Income tax - basic concepts, residential status and tax incidence, scope of income, incomes exempt from tax, income from salaries, income from house property, profits and gains from business or profession, capital gains, income from other sources - Question Bank

1. Under which head of income would the interest received on compensation awarded by a court be taxed?
A) Salaries
B) House Property
C) Profits and Gains from Business or Profession
D) Income from Other Sources
2. What is the deduction allowed for municipal taxes paid by the owner of a house property?
A) Deductible from Gross Annual Value.
B) Deductible from Net Annual Value.
C) Deductible from total income.
D) Not deductible.
3. What is the tax treatment of compensation received for termination of employment?
A) Fully taxable as salary.
B) Exempt from tax.
C) Taxable as capital gains.
D) Taxable as income from other sources.
4. Which of the following is NOT considered 'Income from Other Sources'?
A) Interest on securities not chargeable under 'Profits and Gains from Business or Profession'.
B) Winnings from horse races.
C) Dividend from shares of a foreign company.
D) Profits from a business.
5. What is the tax rate on Short-Term Capital Gains from the sale of listed equity shares (where STT is paid)?
A) 10%
B) 15%
C) 20%
D) 30%
6. Which of the following deductions is available under the head 'Profits and Gains from Business or Profession'?
A) Penalty paid for breach of contract.
B) Interest on capital borrowed for business.
C) Cost of acquiring a patent.
D) Dividend paid to shareholders.
7. What is the deduction allowed for rent paid for a self-occupied house property?
A) Actual rent paid.
B) Up to Rs. 15,000 per month.
C) No deduction is allowed.
D) Up to 30% of Net Annual Value.
8. What is the tax treatment of gratuity received by a government employee at the time of retirement?
A) Fully taxable.
B) Fully exempt.
C) Taxable up to Rs. 3.5 lakhs.
D) Taxable up to Rs. 20 lakhs.
9. Which of the following is an example of 'Income from Other Sources'?
A) Interest on fixed deposit in a bank.
B) Salary received as a director.
C) Profits from a business of speculation.
D) Rent received from a house property.
10. What is the period of holding for determining short-term or long-term capital gain for immovable property (land/building)?
A) Up to 12 months
B) Up to 24 months
C) Up to 36 months
D) More than 24 months
11. Which of the following expenses are NOT deductible while computing income under the head 'Profits and Gains from Business or Profession'?
A) Salary paid to partners.
B) Interest on capital contributed by partners (subject to limits).
C) Any expenditure incurred for personal purposes of the partner.
D) Depreciation on assets used for business.
12. What is the annual letting value (ALV) of a self-occupied house property?
A) The rent received from the property.
B) The municipal value of the property.
C) Nil.
D) The Gross Annual Value.
13. What is the basis of charge for 'Income from Salaries'?
A) Profits of the business.
B) Annual value of the property.
C) Profits and gains from the sale of capital assets.
D) Salary, wages, pension, gratuity, fees, commission, perquisites, profits in lieu of salary, etc.
14. Which of the following is NOT an income exempt from tax under Section 10?
A) Leave Travel Concession (for government employees).
B) Scholarship granted to meet the cost of education.
C) Interest on certain debentures.
D) Agricultural income.
15. What are the conditions for 'Income from Other Sources' to be taxable?
A) The income must not be taxable under any other head.
B) The income must be earned in India.
C) The income must be received by a resident.
D) The income must exceed Rs. 1,00,000.
16. What is the exemption limit for interest earned on savings bank accounts in a financial year?
A) Rs. 2,500
B) Rs. 5,000
C) Rs. 10,000
D) Rs. 24,000
17. What is the taxability of winnings from lotteries, crossword puzzles, etc.?
A) Taxed at the normal rates of income tax.
B) Taxed at a flat rate of 30%.
C) Taxed at a flat rate of 20% (plus surcharge and cess).
D) Exempt from tax.
18. Which of the following is taxable under 'Income from Other Sources'?
A) Dividend from shares of an Indian company.
B) Interest on a loan given for business purposes.
C) Rent from subletting a house property.
D) Profits from a lottery received by a bookie.
19. Which section of the Income Tax Act deals with 'Income from Other Sources'?
A) Section 28
B) Section 45
C) Section 56
D) Section 80C
20. What is 'Indexation' in the context of Capital Gains?
A) A method to calculate the cost of acquisition by adjusting for inflation.
B) A method to calculate the sale consideration.
C) A method to determine the holding period.
D) A method to calculate the tax liability.
21. What is the tax rate applicable to Long-Term Capital Gains from the sale of listed equity shares (subject to conditions)?
A) 20% with indexation.
B) 15%.
C) 10% (above Rs. 1 lakh exemption).
D) 30%.
22. For how long must a property be held to be considered a 'Long-Term Capital Asset'?
A) More than 12 months
B) More than 24 months
C) More than 36 months
D) More than 60 months
23. What is the difference between 'Short-Term Capital Gain' (STCG) and 'Long-Term Capital Gain' (LTCG)?
A) The period of holding of the capital asset.
B) The amount of gain.
C) The type of capital asset.
D) Whether the asset was acquired before or after a specific date.
24. What is a 'Capital Asset' according to the Income Tax Act?
A) Any property held by an assessee, including movable and immovable property.
B) Only immovable property like land and buildings.
C) Only movable property like shares and jewellery.
D) Only business assets.
25. Which section of the Income Tax Act deals with 'Capital Gains'?
A) Section 28
B) Section 45
C) Section 56
D) Section 80C
26. Bad debts written off during the year are generally allowed as a deduction if:
A) They were part of the business's trading receipts.
B) They were guaranteed by a third party.
C) They were incurred for personal purposes.
D) They were written off in the previous year.
27. Which of the following is a revenue expenditure and allowed as a deduction for business income?
A) Cost of acquiring goodwill.
B) Expenditure on advertisement.
C) Cost of constructing a building for business.
D) Payment of penalty for illegal business activity.
28. What is the depreciation allowed on plant and machinery?
A) Based on actual usage.
B) A fixed percentage as prescribed by the Income Tax Act.
C) As decided by the taxpayer.
D) Actual cost minus resale value.
29. Which of the following is a capital expenditure and not allowed as a deduction for business income?
A) Rent paid for business premises.
B) Salary paid to employees.
C) Cost of acquiring a plant and machinery.
D) Interest paid on a loan for business.
30. Which section of the Income Tax Act deals with 'Profits and Gains from Business or Profession'?
A) Section 15
B) Section 22
C) Section 28
D) Section 45
31. What is the maximum period for which 'Unrealised Rent' can be treated as a deduction?
A) The period for which the tenant was in occupation.
B) The period for which the rent remained unrealised.
C) The tenant has vacated the property and the rent is unrealised.
D) The period of one previous year.
32. If a house property is let out for the entire year, what is the deduction allowed for repairs?
A) 20% of the Net Annual Value.
B) 30% of the Net Annual Value.
C) Actual expenditure on repairs.
D) Rs. 24,000.
33. What is the deduction allowed for interest on a loan taken for a self-occupied house property?
A) Up to Rs. 2,00,000.
B) Up to Rs. 1,50,000.
C) Up to Rs. 1,00,000.
D) Actual interest paid.
34. What is 'Annual Value' of a house property?
A) The actual rent received by the owner.
B) The Gross Annual Value (GAV) minus municipal taxes paid by the owner.
C) The Gross Annual Value (GAV) of the property.
D) The interest paid on the loan taken for the property.
35. Which section of the Income Tax Act deals with 'Income from House Property'?
A) Section 15
B) Section 22
C) Section 45
D) Section 56
36. What is the standard deduction available against salary income?
A) Rs. 50,000 or the amount of salary, whichever is less.
B) Rs. 50,000.
C) Rs. 75,000.
D) No standard deduction is available.
37. Which of the following is a taxable perquisite?
A) Free medical treatment in a hospital maintained by the employer.
B) Rent-free accommodation provided by the employer (subject to conditions).
C) Interest-free loan provided by the employer for medical treatment.
D) Leave travel concession provided by the employer (subject to conditions).
38. What is 'perquisites' in the context of salary income?
A) Basic salary paid to an employee.
B) Allowances paid to an employee for specific expenses.
C) Benefits provided to an employee by the employer, in addition to salary.
D) Bonus paid at the end of the year.
39. Which section of the Income Tax Act deals with the 'Income from Salaries'?
A) Section 15
B) Section 22
C) Section 45
D) Section 56
40. What is the maximum amount of leave encashment that is exempt from tax for a government employee?
A) Rs. 1,00,000
B) Rs. 2,00,000
C) Rs. 3,00,000
D) Fully exempt.
41. Which of the following incomes is generally exempt from Income Tax in India?
A) Salary income
B) Agricultural income (subject to certain conditions).
C) Interest from savings bank account.
D) Rental income from a property.
42. Tax incidence refers to:
A) The rate at which tax is levied.
B) The person who finally bears the burden of the tax.
C) The authority that collects the tax.
D) The total amount of tax collected.
43. What is the 'Assessment Year'?
A) The year in which income is earned.
B) The financial year immediately following the previous year.
C) The year in which the tax is paid.
D) The year in which the tax audit is conducted.
44. What is the meaning of 'Previous Year' in Income Tax law?
A) The financial year immediately preceding the assessment year.
B) The financial year in which income is earned.
C) The calendar year in which income is earned.
D) The year in which the tax return is filed.
45. An individual who is a resident but not ordinarily resident (RNOR) is taxed on:
A) Indian income only.
B) Foreign income which is derived from a business controlled in or a profession set up in India.
C) All foreign income.
D) Indian income and foreign income derived from a business controlled in or a profession set up in India.
46. What is the second basic condition for an individual to be considered a 'Resident' in India?
A) In India for a period of 182 days or more during the previous year.
B) In India for a period of 120 days or more during the previous year.
C) In India for a period of 365 days or more in total during 7 preceding previous years.
D) In India for a period of 60 days or more during the previous year and 365 days in 4 preceding previous years.
47. An individual is considered a 'Resident' in India if they satisfy at least one of the two basic conditions. What is the first basic condition?
A) In India for a period of 182 days or more during the previous year.
B) In India for a period of 120 days or more during the previous year.
C) In India for a period of 365 days or more during the previous year.
D) In India for a period of 60 days or more during the previous year.
48. Which of the following is NOT a direct tax?
A) Income Tax
B) Corporate Tax
C) Goods and Services Tax (GST)
D) Wealth Tax (if applicable)
49. What is the primary purpose of Income Tax?
A) To fund government expenditure and provide public services.
B) To redistribute wealth from the rich to the poor.
C) To encourage saving and investment.
D) To regulate international trade.
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