"Income Tax and Corporate Tax Planning" — Practice

Question 1

For income earned during the financial year 2025-26, the assessment year in which this income is assessed to tax is:
(a) 2026-27  (b) 2025-26  (c) 2024-25  (d) 2027-28

Accepted Answer

The assessment year is always the financial year immediately following the previous year in which income is actually earned. Income earned in the previous year 2025-26 is therefore assessed in the assessment year 2026-27.

Answer: (a) 2026-27. Trap (b) wrongly treats the previous year itself as the assessment year. Trap (c) moves backward instead of forward, the wrong direction entirely. Trap (d) skips an extra year beyond the correct immediately-following year.

Question 2

Rental income received by an individual from a commercial building they own, let out to an unrelated business tenant (with the owner not using the property for their own business or profession), is taxable under which head of income?
(a) Profits and Gains of Business or Profession  (b) Income from Other Sources  (c) Income from House Property  (d) Capital Gains

Accepted Answer

Rent from a building the owner is not using for their own business or profession falls squarely under Income from House Property — the defining test is precisely this 'own business use' exclusion, which is absent here since the tenant, not the owner, runs a business on the premises.

Answer: (c) Income from House Property. Trap (a) would apply only if letting the property were itself part of the OWNER's own active business, which isn't the case here. Trap (b) misapplies the residuary head to income that clearly fits an earlier, more specific head. Trap (d) confuses rental income with a gain from transferring the asset itself, which hasn't occurred here.

Question 3

Premium paid on a life insurance policy, and contributions to specified savings instruments such as PPF, are eligible for deduction from Gross Total Income broadly under which section of the Income Tax Act?
(a) Section 80D  (b) Section 80C  (c) Section 80G  (d) Section 24(b)

Accepted Answer

Section 80C (along with related provisions like 80CCC/80CCD) is the broad savings-linked deduction section covering life insurance premium, PPF, ELSS, and similar long-term savings instruments.

Answer: (b) Section 80C. Trap (a) covers health insurance premium instead, a different purpose entirely. Trap (c) covers donations to charitable institutions, unrelated to savings instruments. Trap (d) covers interest on a housing loan deducted against house property income, not a Chapter VI-A savings deduction.

Question 4

Premium paid toward a health (medical) insurance policy for self and family is eligible for deduction broadly under which section?
(a) Section 80C  (b) Section 80E  (c) Section 80G  (d) Section 80D

Accepted Answer

Section 80D is specifically the deduction section for health/medical insurance premiums paid for self, family, and parents, distinct from 80C's savings-instrument focus.

Answer: (d) Section 80D. Trap (a) covers savings-linked instruments like life insurance and PPF, not health insurance. Trap (b) covers education loan interest, an unrelated purpose. Trap (c) covers charitable donations, also unrelated to health insurance premium.

Question 5

A Resident and Ordinarily Resident (ROR) individual's global (worldwide) income is taxable in India, whereas a Non-Resident's Indian tax liability generally extends only to:
(a) Income exceeding a specified global threshold, regardless of source  (b) Income received, or accrued/arising, in India (or deemed to be so)  (c) Income earned in neighbouring SAARC countries only  (d) No income at all, regardless of where it is earned or received

Accepted Answer

A Non-Resident's Indian tax liability is confined to income actually received (or deemed received) in India, or accruing/arising (or deemed to accrue/arise) in India — foreign income outside these categories escapes Indian taxation entirely for a non-resident, unlike an ROR's global income exposure.

Answer: (b). Trap (a) invents a global-threshold test that doesn't exist in this framework. Trap (c) invents an arbitrary regional restriction with no statutory basis. Trap (d) wrongly claims a non-resident owes no Indian tax at all, when India-sourced/received income remains fully taxable regardless of residential status.

Question 6

Deliberately concealing taxable income or falsifying business records specifically to reduce reported tax liability, in violation of law, is best classified as:
(a) Tax evasion  (b) Tax avoidance  (c) Tax planning  (d) Tax deferral

Accepted Answer

Concealing income or falsifying records is an illegal act intended to reduce tax liability through fraud — the defining feature of tax evasion, distinct from avoidance (legal but intent-defeating) or planning (legal and intent-aligned).

Answer: (a) Tax evasion. Trap (b) describes a technically legal, if intent-defeating, use of the law, not outright concealment or fraud. Trap (c) describes a fully legitimate use of provisions as intended, the opposite of concealment. Trap (d) describes legally postponing a tax liability to a later period, an unrelated and entirely legal concept.

Question 7

An intra-state supply of goods within India attracts which combination of GST components?
(a) IGST only  (b) CGST only  (c) SGST only  (d) CGST and SGST together

Accepted Answer

An intra-state (within the same state) supply attracts CGST and SGST simultaneously, levied in parallel by the centre and the state respectively; IGST instead applies to inter-state supplies and imports.

Answer: (d) CGST and SGST together. Trap (a) names the tax applicable to INTER-state supplies, not intra-state ones. Traps (b) and (c) each name only one of the two components actually levied together on an intra-state supply.

Question 8

Input Tax Credit (ITC) under GST allows a registered business to:
(a) Claim a refund of all taxes paid regardless of its output supply  (b) Avoid GST registration entirely below a turnover threshold  (c) Reduce its output GST liability by the GST already paid on its input purchases  (d) Pay GST only at the final retail stage of the supply chain

Accepted Answer

ITC's core mechanism lets a registered business offset the GST it already paid on inputs against the GST it owes on its own output supplies, ensuring tax applies effectively only to the value added at each stage rather than cascading tax-on-tax.

Answer: (c). Trap (a) misdescribes ITC as an unconditional refund mechanism, which it is not. Trap (b) describes an unrelated registration-threshold rule, not the ITC mechanism itself. Trap (d) describes a single-point retail tax system, the opposite of GST's multi-stage, value-added design.

Question 9

Using the illustrative slab structure introduced in this chapter (illustrative figures only, not necessarily matching any specific assessment year's actual rates: Nil up to ₹3,00,000; 5% from ₹3,00,001-₹6,00,000; 10% from ₹6,00,001-₹9,00,000), compute the tax payable (before cess) on a Total Income of ₹6,50,000.
(a) ₹17,500  (b) ₹20,000  (c) ₹35,000  (d) ₹15,000

Accepted Answer

The first ₹3,00,000 is taxed at nil. The next ₹3,00,000 (₹3,00,001 to ₹6,00,000) is taxed at 5% = ₹15,000. The remaining ₹50,000 (₹6,00,001 to ₹6,50,000) is taxed at 10% = ₹5,000. Total tax before cess = ₹15,000 + ₹5,000 = ₹20,000.

Answer: (b) ₹20,000. Trap (a) results from wrongly applying a flat 5% to the entire ₹3,50,000 taxable amount instead of applying the progressive slab structure. Trap (c) results from wrongly applying a flat 10% to the entire ₹3,50,000 taxable amount. Trap (d) accounts only for the first taxed slab (₹15,000) and mistakenly ignores the remaining ₹50,000 taxed at 10%.

Question 10

A let-out property has a Gross Annual Value of ₹3,60,000, municipal taxes of ₹10,000 paid by the owner during the year, and interest of ₹1,00,000 paid on a loan taken for this property. Using the standard 30% deduction on Net Annual Value, the income chargeable under 'Income from House Property' is:
(a) ₹1,45,000  (b) ₹1,05,000  (c) ₹2,45,000  (d) ₹3,50,000

Accepted Answer

Net Annual Value = ₹3,60,000 − ₹10,000 = ₹3,50,000. Standard deduction at 30% of NAV = ₹1,05,000. Income from house property = ₹3,50,000 − ₹1,05,000 − ₹1,00,000 (interest) = ₹1,45,000.

Answer: (a) ₹1,45,000. Trap (b) is only the standard deduction amount by itself, not the final computed income. Trap (c) subtracts the standard deduction from NAV but wrongly forgets to also subtract the interest on borrowed capital. Trap (d) is simply the Net Annual Value before any deduction at all.

Question 11

An individual purchases listed equity shares and sells them after holding them for a period well beyond the holding-period threshold applicable to that asset category. Such shares, once that threshold is crossed, are classified as a:
(a) Short-term capital asset  (b) Business income asset, not a capital asset at all  (c) Long-term capital asset  (d) An asset exempt from any classification requirement

Accepted Answer

Once a capital asset is held beyond its applicable statutory holding-period threshold, it is classified as a long-term capital asset, with the resulting gain on transfer treated as a long-term capital gain rather than a short-term one.

Answer: (c) Long-term capital asset. Trap (a) describes the classification that applies only BELOW the relevant holding-period threshold, the opposite of what's described. Trap (b) wrongly reclassifies a capital asset transaction as business income, ignoring the capital-gains head entirely. Trap (d) invents a non-existent exemption from classification.

Question 12

The GST Council, the constitutional body that recommends GST rates, exemptions, and structural changes, is chaired by:
(a) The Comptroller and Auditor General of India  (b) The Governor of the Reserve Bank of India  (c) The Chief Justice of India  (d) The Union Finance Minister, with state finance ministers as members

Accepted Answer

The GST Council is chaired by the Union Finance Minister, with state finance ministers (or their nominated representatives) as members, making it a genuinely federal body built into GST's constitutional design.

Answer: (d). Traps (a), (b), and (c) each name a real, important constitutional or statutory office, but none of them chairs the GST Council, which is specifically a finance-ministry-led federal body.

Question 13

Under Section 2(31) of the Income Tax Act, the term 'person' includes which of the following categories?
(a) Only individuals and Hindu Undivided Families  (b) Individuals, HUFs, companies, firms, AOPs/BOIs, local authorities, and every artificial juridical person  (c) Only companies registered under the Companies Act  (d) Only assessees who have already filed an income tax return

Accepted Answer

Section 2(31)'s definition of 'person' is deliberately broad, covering individuals, Hindu Undivided Families, companies, firms, associations of persons or bodies of individuals, local authorities, and every artificial juridical person not falling within the other categories.

Answer: (b). Trap (a) captures only two of the several categories the definition actually includes. Trap (c) narrows the definition to a single category, ignoring individuals and the several other entity types covered. Trap (d) confuses 'person' with 'assessee' and wrongly adds a return-filing precondition that isn't part of the definition at all.

Practice — "Income Tax and Corporate Tax Planning"

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