income from investment.

Following expenses are allowed for deduction while computing assessable income from investment.

  • General deduction: all actual costs to the extent incurred during the year by the taxpayers and in the generation of income from investment.
  • Interest expenses for the loan are used for investment purposes.
  • Repair and improvement costs of depreciable assets owned and used in the investment to the extent of 7% of depreciation basis.
  • Depreciation of depreciable assets owned and used in the investment.
  • Business or investment loss of same year or previous seven years.

NUMERICAL PROBLEMS

4.  From the following information of Mrs Dikshya, calculate the allowable limit of foreign tax credit and tax payable.

Taxable income from domestic investment Rs. 600,000.

Taxable income from foreign investment Rs. 300,000.

Tax paid to foreign government Rs. 60,000.

SOLUTION

Calculation of allowable limit of foreign tax credit and tax payable of Mrs. Dikshya.

5. Mr. A submitted the following particulars of his incomes for the previous year.

Net (assessable) income from employment Rs. 136,000

Net (assessable) income from profession Rs. 176,000

Net (assessable) income from investment Rs. 38,000

He claimed the following expenses for deduction:

Donation to a registered political party Rs. 50,000

Tax paid in advance Rs. 75,000

Required:

(a) Statement of total income.

(b) Tax liability to free

SOLUTION

Statement of total taxable income of Mr. A for the previous Income year.

6. Mr. P submitted the following details of his incomes and expenditures for the previous year.

Interest on private money transactions (gross)     Rs. 75,000

Interest in saving accounts (net) Rs. 9,400

Royalty from natural resources (gross) Rs. 100,000

Interest on taxable government securities (net) Rs. 18,800

Dividend from Nepal Bank Ltd. (gross) Rs. 9,500

Money found lying in the street (gross) Rs. 100,000

Expenses claimed for deductions:

Expenses relating to natural resources Rs. 1,000

Interest collection cost of private lending Rs. 5,000

Required:

a) Net (assessable) income from investment

b) Tax liability

SOLUTION

a) Calculation of assessable income from investment of Mr. P for the previous income year.

Working notes:

Interest on saving accounts, interest on taxable government securities, and dividends from Nepal Bank Ltd. (it cannot be gross) are final withholding incomes.

Money found lying in the street Rs. 100,000 has not been included in income. particulars of his income for the previous

7. Mr. Santosh furnished the following year:

 

 


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