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Clubbing Provisions and Set off AND/OR Carry Forward of Losses – CS Executive Tax Laws MCQ

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Clubbing Provisions and Set off AND/OR Carry Forward of Losses – Tax Laws CS Executive MCQs

Question 1.
The provisions of clubbing of income are contained in section …….. to under the Income-tax Act, 1961
(a) 60 – 65
(b) 60-64
(0 58-64
(d) 59-65
Answer:
(b) 60-64

Question 2.
Which of the following is the reason for including other person’s income in assessee’s total income
(a) To facilitate the government to collect more taxes.
(b) To prevent diversion of income from higher slab individuals to low slab income
(c) To prevent evasion of tax
(d) To keep a person away from tax liability
Answer:
(b) To prevent diversion of income from higher slab individuals to low slab income

Question 3.
Sushma transferred the rental income of ₹ 90,000 per month to Kajol but she did not transfer the property. As per the provision of section 60, the rental income will be taxed in the hands of
(a) Sushma
(b) Kajol
(c) Sushma or Kajol, whoever is having higher income before clubbing during the previous year.
(d) As per the discretion of Assessing Officer
Answer:
(a) Sushma
As per Section 60, where there is a transfer of an income by one person to another, without transferring the asset from which the income arises, such income shall be included in the total income of the transferor, in this case Sushma.

Question 4.
The income transferred, without transferring the asset, may be transferred under
(a) Settlement
(b) Trust
(c) Covenant
(d) Any of the above
Answer:
(d) Any of the above

Question 5.
If an asset is transferred under a “revocable transfer” income will be taxable in the hands of
(a) Transferor
(b) Transferee
(c) Transferor or Transferee, who so ever has higher income
(d) None of the above
Answer:
(a) Transferor
As per section 61, Income from an asset will be included in the total income of the transferor in case of revocable transfers.

Question 6.
If an asset is transferred under a trust but it is not revocable during the life time of the beneficiary, it will be
(a) Treated as revocable transfer
(b) Treated as irrevocable transfer
(c) Can be both
(d) None of the above
Answer:
(b) Treated as irrevocable transfer
Section 62(1) specifies that in the case of transfer by way of trust, and the transfer is not revocable during the lifetime of the beneficiary, the income will be not clubbed in the hands of transferor.

Question 7.
If the deed of transfer contains any provision to retransfer the asset or income, directly or indirectly, in whole or in part, it is considered as
(a) Revocable transfer
(b) Irrevocable transfer
(c) Can be both
(d) None of the above
Answer:
(a) Revocable transfer

Question 8.
Transfer of income is revocable in the following cases:
(a) Sale with a condition of re-purchase
(b) Power to change beneficiary or trustees
(c) Both (A) and (B)
(d) Neither (A) nor (B)
Answer:
(c) Both (A) and (B)

Question 9.
X transfers an asset to Y on 10.10.1960. It is revocable but only after 10.10.1966, this transfer will be treated as:
(a) Revocable therefore income taxable in the hands of X
(b) Irrevocable therefore income taxable in the hands of X
(c) Revocable therefore income taxable in the hands of Y
(d) Irrevocable therefore income taxable in the hands of Y
Answer:
(d) Irrevocable therefore income taxable in the hands of Y
As per section 62(1), if the asset is transferred before 1.4.1961, and not revocable for a period exceeding 6 years, section 61 is not applicable, therefore, no clubbing of Income in the hands of transferor.

Question 10.
X transfers a house property to A. But by a legal clause inserted in the agreement, if X survives A, he shall have the power to take back the asset. The income from this Asset will be taxable in the hands of till, if X re-acquires the asset
(a) X
(b) A
(c) Whose Income (whether it be X or A) is higher
(d) None of the above
Answer:
(b) A
Section 62(1) specifies that in the case of transfer which is not revocable during the life time of the transferee, the income will not be clubbed in the hands of transferor.

Question 11.
Suresh holds 22% shares in X Y Ltd. His wife is a software engineer. Now Mrs. Suresh is drawing a remuneration of 30,000 p.m. from X Y Ltd. The salary of wife of Mr. Suresh will be taxable in the hands of
(a) Suresh
(b) Wife of Suresh
(c) Whos oeuvre’s income is higher
(d) None of the above
Answer:
(b) Wife of Suresh
According to Sec. 64( 1)(ii) the remuneration of spouse from a concern in which the other spouse has substantial interest is clubbed but the section is not applicable if the income is attributable to the application of his/her technical or professional qualification. As Mrs. Suresh is a software engineer, salary will not be clubbed but taxable in the hands of Mrs. Suresh only.

Question 12.
Rohit is working as Company Secretary in Raj Chem Pvt. Ltd. on a salary of ₹ 20,000 p.m. He got married to Pooja who holds 25% shares of this Company. What will be the impact of salary paid to Rohit by the company in the hands of Pooja
(a) No amount to be clubbed
(b) Club 50% salary
(c) Club 100% salary
(d) 25% salary be clubbed
Answer:
(a) No amount to be clubbed

Question 13.
For the purpose of determining substantial interest u/s 64(i)(ii) it means:
(a) In case of company, if individual holds (individually or along with relatives) 20% or more equity shares at any time during the P.Y.
(b) If not a company, he has 20% or more share in profits
(c) Both (a) & (b)
(d) None of these
Answer:
(c) Both (a) & (b)

Question 14.
X and Mrs. X both have substantial interest in ABC Ltd. Their salary was clubbed in the hands of Mr. X in the year P.Y. 2019-20. In the P.Y. 2020-21, Mrs. X has higher income before clubbing u/s 64(1 )(iv), the salary will be clubbed in the hands of
(a) Mr. X
(b) Mrs. X
(c) At the option of the couple
(d) None of the above
Answer:
(a) Mr. X
If both husband and wife have substantial interest, then the remuneration of both shall be clubbed in the hands of that spouse, whose total income, before including such remuneration is greater. Where such income is once included in the hands of either spouse, any such income arising in any succeeding year shall not be included in the income of other spouse unless the assessing officer is satisfied, that it is necessary to do so.

Question 15.
Mr. A transferred to his wife, the property belonging to Mr. A without adequate consideration, the income from house property be
(a) Clubbed in the hands of Mr. A u/s 64(1)
(b) Treated as income of Mrs. A
(c) Taxable in the hands of Mr. A u/s 27 as Mr. A is deemed owner
(d) None of the above.
Answer:
(c) Taxable in the hands of Mr. A u/s 27 as Mr. A is deemed owner
In case of house property, section 27 is applicable and not 64.

Question 16.
Mr. A transferred to his wife the shares of a foreign company worth ₹ 1,00,000 without consideration. The Dividends of ₹ 30,000 were received which Mrs. A invested in fixed deposits. She received interest income of ₹ 300 from the deposits. The dividend income will be taxable in the
hands of and the interest income will be taxable in the hands of
(a) Mr. A , Mrs. A
(b) Mrs. A , Mr. A
(c) Mr. A , Mr. A
(d) Mrs. A , Mrs. A
Answer:
(a) Mr. A , Mrs. A
Income from clubbed income invested by the transferee is taxable in the hands of transferee only and is not clubbed.

Question 17.
Shyam transferred 2,000 shares of X Ltd. to Ms. Babita without any consideration. Later, Shyam and Ms. Babita got married to each other. The dividend income from the shares transferred would be –
(a) Taxable in the hands of Shyam both before and after marriage
(b) Taxable in the hands of Shyam before marriage but not after marriage
(c) Taxable in the hands of Shyam after marriage but not before marriage
(d) Never taxable in the hands of Shyam
Answer:
(d) Never taxable in the hands of Shyam
The relationship of husband and wife should subsist at the time of transfer of such asset as well as at the time of accrual of income. Here clubbing provision u/s 64(z)(z’v) is not applicable, as they got married later ie. after transferring the asset.

Question 18.
Rohit (a Chartered Accountant) is working as Account Officer in Raj (P) Ltd. on a salary of ₹ 20,000 p.m. He got married to Ms. Pooja who holds 25% shares of this company. What will be the impact of salary paid to Rohit by the company in the hands Ms. Pooja
(a) 100% salary to be clubbed
(b) 50% salary to be clubbed
(c) No amount be clubbed
(d) 25% salary be clubbed
Answer:
(c) No amount be clubbed
As Rohit is professionally qualified and already drawing the salary before marriage, no remuneration will be clubbed.

Question 19.
Mr. Shiva gifted a let-out building which fetches rental income of ₹ 10,500 per month to his son’s wife on 1.11.2019. The municipal tax on 6,000 on the property was paid on 10.1.2021. The total income from all other sources (computed) amounts to ₹ 2,60,000 except income from above said property. His total income chargeable to tax is:
(a) ₹ 3,11,450
(b) ₹ 3,44,000
(c) ₹ 3,80,000
(d) ₹ 3,33,500
Answer:
(b) ₹ 3,44,000
The Income from House Property will be clubbed in the hands of Mr. Shiva u/s 64(1 )(vz)
Clubbing Provisions and Set off ANDOR Carry Forward of Losses CS Executive Tax Laws MCQ 1
Clubbing Provisions and Set off ANDOR Carry Forward of Losses CS Executive Tax Laws MCQ 2
The provision of clause (z) of section 27 are invoked when transfer is to wife or minor child only, if transfer is to son’s wife, income will be clubbed u/s 64(1 )(vz).

Question 19A.
Ravi and Rajat are brothers. During the Financial year 2019-20 Ravi gifts a house to Rajat’s wife worth ₹ 40,00,000. After some time in the same financial year Rajat transfers shares in a foreign company worth ₹ 40,00,000 to the minor daughter of Ravi. The rental income of the house and the dividend received from foreign company shall be taxed in the hands of:
(a) Ravi and Minor daughter of Ravi respectively
(b) Ravi and Rajat respectively
(c) Rajat’s wife and Rajat respectively
(d) Rajat’s wife and Minor daughter of Ravi respectively
Answer:
(a) Ravi and Minor daughter of Ravi respectively

Question 19B.
Sunidhi and Suhani are sisters. Sunidhi gifted ₹ 15,000 to Suhani’s husband and Suhani gifted ₹ 20,000 to Sunidhi’s husband. They both put the money in a bank earning interest @ 10% p.a. Choose the correct option:
(a) ₹ 1500 (the income of Suhani’s husband) will be clubbed in Sunidhi’s income and ₹ 2000 (the income of Sunidhi’s husband) will be clubbed in Suhani’s income.
(b) Only the interest on the difference of t 5,000 ie. f. 500 will be clubbed in the hands of Sunidhi
(c) ₹ 1500 (the income of Suhani’s husband) will be clubbed in Suhani’s income and ₹ 2000 (the income of Sunidhi’s husband) will be clubbed in Sunidhi’s income.
(d) ₹ 1500 (the income of Suhani’s husband) will be clubbed in Suhani’s income and ₹ 1500 (the income of Sunidhi’s husband to the extent of interest on ₹ 15,000 only) will be clubbed in Sunidhi’s income.
Answer:
₹ 1500 (the income of Suhani’s husband) will be clubbed in Suhani’s income and ₹ 1500 (the income of Sunidhi’s husband to the extent of interest on ₹ 15,000 only) will be clubbed in Sunidhi’s income.

Question 20.
Baby Meena (age 12) a child artist acted in feature films and earned ₹ 3,50,000. The total income of her father is ₹ 5,20,000 and mother is ₹ 4,80,000. The minor’s income would be:
(a) Chargeable to tax in the hands of father
(b) Chargeable to tax in the hands of mother
(c) Chargeable to tax in her own hands
(d) Fully exempt from tax
Answer:
(c) Chargeable to tax in her own hands
Income of minor child is clubbed u/s 64(1A) But income is taxable in the hands of minor child only, if it arises an account of minor’s skills, talent or knowledge.

Question 21.
All income which arises or accrues to the minor child (not suffering from any disability as specified in section 80U) shall be clubbed with the income of parent whose total income excluding the income to be included of the minor not derived from any activity involving application of his skill, talent or specialized knowledge :
(a) in the hands of father only
(b) in the hands of mother only
(c) equally in the hands of both mother and father
(d) with the income of that parent whose total income is greater before clubbing of such income
Answer:
(d) with the income of that parent whose total income is greater before clubbing of such income
Minor’s income will be clubbed in the hands of that parent whose total income is higher if marriage subsists, otherwise is the hands of parent who maintains the minor child in the previous year.

Question 22.
Sona is 15 years of age. She has income of ₹ 1,75,000 from interest on deposits. Sona’s parents died in an air crash. She is now looked after by Mr. X, her maternal uncle and also her guardian. Sona’s income will be:
(a) Clubbed in the hands of Mr. X
(b) Exempt from tax
(c) Return will be filed by Mr. X on behalf of Sona
(d) Taxed when Sona will attain majority.
Answer:
(c) Return will be filed by Mr. X on behalf of Sona
If both the parents of minor child are not alive, then the minor’s income is not clubbed and the guardian of the minor shall file the return of such income on behalf of the minor.

Question 23.
Sunidhi had an income of ₹ 4,80,000 during the Previous year 2020-21. She celebrated her 18th Birthday on 1st February 2021. Choose the right option.
(a) Sunidhi will pay taxes on ₹ 4,80,000
(b) 10 months income will be clubbed in any parent’s income and 2 months income after attaining majority will be taxable in the hands of Sunidhi
(c) ₹ 4,80,000 will be clubbed.
(d) Exempt.
Answer:
(d) Exempt.
Where the minor child attains majority during the previous year, then, the income, till the date he remained minor, will be clubbed.

Question 24.
Ram has gifted an amount of ₹ 10,00,000 to his wife Sita without consideration (but not to live apart), which was invested by his wife in interest bearing security. She earned interest of ₹ 1,00,000. The interest of ₹ 1,00,000 was further invested by her in the business from which she earned a profit of ₹ 15,000. The income which is to be included out of this gifted amount in the hands of Ram is :
(a) ₹ 1,15,000
(b) ₹ 15,000
(c) ₹ 1,00,000
(d) Nil, because gift is to relative
Answer:
(c) ₹ 1,00,000
If a transferee earns income from investment made out of income which is clubbed in the hands of transferor, the income from new investment is not clubbed. It will taxable in the hands of transferee only.

Question 25.
Aiyer gifted 100 shares to his wife on 1st August, 2013. She received 200 bonus shares from the company in April 2017. All the shares were sold to a friend for ₹ 1,50,000 in May, 2019. The 1000 shares were originally acquired by Aiyer for ₹ 5,000. The Capital gain on sale of shares in the month of May, 2019 shall be chargeable to tax:
(a) Fully in the hands of Aiyer
(b) Fully in the hands of Mrs. Aiyer
(c) For 100 shares in the hands of Aiyer and balance 200 shares in the hands of Mrs. Aiyer.
(d) For 200 shares in the hands of Aiyer and balance 100 shares in the hands of Mrs. Aiyer.
Answer:
(c) For 100 shares in the hands of Aiyer and balance 200 shares in the hands of Mrs. Aiyer.

Question 26.
Kapoor gifted ₹ 10,00,000 to his wife Sunita Kapoor on 15th May, 2020. The amount of gift of ₹ 10,00,000 was invested by his wife in debentures of a company on 1st June, 2020 earning interest @ 12% p.a. The income of interest of from the debentures earned by Sunita Kapoor shall be with the income of Kapoor
in A.Y. 2021-22.
(a) ₹ 1,20,000, not clubbed
(b) ₹ 1,00,000, clubbed
(c) ₹ 1,00,000, not clubbed
(d) ₹ 1,20,000, clubbed
Answer:
(b) ₹ 1,00,000, clubbed
Assuming interest has accrued to Mrs. Sunita Kapoor for 10 months (She has not purchased debentures in secondary market but was a direct allottee.) Income will be clubbed.

Question 27.
Ram has gifted on 11th May, 2019 an amount of ₹ 10,00,000 to his wife Sita without consideration and also for not to live apart. The gifted amount was invested by his wife in interest bearing security on which she earned interest of ₹ 1,00,000 on 1st January, 2021. The amount of interest of ₹  1 ,00,000 was further invested by her in the business form which she earned a profit of ₹ 15,000 for the period ended on 31st March, 2021. Specify the income which is to be included in the hands of Ram in A.Y. 2021-22.
(a) ₹ 1,15,000
(b) ₹ 1,00,000
(c) ₹ 15,000
(d) Nil
Answer:
(b) ₹ 1,00,000

Question 28.
Where the marriage of the parents do not subsist, the income of the minor is taxable in the hands of that parent:
(a) Who has higher income during the previous year
(b) Who maintains the child during the previous year
(c) In the hands of minor only
(d) It is exempt in such cases
Answer:
(b) Who maintains the child during the previous year

Question 29.
Provisions of Clubbing of income of a minor child is applicable to a:
(a) Minor Step Child
(b) Minor married Daughter
(c) Minor Adopted Child
(d) All of the above
Answer:
(d) All of the above
As per section 2(15B), child in relation to an individual, includes a step child and an adopted child.

Question 30.
Mr. Sukant a member of an HUF converted his self-acquired property as the property of HUF. The Income from the property shall be taxable in the hands of:
(a) Mr. Sukant
(b) The HUF
(c) At the option of the HUF
(d) None of the above
Answer:
(a) Mr. Sukant
As per Section 64(2) – Income from self-acquired property converted to joint family property will continue to be included in the total income of the individual.

Question 31.
An HUF was partitioned and the member Mr. X who had transferred his self-acquired property and his wife got some share. The income will be taxable in the hands of :
(a) Mr. X
(b) HUF
(c) Mr. X will be liable to pay tax on his and his wife’s share.
(d) Mr. X will be liable to pay tax on his share alone.
Answer:
(c) Mr. X will be liable to pay tax on his and his wife’s share.
On subsequent partition, the individual will be taxable for his and his spouse’s share. If minor child receives some share, that income will also be clubbed in the hands of either parent whose income is higher.

Question 32.
Section 70 enables set off of losses under one source of income against another source under the same head, except:
(a) Long term Capital Losses
(b) Speculation Loss & Loss from Specified business
(c) Loss from the activity of owning and maintaining race horses.
(d) All of the above
Answer:
(d) All of the above

Question 33.
As per section 80, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of section 139(3), is allowed to be set off except:
(a) Loss from specified business
(b) Loss under the head Capital Gains
(c) Loss from House property
(d) Loss from speculation business.
Answer:
(c) Loss from House property

Question 34.
Which of the following losses available after inter source set-off, cannot be set-off from incomes in other heads in the same assessment year –
(a) Speculation losses
(b) Loss from specified business
(c) Loss under the head capital gains
(d) All of the above
Answer:
(d) All of the above

Question 35.
No loss can be set off against –
(a) Income from salaries
(b) Income from house property
(c) Income from capital gains
(d) Winnings from lotteries
Answer:
(d) Winnings from lotteries

Question 36.
Brought forward loss from house property can be set off:
(a) Against any other head of income to the extent of ₹ 2,00,000
(b) Against income from house property to the extent of ₹ 2,00,000
(c) Against any other head of income without any limit
(d) Against income from house property without any limit
Answer:
(d) Against income from house property without any limit

Question 37.
Loss from house property of the current year can be set off against Income from
(a) Any other house property without any limit
(b) Any other head of Income up to Maximum ₹ 2,00,000
(c) Both (a) & (b)
(d) None of the above
Answer:
(c) Both (a) & (b)

Question 38.
Mr. Shahu has loss from house property of ₹ 1,10,000 (computed) for the assessment year 2021-22. He can carry forward such loss for subsequent assessment years.
(a) 4
(b) Nil
(c) 8
(d) Indefinite
Answer:
(c) 8

Question 39.
Unabsorbed loss from house property can be carried forward for –
(a) 4 years
(b) 8 years
(c) Indefinite period
(d) Cannot be carried forward
Answer:
(b) 8 years

Question 40.
Speculation loss can be carried forward for ……… subsequent assessment years.
(a) 8
(b) Nil
(c) 4
(d) 6
Answer:
(c) 4

Question 41.
Loss from speculation business can be set off against –
(a) Income from salaries
(b) Income from house property
(c) Income from speculation business only
(d) Any head of income
Answer:
(c) Income from speculation business only

Question 42.
Mathur Storage (P) Ltd., engaged in chain cold storage, has brought forward business loss of ₹ 12 lakhs relating to assessment year 2020-21. During the previous Year 2020-21, its income from the said business is ₹ 9 lakhs. It also has profit from trade in food grains of ₹ 6 lakhs. The total income of the company for the assessment year 2021-22 is:
(a) 115 lakhs
(b) ₹ 6 lakhs
(c) X 9 lakhs
(d) ₹ 3 lakhs
Answer:
(b) ₹ 6 lakhs
The Business of cold storage is a specified business u/s 35AD the loss of which can be set off only against profits of specified business. Therefore in the P.Y the loss to the tune of ₹ 9 Lac out of brought forward loss of ₹ 12 lacs will be set off, the remaining profits of ₹ 6 lakhs during the P.Y are not from specified business therefore, no set off will be allowed against these profits. It will be fully taxable. Hence, Income of the Company for Assessment year 2021-22 is ₹ 6 lakhs.

Question 42A.
The Amalgamated company had brought forward losses of Amalgamating company to the extent of ₹ 23 lacs as on the date if amalgamation. It was able to set off loss to the tune of ₹ 12 lacs in the first year but in the second year it could not continue with the business of Amalgamating company and had to close that business. Choose the correct option:
(a) The remaining loss of 11 lacs will lapse.
(b) The remaining loss of 11 lacs will lapse and the set off of loss of ₹ 12 lacs allowed in the earlier year will be treated as the income of the amalgamated company.
(c) The amalgamated company will continue to set off the remaining brought forward loss in future.
(d) The amalgamating company will set off the remaining loss.
Answer:
(b) The remaining loss of 11 lacs will lapse and the set off of loss of ₹ 12 lacs allowed in the earlier year will be treated as the income of the amalgamated company.

Question 42B.
The Carry forward and set off of accumulated losses and unabsorbed depreciation in case of business reorganization of co-operative banks is covered under section:
(a) 12k
(b) 72 AA
(c) 72AB.
(d) 72B
Answer:
(c) 72AB.

Question 43.
If an individual, having a sales turnover of ₹ 60 lakh files his return of income for the AY 2021-22 after the due date showing unabsorbed business loss of ₹ 23,000 and unabsorbed depreciation of ₹ 45,000, he can carry forward to the subsequent assessment years
(a) Both unabsorbed business loss of ₹ 23,000 and unabsorbed depreciation of ₹ 45,000
(b) Only unabsorbed business loss of ₹ 23,000
(c) Only unabsorbed depreciation of ₹ 45,000
(d) Neither unabsorbed business loss of ₹ 23,000 nor unabsorbed depreciation of ₹ 45,000.
Answer:
(c) Only unabsorbed depreciation of ₹ 45,000
In order to carry forward business loss, the return of loss must be filed on or before due date of filing the return. The provision is not applicable for depreciation. Therefore, only unabsorbed’ depreciation of ₹ 45,000 can be carried forward to be set off in subsequent Assessment years.

Question 43A.
In case of demerger, the Carry forward and set off of accumulated losses and unabsorbed depreciation which is directly related to the undertaking transferred by demerged company to the resulting company is allowed to the :
(a) Demerged Company only
(b) Resulting Company only
(c) Both the companies in proportion to value of assets retained and trans-ferred.
(d) Not allowed
Answer:
(a) Demerged Company only

Question 43B.
In case of demerger, the carry forward and set off of accumulated losses and un-absorbed depreciation which is not directly related to the undertaking transferred by demerged company to the resulting company is allowed to the :
(a) Demerged Company only
(b) Resulting Company only
(c) Both the companies ie. demerged Co. and resulting Co. in proportion to value of assets retained and transferred.
(d) Not allowed
Answer:
(c) Both the companies ie. demerged Co. and resulting Co. in proportion to value of assets retained and transferred.

Question 43C.
The business of Anant & Co. was discontinued in the year 2017-18 due to heavy floods in the area that destroyed its machinery. The business sustained heavy losses. The assessee was able to revive the business in the Financial year 2020-21. It could not earn any profits from this business but his other businesses were profitable. Can he set off the losses of revived business For how many subsequent years can he carry forward unabsorbed loss
(a) He can set off loss against income from other business and carry forward unabsorbed loss up to A.Y. 2029-30, provided the business is now continued.
(b) He can set off loss against income from other business and carry forward unabsorbed loss up to A.Y. 2029-30, whether the business is continued or not.
(c) He can set off loss against income from other business and carry forward unabsorbed loss up to A.Y.2028- 29, provided the business is now continued.
(d) The loss cannot be set off against income of any other business but can be carried forward up to A.Y. 2029- 30.
Answer:
(a) He can set off loss against income from other business and carry forward unabsorbed loss up to A.Y. 2029-30, provided the business is now continued.

Question 43D.
A successor Cooperative bank can set off accumulated losses of predecessor Cooperative bank in a scheme of reorganization of co-operative banks provided the successor bank holds at least ………. of the Book value of fixed assets acquired for a continuous period of at least 5 years immediately succeeding the date of reor-ganization.
(a) 4/5th
(b) 3/4th
(c) 2/5th
(d) 1/2
Answer:
(b) 3/4th

Question 44.
The amount of depreciation not absorbed in the same year can be carried forward –
(a) For a period of 4 years
(b) For a period of 8 years
(c) For a period of 6 years
(d) Indefinitely
Answer:
(d) Indefinitely

Question 45.
Loss from the activity of owning and maintaining race horses could be set-off –
(a) Against income under any of the five heads of income
(b) Only against income under the head ‘income from other sources’
(c) Only against income under the head ‘profits and gains of business or profession’
(d) Only against income from same activity.
Answer:
(d) Only against income from same activity.

Question 46.
A Co. Ltd. has business loss and un-absorbed depreciation of ₹ 10 Crore. B Co. Ltd. is profit making Company. B Co. Ltd. wanted to acquire A Co. Ltd. with the benefit of set off of brought forward loss and unabsorbed depreciation. The legally permissible method is:
(a) Reverse merger
(b) Outright purchase
(c) Slump sale of A Co. Ltd.
(d) Converting A Co. Ltd. into subsidiary of B. Co. Ltd.
Answer:
(b) Outright purchase

Question 47.
Biren discontinued wholesale trade in medicines from 1st July, 2016. He recovered ₹ 1,50,000 in October 2020 being a bad debt which was written-off and allowed in assessment year 2017-2018. He has, eligible brought forward business loss of wholesale trade in medicines of ₹ 1,70,000. The consequence of bad debt recovery is that –
(a) It is chargeable to tax
(b) It is eligible for set-off against brought forward business loss
(c) The brought forward business loss is taxable now
(d) 50% of the amount recovered now is taxable
Answer:
(b) It is eligible for set-off against brought forward business loss

Question 48.
If a person is eligible to claim:
(1) Unabsorbed depreciation
(2) Current scientific research expenditure
(3) Current depreciation
(4) Brought forward business loss The order of priority to set-off would be –
(a) (4), (3), (2) & (1)
(b) (2), (3), (4) & (1)
(c) (3), (4), (1) & (2).
(d) (1), (2), (3) & (4)
Answer:
(b) (2), (3), (4) & (1)

Question 49.
A company has the following:
(i) Current scientific research expenditure;
(ii) Current depreciation;
(iii) Unabsorbed depreciation;
(iv) Brought forward business loss.
The order sequence of set off is:
(a) (i), (ii), (iii), (iv)
(b) (iv), (iii), (i), (ii)
(c) (i), (ii), (iv), (iii)
(d) (iv), (ii), (i), (iii)
Answer:
(c) (i), (ii), (iv), (iii)

Question 50.
To carry forward and set off losses, a loss return must be filed by the assessee within the stipulated time and get the loss determined by the Assessing Officer. However, this condition is not applicable to –
(a) Loss from house property
(b) Loss from speculation
(c) Loss from discontinued business
(d) Loss from capital assets
Answer:
(a) Loss from house property

Question 51.
Rohan engaged in multifarious activities reports the following:
(i) Loss from business ₹ 80,000;
(ii) Loss from house property ₹ 1,20,000;
(iii) Long term capital loss ₹ 70,000;
He filed his return beyond the ‘due date’ specified in Section 139(1).Which of the above losses cannot be carried forward to subsequent assessment year
(a) Loss from business
(b) Loss from house property
(c) Long term capital loss
(d) Both (a) & (c).
Answer:
(d) Both (a) & (c).

Question 52.
Mr. Hussey for the previous year has –
(i) Business loss of ₹ 1,30,000;
(ii) Income from salary ₹ 2,40,000; and
(iii) Speculation gain of f 1,10,000.
His total income for income tax assessment is:
(a) ₹ 3,50,000
(b) ₹ 2,20,000
(c) ₹ 2,40,000
(d) ₹ 1,10,000
Answer:
(c) ₹ 2,40,000
Business Loss cannot be set off against salary income but can be set off against speculation gain. Therefore, out of ₹ 1,30,000, business loss to the tune of ₹ 1,10,000 will be set off and ₹ 20,000 will be carried forward. The Income of M.R. Hussey for the P.Y. will be only his salary income of ₹ 2,40,000.

Question 53.
Mr. Siddharth is employed in a company. His income under various heads are –
(i) Salary, 5,60,000;
(ii) Loss from let out property, ₹ 65,000;
(iii) Loss from business, ₹ 1,10,000 and
(iv) Loss under the head “other sources” ₹ 30,000.
His total income after set-off of losses would be:
(a) ₹ 3,55,000
(b) ₹ 4,65,000
(c) ₹ 4,20,000
(d) ₹ 5,30,000
Answer:
(b) ₹ 4,65,000
Clubbing Provisions and Set off ANDOR Carry Forward of Losses CS Executive Tax Laws MCQ 3
Clubbing Provisions and Set off ANDOR Carry Forward of Losses CS Executive Tax Laws MCQ 4

Question 54.
Short term capital loss can be set-off as per provisions of Section 74 of the Income tax Act, 1961 from:
(a) Short term capital gain
(b) Short term capital gain & Long term capital gain
(c) Long term capital gain
(d) Short term capital gain & profits and gain from business.
Answer:
(b) Short term capital gain & Long term capital gain

Question 55.
Business loss can be set off from any other business income but cannot be set off from:
(a) Salary income
(b) House property income
(c) Long term capital gains
(d) Income from derivatives specified in section 43(5)
Answer:
(a) Salary income

Question 56.
The loss computed under the head “Income from house property” can be set-off by inter-head adjustment during the same year from :
(a) any other head of income upto maximum of ₹ 2,50,000
(b) any other head of income upto maximum of ₹ 3,00,000
(c) any other head of income upto maximum of ₹ 5,00,000
(d) any other head of income upto maximum of ₹ 2,00,000
Answer:
(d) any other head of income upto maximum of ₹ 2,00,000

Question 57.
The benefit of carry forward and set-off of losses under section 79 of Income-tax Act, 1961, by a closely held Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger, is subject to the condition that specified percentage of the shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company which is :
(a) 51%
(b) 10%
(c) 26%
(d) 100%
Answer:
(a) 51%

Question 58.
ABC Pvt. Ltd. has a business loss of ₹ 10 lakh. There is unexplained share application money to the tune of ₹ 25 lakh. The total income of the company will be :
(a) ₹ 15 lakh
(b) ₹ 35 lakh
(c) ₹ 25 lakh
(d) None of the above
Answer:
(c) ₹ 25 lakh

Question 59.
Mr. Shyam, a resident of Chandigarh, provides the following information for the financial year 2020-21:

Particulars ₹
Income from textile business 4,60,000
Income from speculation business 25,000
Loss from gambling 12,000
Loss on maintenance of race horse 15,000
Eligible current year depreciation of textile business not adjusted in the income given above. 5,000
Unabsorbed depreciation of As­sessment year 2020-21 brought forward 10,000
Speculation business loss of As­sessment year 2020-21 30,000

The Gross total Income of Mr. Shyam for the assessment year 2021-22 will be:
(a) ₹ 4,40,000
(b) ₹ 4,45,000
(c) ₹ 4,35,000
(d) ₹ 4,80,000
Answer:
(b) ₹ 4,45,000
Loss of Gambling cannot be carried forward.
Loss of maintenance of race horses cannot be adjusted against any other Income and has to be carried forward.
First, adjustment will be of current year depreciation of ₹ 5,000 from income of textile Business, and then bought forward depreciation of ₹ 10,000.
Speculation losses to the extent of ₹ 25,000 will be adjusted against current year speculation gains and the balance of ₹ 5,000 will be carried forward.
Clubbing Provisions and Set off ANDOR Carry Forward of Losses CS Executive Tax Laws MCQ 5

Question 60.
Mr. X provides the following details for the previous year ending 31.03.2020.

Particulars ₹
(i) Salary from XYZ Ltd. (Computed) 5,60,000
(ii) Interest on FD with SBI for the Financial Year 2020-21 80,000
(iii) Determined long term capi­tal loss of AY 2019-20 96,000
(iv) Long term Capital gain 75,000
(v) Loss of minor son. Mr. X transferred his own house to his minor son without adequate consideration and minor son let it out and suffered loss. (90,000)
(vi) Loss of his wife’s business

She carried business with funds which Mr. X gifted to her.The taxable income of Mr. X for the AY 2021-22 will be:
(a) ₹ 5,60,000
(b) ₹ 4,70,000
(c) ₹ 4,50,000
(d) ₹ 4,20,000
Answer:
(b) ₹ 4,70,000
Clubbing Provisions and Set off ANDOR Carry Forward of Losses CS Executive Tax Laws MCQ 6
The loss of minor son and wife is allowed to be set off as Mr. X is deemed owner of house u/s 27 and wifes income attracts clubbing provisions. The wife’s loss of ₹ 120,000 and long term capital loss of ₹ 21,000 will be carried forward

Question 61.
Mr. X, a resident individual, furnishes the following particulars of his income and other details for the previous year 2020-21.

Particulars ₹
1. Income from Salary 15,000
2. Income from Business 66,000
3. Long term capital gain on sale of Land 10,800
4. Loss on maintenance of Race Horses 15,000
5. Loss from Gambling 9,100

The other details of unabsorbed depreciation and brought forward losses pertaining to Assessment Year 2020-21 are as follows:

Particulars ₹
1. Unabsorbed depreciation 11,000
2. Loss from Speculative business 22,000
3. Short term capital loss 9,800

The Gross total income of Mr. X for the Assessment Year 2021 -22 and the amount of loss, that can be carried forward is:
(a) Gross total income ₹ 71,000 and carry forward ₹ 37,000
(b) Gross total income ₹ 70,000 and carry forward ₹ 22,000
(c) Gross total income ₹ 71,000 and carry forward ₹ 15,000
(d) Gross total income ₹ 70,000 and carry forward ₹ nil
Answer:
(a) Gross total income ₹ 71,000 and carry forward ₹ 37,000
Clubbing Provisions and Set off ANDOR Carry Forward of Losses CS Executive Tax Laws MCQ 7

Computation of Income Under Various Heads – CS Executive Tax Laws MCQ

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Going through the Computation of Income Under Various Heads – CS Executive Tax Laws MCQ Questions with Answers you can quickly revise the concepts.

Computation of Income Under Various Heads – Tax Laws CS Executive MCQs

Part 1: Income Under the Head “Salaries”

Question 1.
Which of the following Section enumerates the five “Heads of Income” under which the Income of the assessee may fall:
(a) Section 4
(b) Section 5
(c) Section 14
(d) Section 15
Answer:
(c) Section 14

Question 2.
The relevant sections for computation of Income under the head Salaries are:
(a) Sections 14-16
(b) Sections 14-18
(c) Sections 15-17
(d) Sections 15-18
Answer:
(c) Sections 15-17

Question 3.
As per Section 15 of the Income-tax Act, Salary is taxable on:
(a) Due basis
(b) Receipt basis
(c) Due or receipt basis, whichever is earlier
(d) As per the method of Accounting followed by assessee.
Answer:
(c) Due or receipt basis, whichever is earlier

Question 4.
The most fundamental requisite for charging income under the head “Salaries” is :
(a) Full time employment
(b) Regular monthly payments
(c) Employment tax should be paid
(d) Employer -Employee relationship
Answer:
(d) Employer -Employee relationship

Question 5.
In which of the following cases, Employer-Employee relationship exists and therefore the income is taxable under the head “salaries”
(a) Official Liquidator
(b) Member of Parliament
(c) Partner of a Firm
(d) Director of a company receiving commission for guarantee of loan.
Answer:
(a) Official Liquidator

Question 6.
A professor of a college receives monthly salary from the college. He is appointed by the University as examiner during the final exams conducted by the university. In this case the remuneration received as an examiner is taxable under the head:
(a) Salary
(b) Profits of Business and Profession
(c) Income from other sources
(d) None of the above
Answer:
(c) Income from other sources

Question 7.
Sargam is a qualified doctor. She joined Arpana hospital as an employee on monthly salary. Their contract of service contained a clause restraining her to pursue practice beyond employment and paid her ₹ 3,00,000 as compensation for the same. The income will be taxable as:
(a) The monthly salary will be taxable under Salary head and compensation as business income
(b) The monthly salary will be taxable under Salary head and compensation as Income from other sources
(c) The entire receipts would be taxable as salaries
(d) The entire receipts would be taxable as Business income
Answer:
(c) The entire receipts would be taxable as salaries

Question 8.
As per Section 9(i)(ii), salary is deemed to accrue or arise in India if services are rendered in India. Section 9(i)(iii) gives exception to the above provision. It states:
(a) Pension received in respect of services rendered in India is not deemed to accrue or arise in India.
(b) Leave Encashment received in respect of services rendered in India is not deemed to accrue or arise in India.
(c) If an Indian citizen is employed outside India by the Government of India, salary is deemed to accrue or arise in India even when services are rendered outside India.
(d) All of the Above.
Answer:
(c) If an Indian citizen is employed outside India by the Government of India, salary is deemed to accrue or arise in India even when services are rendered outside India.

Question 9.
Whose income is taxable under the head “Salaries” despite no employer- employee relationship.
(a) Member of Parliament
(b) Partners of a Firm
(c) Professors of college receiving remuneration from university
(d) Remuneration received by High Court and Supreme Court Judges.
Answer:
(d) Remuneration received by High Court and Supreme Court Judges.

Question 10.
In relation to definition under Section 17 of the Income-tax Act, the following are defined, except
(a) Salary
(b) Allowance
(c) Perquisites
(d) Profits in lieu of Salary
Answer:
(b) Allowance

Question 11.
In which of the following situation, Salary will not be taxable:
(a) If there is part-time employment
(b) If employee foregoes his salary
(c) If employee surrenders his salary to the Central Government under specific scheme
(d) If salary is paid by the employer tax- free
Answer:
(c) If employee surrenders his salary to the Central Government under specific scheme

Question 12.
“Salary” under section 17(1) includes the following, except:
(a) Wages
(b) Annuity or Pension
(c) Transferred balance to recognised provident fund
(d) Advance Salary
Answer:
(c) Transferred balance to recognised provident fund.
Transferred balance to recognized provident funds is not salary in entirety. Only a portion of this balance, had the fund been recognized from the very beginning, that would have been taxable, would be salary.

Question 13.
Which one of the following is not a deduction under Section 16 of the Income-tax Act:
(a) Standard deduction
(b) House rent Allowance
(c) Entertainment Allowance
(d) Employment or Professional tax
Answer:
(b) House rent Allowance

Question 14.
Simar has received a salary from her employer during the Previous Year (P.Y) 2020-21 net of deduction of ₹ 80,000 on account of Tax deducted at source and ₹ 84,000 as provident fund contribution of the employee. She has received ₹ 6,36,000 during the year. What is her Gross Salary for the year.
(a) ₹ 6,36,000
(b) ₹ 8,00,000
(c) ₹ 7,16,000
(d) ₹ 7,20,000
Answer:
(b) ₹ 8,00,000

Salary 6,36,000
Add tax deducted 80,000
Add PF contribution 84,000
Gross salary 8,00,000

Question 15.
Suhani was employed in X Ltd. in the grade of ₹ 8,000-500-12,000-1000-20,000. She joined on 1.8.2016. What is her Gross salary income for P.Y 2020-21, if her salary is due on the last day of the month
(a) 7 1,18,000
(b) ₹ 1,17,500
(c) ₹ 1,24,000
(d) ₹ 1,23,500
Answer:
(a) 7 1,18,000
On 1.8.2020 Suhani will get 4 increments and her salary will be 8000 + (500 X 4) = 10,000
∴Her Salary from 1.4.20 – 31.7.20 (per month) = 9,500
Total in 4 months is (9500 × 4) = 38,000
And rest of the year ₹ 10,000
∴ Total in 8 months = 80,000
Total gross Salary = 38,000 + 80,000 = ₹ 1,18,000

Question 16.
What will be the amount of gross salary which shall be required to be declared in the return of income to be filed for the previous year 2020-21 by Harun, who joined services as Manager Accounts on the salary of ₹ 17,000 p.m. in XYZ Ltd. on 1st April, 2017 in the grade of 15,000- 2000 – 19,000 – 3000 – 28,000
(a) ₹ 3,00,000
(b) ₹ 2,28,000
(c) ₹ 2,64,000
(d) ₹ 2,52,000
Answer:
(c) ₹ 2,64,000

Question 17.
Mr. Anjan joins a service in the grade of ₹ 15,600-39,100 plus grade pay of ₹ 6,000 on 1.8.2020. He also gets dearness allowance @107% of salary. His tax liability for AY 2021-22 will be ……….
(a) Nil
(b) ₹ 5,940
(c) ₹ 920
(d) ₹ 11,090
Answer:
(a) Nil

Basic salary [(15,600+6,000)×8] 1,72,800
DA (1,72,800 × 10796) 1,84,896
Standard deduction (50,000)
Total income 3,07,696
Round off u/s 288A 307,700
Tax on total income 2885
(-) Rebate u/s 87A 2885
Nil

Question 18.
Pankaj joins service on 1st April, 2016 in the grade of 15,000-1,000-18,000-2,000- 26,000. His Gross salary for the year ended on 31st March, 2021 will beta)
(a) ₹ 2,16,000
(b) ₹ 2,40,000
(c) ₹ 2,28,000
(d) ₹ 1,88,000
Answer:
(b) ₹ 2,40,000
1.4.2015 to 3 1.3.2016    15,000 p.m.
1.4.2016 to 31.3.2017     16,000 p.m.
1.4.20 17 to 3 1.3.2018    17,000 p.m.
1.4.2018 to 31.3.2019        18,000p.m.
1.4.2019 to 3 1.3.2020      20,000 p.m.
Therefore, his Gross salary is 20,000 × 12 2,40,000.

Question 19.
Mr. Joseph joined government job in the grade of 18,000 -1500-22500-2000-28,500 on 15.7.2015. His salary is due on the first day of next month. What will be his basic salary for the P.Y. 2020-21
(a) ₹ 3,24,000
(b) ₹ 3,33,000
(c) ₹ 3,09,000
(d) ₹ 3,08,000
Answer:
(c) ₹ 3,09,000
Since, Mr. Joseph’s salary is due on the first day of next month, his total Basic
Salary for the P.Y. 2020-21 will be salaries from March 2020 till February 2021.
Salary on 15-7-20 after 5 recrements = 26,500
Salary before increment of 2000 = 24.500
∴ Salary for 4 and 1/2 months upto 15-7-20 24,500 × 4.5
For 7 and 1/2 months upto 28-2-20 26,500 × 7.5
Total = 309,000

Question 20.
Mr. X is employed in HCL Ltd. since 1.7.2010 in the pay scale of 10,000 -500 -14,000-1000-19,000. The employer paid him Dearness Allowance (D.A.) @ 10% of Basic salary up-to 31.8.2020 and thereafter @ 20% of basic salary. His gross salary for the P.Y 2020-21 is:
(a) ₹ 2,19,100
(b) ₹ 2,22,300
(c) ₹ 2,05,000
(d) ₹ 2,07,900
Answer:
(a) ₹ 2,19,100

Question 21.
The Salary of Mr. John is ₹ 60,000 p.m. He however took Advance Salary of 5 months from his employer on 10.1.2021. His salary is due on first day of next month. What is his gross salary for P.Y. 2020-21
(a) ₹ 7,20,000
(b) ₹ 9,00,000
(c) ₹ 8,40,000
(d) ₹ 10,20,000
Answer:
(b) ₹ 9,00,000

Question 22.
Mr. Shravan is on a salary of ₹ 40,000 p.m. He also took advance of ₹ 2,00,000 against salary, on 1.3.2021. What will be his salary income for P.Y. 2020-21 after allowing standard deduction of ₹ 50,000
(a) ₹ 4,30,000
(b) ₹ 6,80,000
(c) ₹ 4,40,000
(d) ₹ 6,00,000
Answer:
(a) ₹ 4,30,000

Question 23.
Which of the following allowance is fully taxable
(a) Dearness Allowance
(b) Allowances to High court and Supreme court judges
(c) Allowances to Indian citizens who Eire employees of Central Government posted abroad
(d) Daily Allowance to members of the Parliament.
Answer:
(a) Dearness Allowance

Question 24.
Which of the following allowances are fully exempt
(a) Fixed Medical Allowance
(b) Servant Allowance
(c) Allowance from United Nations Organisation
(d) Overtime Allowance
Answer:
(c) Allowance from United Nations Organisation

Question 25.
Which of the following allowance is fully taxable
(a) Deputation Allowance
(b) City Compensatory Allowance
(c) Warden Allowance and Proctor Allowance
(d) All of the above
Answer:
(d) All of the above

Question 25A.
As per section 10(14)(ii) and [Rule 2BB(2)] of the Income-tax Rules, 1962 the extent to which Compensatory Field Area allowance is exempt is  :
(a) 800
(b) 1000
(c) 1600
(d) 2600
Answer:
(d) 2600

Question 25B.
As per section 10(14)(ii) and [Rule 2BB(2)] of the Income-tax Rules, 1962 the extent to which Compensatory Modified Field Area allowance is exempt is X:
(a) 800
(b) 1000
(c) 1600
(d) 2600
Answer:
(b) 1000

Question 25C.
As per section 10( 14)(/f) and [Rule 2BB(2)] of the Income-tax Rules, 1962 the special allowance in the nature of Counter Insurgency Allowance granted to the members of armed forces operating in areas away from their permanent locations is exempt to the extent of X :
(a) 1,500
(b) 2,600
(c) 3,900
(d) 4,200
Answer:
(c) 3,900

Question 25D.
Which of the following allowance is available only to the members of armed forces
(a) Island duty allowance
(b) Special compensatory highly active field area allowance
(c) High altitude allowance
(d) All of the above
Answer:
(d) All of the above

Question 25 E.
The assessee is a citizen of India and an employee of Central Government working in Canada. The government provides him certain allowances. These allowances will be exempt in the hands of assessee if he is:
(a) Resident and ordinarily Resident
(b) Resident but Not ordinarily Resident
(c) Non-Resident
(d) Any of the above
Answer:
(d) Any of the above

Question 26.
House rent Allowance (HRA) is exempt under Section of the Income-tax Act.
(a) 10(10)
(b) 10(13)
(c) 10 (13A)
(d) 10 (2A)
Answer:
(c) 10 (13A)

Question 27.
The amount of exemption in respect of HRA received depends upon the following except:
(a) Salary and HRA received by the employee
(b) Place of duty of the employee
(c) Rent paid by the employee to the landlord.
(d) Place of residence of the employee
Answer:
(b) Place of duty of the employee

Question 28.
The HRA is exempt under Rule 2A of the Income Tax Rules. The least of the three will be exempt, the word “three” includes the following except:
(a) 40%/50% of the Salary
(b) Rent paid by the employee in excess of 10% of the salary
(c) 50% of the HRA received
(d) Actual HRA received
Answer:
(c) 50% of the HRA received

Question 29.
For the purpose of calculation of HRA, salary means:
(a) Basic salary + DA (forming part of salary for retirement benefits or not)
(b) Basic salary + DA (forming part of salary for retirement benefits) + monthly commission
(c) Basic salary + DA (forming part of salary for retirement benefits) + commission as a percentage of turnover
(d) Basic salary and commission
Answer:
(c) Basic salary + DA (forming part of salary for retirement benefits) + commission as a percentage of turnover

Question 30.
For the purpose of calculation of HRA salary is taken on:
(a) Receipt Basis
(b) Due or accrual basis
(c) Due or receipt basis whichever is earlier
(d) At the option of the employee
Answer:
(b) Due or accrual basis

Question 31.
Mr. X is employed with XY Ltd. on a basic salary of ₹ 10,000 p.m. He is also entitled to Dearness allowance @ 100% of basic salary, 50% of which is included in salary as per terms of employment. The company gives him house rent allowance of ₹ 6,000 p.m. which was increased to ₹ 7,000 p.m. with effect from 01.01.2021. He also got an increment of ₹ 1,000 p.m. in his basic salary with effect from 01.02.2021. Rent paid by him during the previous year 2020-21 is as under:

April and May, 2020 Nil, as he stayed with his parents.
June to October, 2020 ₹ 6,000 p.m. for an accommodation in Ghaziabad.
November, 2020 to March, 2021 ₹ 8,000 p.m. for an accommodation in Delhi.

Compute the HRA exempt u/s 10(13A) for Assessment Year 2021-22.
(a) ₹ 63,700
(b) ₹ 11,300
(c) ₹ 54,350
(d) ₹ 53,700
Answer:
(d) ₹ 53,700

Question 32.
Compute taxable amount of house rent allowance in the following cases:

Name of the employee Mr. A
Basic Pay 20,000 p.m.
House rent allowance 5,000 p.m.
Rent paid 1,500 p.m.
Place of residence Delhi

(a) ₹ 5,000
(b) ₹ 60,000
(c) Nil
(d) ₹ 12,000
Answer:
(d) ₹ 12,000

Question 33.
Murali is employed in Megha Ltd., Delhi. He is paid house rent allowance of ₹ 9,000 per month in financial year 2020-21. His salary for the purpose of computation or house rent allowance relief may be taken as ₹ 20,000 per month. Murali pays actual rent of ₹ 10,000 per month. How much of the house rent allowance is tax-free –
(a) ₹ 1,08,000
(b) ₹ 1,20,000
(c) ₹ 96,000
(d) ₹ 60,000
Answer:
(c) ₹ 96,000

Question 34.
Mr. A is employed in ABS transports as cabin driver. He is paid ₹ 15,000 every month in the whole of previous year as allowance for meeting his personal expenditure in the course of running the goods vehicle. Mr. A does not receive any other amount by way of daily allowance. The amount of allowance eligible for exemption is:
(a) ₹ 1,80,000
(b) ₹ 1,20,000
(c) ₹ 1,26,000
(d) Nil
Answer:
(b) ₹ 1,20,000

Question 35.
The following allowances are exempt u/s 10(14) to the extent the expenses are actually incurred or amount received whichever is less, except:
(a) Travelling & conveyance allowance
(b) Helper Allowance
(c) Education allowance
(d) Uniform allowance
Answer:
(c) Education allowance

Question 36.
Shubhra received academic and re-search allowance of ₹ 60,000 from her employer during the P.Y 2020-21. On 15.11.2020 she spent on research ₹ 42,000 and on 23.3.2021 she again spent ₹ 12,000. Another ₹ 8,000 were spent by her on 4.04.2021. The amount of exemption u/s 10(14) will be restricted to:
(a) ₹ 60,000
(b) ₹ 42,000
(c) ₹ 54,000
(d) ₹ 62,000
Answer:
(a) ₹ 60,000

Question 37.
Mr. Murthy is employed in ABC Management Institute, Pune. He is eligible for ₹ 24,000 as allowance for the year towards academic and research work. The amount of academic and research allowance chargeable to tax, if he did not spend any money for the purpose, is:
(a) ₹  10,000
(b) ₹ 24,000
(c) ₹ Nil
(d) ₹ 9,000
Answer:
(b) ₹ 24,000

Question 38.
The following are the allowances which are exempt u/s 10(14) to the extent of amount received or the limits specified as per income tax, whichever is less, except:
(a) Tribal area allowance
(b) Daily allowance
(c) Transport allowance for the handicapped employee
(d) Children education allowance
Answer:
(b) Daily allowance

Question 39.
The tribal area allowance is exempt up to a maximum ceiling limit of:
(a) ₹ 200 per month
(b) ₹ 150 per month
(c) ₹ 100 per month
(d) ₹ 300 per month
Answer:
(a) ₹ 200 per month

Question 40.
Shiv Ram was posted to Madhya Pradesh for 4 months and was given tribal area allowance of ₹ 2000. Find the taxable amount in the hands of Mr. Shiv Ram:
(a) ₹ 800
(b) ₹ 1,200
(c) ₹ 1,000
(d) ₹ 2,000
Answer:
(b) ₹ 1,200

Question 41.
The children education allowance is exempt up to a maximum ceiling limit of:
(a) ₹ 100 per month, per child up to 3 children
(b) ₹ 200 per month, per child up to 3 children
(c) ₹ 100 per month, per child up to 2 children
(d) ₹ 200 per month, per child up to 2 children
Answer:
(c) ₹ 100 per month, per child up to 2 children

Question 42.
Sonu received ₹ 240 per month as education allowance for his 3 children in the P.Y. 2020-21. What is the amount of exemption he is entitled to as per section 10(14)
(a) ₹ 2,400
(b) ₹ 1,920
(c) ₹ 580
(d) ₹ 480
Answer:
(b) ₹ 1,920

Question 43.
Children education allowance received by an employee from his employer is ₹ 80 per month per child for 3 children. Taxable education allowance will be –
(a) ₹ 960
(b) 1480
(c) Nil
(d) ₹ 1,200
Answer:
(a) ₹ 960

Question 44.
Mr. X has two sons. He is in receipt of children education allowance of ₹ 150 p.m. for his elder son and ₹ 70 p.m. for his younger son. Compute his taxable allowance.
(a) ₹ 2,640
(b) ₹ 600
(c) ₹ 240
(d) Nil
Answer:
(b) ₹ 600

Question 45.
Mr. Vivek is entitled to ₹ 5,000 pm. as Medical Allowance. He spends ₹ 4,000 per month on his medical treatment and ₹ 500 on the medical treatment of his major son not dependent on him. The medical allowance exemption will be:
(a) ₹ 4,000 per month
(b) ₹ 4,500 per month
(c) ₹ 5,000 per month
(d) Nil
Answer:
(d) Nil

Question 46.
Mr. Amit is entitled to a transport allowance of ₹ 1,000 per month for commuting from his residence to office and back. He spends ₹ 800 per month. The amount of exemption will be:
(a) ₹ 1000 per month
(b) ₹ 800 per month
(c) ₹ 200 per month
(d) Nil
Answer:
(d) Nil

Question 47.
Where there is a decision to increase the D.A. in March, 2021 with retrospective effect from 1/4/2019, and the increased D.A. is received in April, 2021 the increase is taxable –
(a) in the previous year 2019-2020
(b) in the previous year 2020-21
(c) in the previous year 2021-22
(d) in the respective years to which they relate
Answer:
(b) in the previous year 2020-21

Question 48.
Salary for the purpose of computation of exemption of entertainment allowance in the hands of Government employee means:
(a) Basic salary + DA (forming part of salary for retirement benefits or not)
(b) Basic salary + DA (forming part of salary for retirement benefits) + monthly commission
(c) Basic salary + DA (forming part of salary for retirement benefits) + commission as a percentage of turnover
(d) Basic salary
Answer:
(d) Basic salary

Question 49.
Geetesh is a Central Government employee and has received ₹ 20,000 as entertainment allowance. He spent ₹ 15,000 for entertaining the business clients. His basic salary for the Previous Year 2020-21 is ₹ 80,000 and he also gets 20% dearness allowance as part of salary. The amount of Entertainment allowance deductible u/s 16(/i) will be:
(a) ₹ 16,000
(b) ₹ 15,000
(c) ₹ 5,000
(d) ₹ 19,200
Answer:
(c) ₹ 5,000

Question 50.
For the purpose of Entertainment allowance, Government employee means:
(a) Central Government employee
(b) Central and State Government employee
(c) Central and State Government employee and employees of local authorities
(d) Central and State Government employee of local authorities and employee of statuary corporation.
Answer:
(b) Central and State Government employee

Question 51.
A Central Government Officer received during the year 2020-21 salary excluding all allowances of ₹ 9,00,000 and amount of entertainment allowance of ₹ 12,000 @ ₹ 1,000 p.m. The maximum amount of entertainment allowance so received by him being exempt under section 16(ii) of the Act is
(a) 1/5 of salary
(b) ₹ 1,000 p.m.
(c) ₹ 5,000
(d) ₹ 10,000
Answer:
(c) ₹ 5,000

Question 52.
Ravi is receiving ₹ 10,000 as medical allowance from his employer. Out of this, he spends ₹ 5,000 on his own medical treatment ₹ 2,000 on the medical treatment of his dependent wife and another ₹ 3,000 for the medical treatment of his major son who is not a dependent on him. The amount of medical allowance taxable in his hand is –
(a) ₹ 10,000
(b) ₹ 5,000
(c) ₹ 3,000
(d) Nil
Answer:
(a) ₹ 10,000

Question 53.
Pawan, employed in Magic Ltd. was eligible for transport allowance of ₹ 2,000 per month to meet his travel expenses from residence to office. He actually incurred ₹ 1,200 per month towards travel. The amount of travel allowance chargeable to tax would beta)
(a) 24,000
(b) ₹ 14,000
(c) ₹ 4,800
(d) Nil
Answer:
(a) 24,000

Question 54.
Zeba gets ₹ 1000 per month as transport allowance for commuting between office and residence. The amount that will be taxable in her hands will be:
(a) ₹ 1,000
(b) ₹ 2,00
(c) ₹ 12,000
(d) Nil
Answer:
(c) ₹ 12,000

Question 55.
Sushil is a handicapped employee who receives ₹ 3,500 p.m. as transport allowance. The amount of exemption that Mr. Sushil will get in the P.Y. 2020-21 is:
(a) ₹ 3,200 per month
(b) ₹ 3,500 per month
(c) ₹ 38,400
(d) Both (a) and (c)
Answer:
(d) Both (a) and (c)

Question 56.
Island duty allowance is exempt up to a maximum ceiling of :
(a) ₹ 3,900 per month
(b) ₹ 3,250 per month
(c) ₹ 3,450 per month
(d) ₹ 4,250 per month
Answer:
(b) ₹ 3,250 per month

Question 57.
Allowances and perquisites allowed to an employee for services rendered outside India are tax free in case of –
(a) All types of employees
(b) Government employees only
(c) Non-government employees only
(d) None of the above
Answer:
(b) Government employees only

Question 58.
Mr. Amit employed in X Co. Ltd., in Salem, received ₹ 10,000 per month as house rent allowance in the year 2020-21. His total salary is ₹ 4 lakhs consisting of Basic pay + DA. He paid rent of ₹ 8,000 per month. How much of HRA is exempt from tax
(a) ₹ 40,000
(b) ₹ 56,000
(c) ₹ 1,20,000
(d) ₹ 1,60,000
Answer:
(b) ₹ 56,000

Question 59.
The maximum ceiling limit of exemption for the purpose of exemption under section 10(10)(ii) i.e. Employee covered under the Payment of Gratuity Act, 1972 is:
(a) ₹ 10,00,000
(b) ₹ 5,00,000
(c) ₹ 3,50,000
(d) ₹ 20,00,000
Answer:
(d) ₹ 20,00,000

Question 60.
The maximum ceiling limit of exemption for the purpose of exemption under section 10(10)(iii) i.e. an employee not covered under the payment of Gratuity Act, 1972 is:
(a) ₹ 10,00,000
(b) ₹ 5,00,000
(c) ₹ 3,50,000
(d) ₹ 20,00,000
Answer:
(d) ₹ 20,00,000

Question 61.
The maximum amount of any death-cum-retirement gratuity received by an employee not covered under the payment of Gratuity Act, 1972 on Superannuation from the employer, exempt from tax is of ……………..
(a) ₹ 20 Lakh
(b) ₹ 10 Lakh
(c) ₹ 5 Lakh
(d) ₹ 15 Lakh
Answer:
(a) ₹ 20 Lakh

Question 62.
The maximum ceiling limit of exemption for the purpose of exemption under section 10(10AA), Leave encashment at the time of retirement is:
(a) ₹ 10,00,000
(b) ₹ 5,00,000
(c) ₹ 3,00,000
(d) ₹ 3,50,000
Answer:
(c) ₹ 3,00,000

Question 63.
The maximum ceiling limit of exemption for the purpose of exemption for voluntary retirement compensation under section 10(10C)
(a) ₹ 10,00,000
(b) ₹ 5,00,000
(c) ₹ 3,00,000
(d) ₹ 3,50,000
Answer:
(b) ₹ 5,00,000

Question 64.
The maximum ceiling limit of exemption for the purpose of exemption of retrenchment compensation under section 10(10B)
(a) ₹ 10,00,000
(b) ₹ 5,00,000
(c) ₹ 3,00,000
(d) ₹ 3,50,000
Answer:
(b) ₹ 5,00,000

Question 65.
For the purpose of Gratuity, Government employee means:
(a) Central Government employee
(b) Central and State Government employee
(c) Central and State Government employee and employees of local authorities
(d) Central and State Government employee of local authorities and employee of statuary corporation.
Answer:
(c) Central and State Government employee and employees of local authorities

Question 66.
For the purpose of Encashment of earned leave, Government employee means:
(a) Central Government employee
(b) Central and State Government employee
(c) Central and State Government employee and employees of local authorities
(d) Central and State Government employees and employees of local authorities and employees of statuary corporation.
Answer:
(b) Central and State Government employee

Question 67.
For the purpose of Pension, Government employee means:
(a) Central Government employee
(b) Central and State Government employee
(c) Central and State Government employee and employees of local authorities
(d) Central and State Government employees and employees of local authorities and employees of Statuary Corporation.
Answer:
(d) Central and State Government employees and employees of local authorities and employees of Statuary Corporation.

Question 68.
For the purpose of Rent free accommodation, Government employee means:
(a) Central Government employee and State Government employee.
(b) Central & State Government employees including employees of Public sector undertaking deputed by Central or State Government and accommodation provided by Central or State Government.
(c) Central and State Government employee and employees of local authorities
(d) Central and State Government employees and employees of local authorities and employees of statuary corporation.
Answer:
(b) Central & State Government employees including employees of Public sector undertaking deputed by Central or State Government and accommodation provided by Central or State Government.

Question 69.
Mr. Vijay employed in ABC Ltd. opted for voluntary retirement and received ₹ 22 lakhs by way of gratuity. The payment of Gratuity Act, 1972 is applicable in his case. The monetary limit for exemption under section 10(10) is:
(a) ₹ 3,50,000
(b) ₹ 5,00,000
(c) ₹ 20,00,000
(d) ₹ 3,00,000
Answer:
(c) ₹ 20,00,000

Question 70.
Salary for the purpose of computation of exemption of Gratuity for an employee covered under the Payment of Gratuity Act, 1972 is:
(a) Basic salary + DA (forming part of salary for retirement benefits or not)
(b) Basic salary + DA (forming part of salary for retirement benefits) + monthly commission
(c) Basic salary + DA (forming part of salary for retirement benefits) + commission as a percentage of turnover
(d) Basic salary
Answer:
(a) Basic salary + DA (forming part of salary for retirement benefits or not)

Question 71.
Salary for the purpose of computation of exemption of Gratuity for an employee not covered under the Payment of Gratuity Act, 1972 is:
(a) Basic salary + DA (forming part of salary for retirement benefits or not)
(b) Basic salary + DA (forming part of salary for retirement benefits) + monthly commission
(c) Basic salary + DA (forming part of salary for retirement benefits) + commission as a percentage of turnover
(d) Basic salary
Answer:
(c) Basic salary + DA (forming part of salary for retirement benefits) + commission as a percentage of turnover

Question 72.
Mr. X was employed in ABC Ltd. getting basic pay ₹ 18,000 p.m. but it was increased to ₹ 24,000 p.m. w.e.f. 01 -07-2020, dearness allowance ₹ 6,000 p.m. but it was increased to ₹ 9,000 p.m. w.e.f. 01-07-2020 (50% of DA forms part of salary). The employee was retired on 10.01.2021 after serving the employer for 20 years and 10 months. The employer has paid him gratuity of ₹ 9,10,000 and the employee was covered under Payment of Gratuity Act, 1972. The taxable portion of gratuity will be:
(a) ₹ 3,99,808
(b) ₹ 9,10,000
(c) ₹ 5,64,712
(d) ₹ 5,10,192
Answer:
(a) ₹ 3,99,808

Question 73.
If an employee has completed 11 years & 6 months of service, the number of completed years for the purpose of computing exemption of a non-government employee covered under Payment of Gratuity Act, 1972 will be:
(a) 11 years
(b) 11.5 years
(c) 12 years
(d) ₹ 12.5 years
Answer:
(a) 11 years
Completed year or part thereof in excess of 6 months is considered as year. Exactly 6 months is not counted as a year.

Question 74.
If an employee has completed 11 years & 6 months and 5 days of service, the number of completed years for the purpose of computing exemption of a non-government employee covered under Payment of Gratuity Act, 1972 will be:
(a) 11 years
(b) 11.5 years
(c) 12 years
(d) 11.66 years
Answer:
(c) 12 years

Question 75.
If an employee has completed 11 years & 6 months and 5 days of service, the number of completed years for the purpose of computing exemption of a non-government employee not covered under Payment of Gratuity Act, 1972 will be:
(a) 11 years
(b) 11.5 years
(c) 12 years
(d) 11.66 years
Answer:
(a) 11 years
If an employee is not covered under payment of gratuity Act, exemption is allowed for completed year oI services, therefore 11 yrs.

Question 76.
Shivani has already availed exemption of gratuity under section 10(10) (ii) to the extent of ₹ 1,80,000, and thereafter she gets gratuity of ₹ 3,25,000 from her new employer at the time of retirement. The maximum ceiling limit of exemption for her would be:
(a) ₹ 10,00,000
(b) ₹ 18,20,000
(c) ₹ 18,00,000
(d) 120,00,000
Answer:
(b) ₹ 18,20,000
The maximum ceiling limit is reduced by the amount of exemption availed earlier. Therefore, it is 20,00,000 – 1,80,000 = 18,20,000.

Question 77.
For the purposes of computation of gratuity exempt under section 10(10)(ii) and section 10(10)(iii) the total number of days in a month are reckoned as ………. & ……… respectively:
(a) 15 days and 15 days
(b) 15 days and 30 days
(c) 26 days and 15 days
(d) 26 days and 30 days
Answer:
(d) 26 days and 30 days

Question 78.
Akash is entitled to get a pension of ₹ 6,000 per month from a private company. He gets 60% of the pension commuted and receives ₹ 3,60,000. He also receives ₹ 2,00,000 as gratuity from the same employer. The taxable portion of commuted value of pension will be
(a) ₹ 1,60,000
(b) Nil
(c) ₹ 3,60,000
(d) ₹ 60,000
Answer:
(a) ₹ 1,60,000
Akash is in plivate Company and also in receipt of gratuity. Therefore \(\frac{1}{3}\)rd ill be exempt.
He commuted 60% and received ₹ 3,60,000
Value of 100% commuted pension =\(\frac{3,60,000}{60 \%}\)= ₹ 6,00,000
Exempt amount = ₹ 6,00,000 × \(\frac{1}{3}\)=₹ 2,00,000
∴ Taxable commuted Pension = ₹ 1,60,000

Question 79.
An employee of a company who was entitled for a gratuity of ₹ 8,00,000 also received ₹ 12,00,000 by commuting 40% of his pension. The taxable amount of commuted pension is –
(a) ₹ 2,00,000
(b) ₹ 4,00,000
(c) ₹ 12,00,000
(d) ₹ 20,00,000
Answer:
(a) ₹ 2,00,000

Question 80.
Rohan retires from private service on 30th April, 2020 and his pension has been fixed at ₹ 1,500 p.m. he gets Vi of his pension commuted during January, 2021 and receives ₹ 75,000. He also gets ₹ 60,000 as gratuity. The total taxable pension for the P.Y. 2020-21 including commuted value will be –
(a) 116,500
(b) ₹ 1,14,250
(c) ₹ 39,250
(d) ₹ 14,250
Answer:
(c) ₹ 39,250
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 3

Question 81.
Mr. Jugal is entitled to get ₹ 20,000 per month as pension from a private company after his retirement on 31.12.2020. He gets 60% of the pension commuted on 1st February 2021 and receives ₹ 3,60,000. He also receives ₹ 2,00,000 as gratuity from the same employer. His salary is due on the first day of the next month. The taxable value of un-commuted pension will be –
(a) ₹ 36,000
(b) Nil
(c) ₹ 60,000
(d) ₹ 28,000
Answer:
(d) ₹ 28,000
Uncommuted Pension Jan. 2021 = ₹ 20,000
Feb. 2021 = 8,000 i.e.(40% of 20,000)
Total = 28,000
Salary is due on the first of next month, so the month of March will not be considered.

Question 82.
Mr. Jugal is entitled to get ₹ 20,000 per month as pension from a private company after his retirement on 31.12.2020. He gets 60% of the pension commuted on 1st February 2021 and receives ₹ 3,60,000. He also receives ₹ 2,00,000 as gratuity from the same employer. His salary is due on the last day of the month. The exempted value of commuted pension will be –
(a) ₹ 2,00,000
(b)₹ 3,60,000
(c) ₹ 1,20,000
(d) ₹ 3,00,000
Answer:
(d) ₹ 3,00,000
Value of 60% commuted Pension = ₹ 3,60,000
∴ 100%= \(\frac{3,60,000}{60 \%}\) =6 00,000 60%
∴ Exempt amount = ₹ 6,00,000 × \(\frac{1}{3}\) = ₹ 2,00,000

Question 83.
Mr. Jugal is entitled to get ₹ 20,000 per month as pension from a private company after his retirement on 31.12.2020. He gets 60% of the pension commuted on 1st February 2021 and receives ₹ 3,60,000. He also receives ₹ 2,00,000 as gratuity from the same employer. His salary is due on the last day of the month. The taxable value of pension will be –
(a) ₹ 1,56,000
(b) ₹ 1,96,000
(c) ₹ 3,20,000
(d) ₹ 2,28,000
Answer:
(b) ₹ 1,96,000

Question 84.
Mr. X a government employee retired w.e.f 01.10.2020 receiving ₹ 5,000 p.m. as pension. On 01.02.2021, he commuted 60% of his pension and received ₹ 3,00,000 as commuted pension. He also received gratuity of ₹ 2,50,000. You are required to compute his taxable pension if his ‘salary is due on the first of next month:
(a) ₹ 24,000
(b) ₹ 1,57,333
(c) ₹ 22,000
(d) ₹ 1,55,333
Answer:
(c) ₹ 22,000
Taxable pension of Mr. X (Govt, employee)
Commuted – Exempt
Uncommuted
From Oct. 20 – Jan. 2021 (4 months) = 5,000 × 4 = 20000
Feb. – 2020
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 2
Pension will be considered only till the month of Feb. 2020 as his salary falls due on first day of next month

Question 85.
The maximum amount of Gratuity exempt and the maximum amount of leave encashment exempt under the act respectively are:
(a) ₹ 2,50,000 in each case
(b) ₹ 20,00,000 and ₹ 3,00,000
(c) ₹ 10,00,000 and ₹ 3,00,000
(d) None of the above
Answer:
(b) ₹ 20,00,000 and ₹ 3,00,000

Question 86.
The employer allows 24 days leave to the employee for every completed year of service. The employee joined service on 20.1.2004 and took retirement on 31.12.2020. The number of days of leave standing to his credit at the time of retirement if has not availed any leave and neither encashed during service is:
(a) 408 days
(b) 384 days
(c) 360 days
(d) 400 days
Answer:
(b) 384 days
Period of service: 20.01.2004 – 31.12.2020
Duration : 16 years 11 months & 11 days.
As u/s 10(10AA) only completed years are considered, therefore 16 yrs.
Leave allowed by employer = 24 days.
Leave standing to his credit = 16 × 24 = 384 days.

Question 87.
Aayush was employed in XYZ Ltd. and has completed 18 years 7 months and 20 days of service. His employer gave 40 days leave for each completed year of service. He also took leave of 240 days during service. How many days leave stand to his credit at the time of retirement as per section 10(10AA)?
(a) 520 days
(b) 480 days
(c) 300 days
(d) 540 days
Answer:
(c) 300 days
Total leave days as per employer or Income-tax Act whichever is less i.e. 40 days or 30 days therefore 30 days will be considered for 18 completed years.
Total days 18 × 30   540 days
Less leave availed     240 days
Leave to his credit    300 days

Question 88.
An employee of public limited company received ₹ 3,00,000 as encashment of leave salary at the time of retirement. He has 18 months leave to his credit at the time of retirement and his average salary for last 10 months is ₹ 24,000. The taxable amount of leave encashment would be:
(a) ₹ 2,40,000
(b) ₹ 3,00,000
(c) ₹ 60,000
(d) ₹ Nil
Answer:
(c) ₹ 60,000
As per Section 10(10AA) least of the following is exempt:
a. Average salary for approved period
b. 10 months Average Salary
c. Govt, specified ₹ 3,00,000
d Actual received = ₹ 3,00,000
.-. CL 18 X 24,000 = 4,32,000
b. 10X24,000 = 2,40,000
c. ₹ 3,00,000
d. ₹ 3,00,000
Least ₹ 2,40,000 will be exempt therefore taxable amount will be ₹ 60,000

Question 89.
Mohan retired from Y & Company Ltd. on 31.08.2020 after rendering services for 31 years and 7 months. He was paid ₹ 11 lakhs as gratuity under the Payment of Gratuity Act, 1972. His last drawn salary was ₹52,000. How much of the amount of gratuity would be exempt
(a) ₹ 1,40,000
(b) ₹ 20,00,000
(c) ₹ 9,30,000
(d) ₹ 9,60,000
Answer:
(d) ₹ 9,60,000

Question 90.
Rohan, an employee of State Government received ₹ 1,000 per month as entertainment allowance during the financial year 2020-21. His salary excluding any allowance, benefit or other perquisite for the year is ₹ 8,40,000. The amount of entertainment allowance eligible for deduction is:
(a) ₹12,000
(b) ₹ 1% of the salary ie. ₹ 8,400
(c) ₹ 5,000
(d) (₹ 12,000 – ₹ 8,400) = 3,600
Answer:
(c) ₹ 5,000
As per section 1 6(at least of the following is deductible.
a. 20% of Basic Salary i.e. 20% of 8,40,000 = ₹ 1,68,000
b. Actual received = 12,000
c. ₹ 5,000
₹ 5,000 being least is allowed as deduction.

Question 91.
John who recently retired from service of a company on 31 st March, 2021 is eligible for a monthly pension of ₹20,000. He has received gratuity on his retirement also. He wants to commute 50% of his pension for ₹ 6 lakh. How much amount of this commuted pension shall be subject to tax in A.Y. 2021-22
(a) ₹ 6,00,000
(b) ₹ 2,00,000
(c) ₹ 3,00,000
(d) ₹ 3,50,000
Answer:
(b) ₹ 2,00,000

Question 92.
For the Purpose of calculating value of Rent free accommodation as per Rule 3(1) of the Income-tax Rules, 1962, the population of a city is considered as per census.
(a) 1991
(b) 2001
(c) 2011
(d) None of the above
Answer:
(b) 2001

Question 93.
Rent free accommodation is taxable in the hands of government employees as per:
(a) License fees as determined by the Government in accordance with rules framed by the government for allotment of houses
(b) 10% of the Salary
(c) As may be fixed by the Government at its discretion
(d) 15% of the salary
Answer:
(a) License fees as determined by the Government in accordance with rules framed by the government for allotment of houses

Question 94.
Mr. Rohit is an employee of Central Government on deputation to a Public sector undertaking. The house is provided to him in Delhi by the Government. His salary is ₹ 8,20,000. The license fees, as per Government rules is ₹ 2000 per month. The value of perquisite will be:
(a) ₹ 1,23,000
(b) ₹24,000
(c) ₹82,000
(d) ₹ 61,500
Answer:
(b) ₹24,000
Value 2000 × 12 ₹24,000

Question 95.
Ramesh, an employee of Gauri & Co. of Delhi, received the following payments during the previous year ended 31 st March, 2020: Basic salary: ₹ 2,40,000 and dearness allowance – 40% of basic salary (40% forming part of salary). Rent-free unfurnished accommodation provided by employer for which rent paid by employer being ₹ 50,000. The value of taxable perquisite in the hands of Ramesh will be:
(a) ₹ 41,760
(b) ₹ 50,000
(c) ₹ 36,000
(d) ₹ 52,500
Answer:
(a) ₹ 41,760
Salary of Mr. Ramesh for the purpose of Rent free accommodation
Basic = 2,40,000
DA = 40% of 2,40,000 = 38,400
(forming Part of Salary)
Total 2,78,400
Rent paid by employer = ₹ 50,000
Value of perquisite – 15% of salary or rent paid whichever is less
ie. ₹ 41,760 or ₹ 50,000 whichever is less
₹ 41,760.

Question 96.
The perquisites provided by the employer to the employee or any member of the household shall be chargeable to tax in the hands of employee. For the meaning of “household” it includes:
(a) Spouse & Parents (whether or not dependent)
(b) Children and their spouses (whether or not dependent)
(c) Servants and dependents
(d) All of the above
Answer:
(a) ₹ 41,760

Question 97.
Kapil gets salary of ₹ 12,000 p.m. and is provided with rent-free unfurnished accommodation Pune (Population 31 Lakh). House is owned by employer, fair rental value of which is ₹ 1,400 p.m. House was provided with effect from 1st July, 2020. Value of the perquisite of rent-free accommodation will be –
(a) ₹ 21,600
(b) ₹ 10,800
(c) ₹ 16,200
(d) ₹ 12,600
Answer:
(c) ₹ 16,200
Where population of the city exceeds 25 lac as per 2001 census, the value of rent free furnished accommodation.
= 15% of salary (12,000 X 12)
= 15% of 1,44,000 = ₹ 21,600.
∴ 9/12 X 21,600 = ₹ 16,200 99.

Question 98.
A specified employee would include, an employee of the company who is also:
(a) a whole time director of the company.
(b) a part time director of the company.
(c) a director of the company for only a part of the Previous year.
(d) All of the above
Answer:
(d) All of the above

Question 99.
Satish is employed as chief engineer in Gama Ltd. Chennai w.e.f. 1st April, 2020 for a consolidated salary of ₹ 60,000 per month. He is provided with rent Free unfurnished accommodation owned by the employer from 1st July, 2020 onwards. The value of taxable perquisite is
(a) ₹ 1,08,000
(b) ₹ 81,000
(c) ₹ 72,000
(d) ₹ 54,000
Answer:
(b) ₹ 81,000
15% of salary for 9 months
15% of 60,000 × 9 = 5,40,000 × 15%
= ₹ 81,000

Question 100.
Mr. Arjun employed in KL (P.) Ltd. at Mumbai was provided rent-free accommodation by the employer who owned such accommodation. The salary income of Mr. Arjun for the purpose of computing the perquisite value is ₹ 8 lakhs. The perquisite value of rent free accommodation in the hands of Mr. Arjun is:
(a) 10% of salary i.e. ₹ 80,000
(b) 7.5% of salary i.e. ₹ 60,000
(c) Nil
(d) 15% of salary Le. ₹ 1,20,000
Answer:
(d) 15% of salary Le. ₹ 1,20,000

Question 100A.
The employer provided rent free unfurnished accommodation to his employee. The house was rented by the employer on a rent of ₹ 1,50,000 p.a. but he has given a interest free refundable security deposit of ₹ 10,00,000 to the landlord. The assessing officer is of the opinion that value of perquisite shall include a notional interest @ 12% p.a. The salary for the purpose of computing the value of rent free accommodation is ₹ 12,00,000. The Value of perquisite in respect of the house shall be considered as:
(a) 1,50,000
(b) 2,70,000
(c) 15% of ₹ 12,00,000 i.e ₹ 1,80,000.
(d) At the option of assessing officer any of the above.
Answer:
(a) 1,50,000
CIT vs. Shankar Krishnan the Bombay High Court held that notional rent cannot be added in determining the value of perquisite. As rent paid is lower than 15% of the salary the value of perquisite will be rent paid only.

Question 101.
Mr. X has been provided a servant by his employer. The salary paid to the servant is ₹ 5,000 per month. Mr. X is not a specified employee. The amount taxable in the hands of Mr. X, in this regard would :
(a) ₹ 5,000
(b) ₹ 60,000
(c) Nil
(d) ₹ 24,000
Answer:
(c) Nil
Servant provided by the employer is taxable as a perquisite only in the hands of specified employee.

Question 102.
The employee is provided with furniture costing ₹ 1,50,000 along with house w.e.f. 1.7.2020. The value of the furniture to be included in the valuation of unfurnished house shall be:
(a) ₹ 11,250
(b) ₹ 15,000
(c) ₹ 22,500
(d) ₹ 16,875
Answer:
(a) ₹ 11,250
The value of prerequisite in case the furniture is provided by the employer is 10% of cost of furniture p.a.
Here, the furniture is provided since 1.7.2020, therefore,
Value = 10% of 1,50,000 × \(\frac{9}{12}\) = 11,250.

Question 103.
Mr. Balan is employed in SS Ltd. at Madurai (Population exceeding 25 lakhs as per 2001 census). He is provided with a rent-free accommodation owned by the employer. The percentage of salary to be adopted for the purpose of valuation of perquisite would be:
(a) 10%
(b) 15%
(c) 7.5%
(d) 20%
Answer:
(b) 15%

Question 104.
The Employer provides a car (below 1600 cubic capacity) along with a driver to his employee who uses the car partly for official and partly for personal purpose. The expenses are incurred by the employee. The taxable value of perquisite is:
(a) ₹ 3,2,400
(b) ₹ 39,600
(c) ₹ 18,000
(d) ₹ 21,600
Answer:
(c) ₹ 18,000
When the car (below 1600 C.C is provided by the employer and used by the employee for both official and personal purposes, the expenses met by employee, the value of prerequisite will be X600 for car + 900 for driver p.m = 1500 × 12 = ₹18,000.

Question 105.
Joy Ltd. transfers a Honda city car to its employee Happy after using it for 4 years and 10 Months for ₹ 2,10,000. Cost of the car is ₹ 10,00,000. The value of taxable perquisite in the hands of Happy is –
(a) ₹ 1,17,680
(b) ₹ 1,99,600
(c) Nil
(d) ₹ 7,90,000
Answer:
(b) ₹ 1,99,600
Motor car is subjected to depreciation @ 20% p.a. W.D.V for each completed year of use for the purpose of valuing the perquisite.
Cost of car = ₹ 10,00,000
Used 4 completed year.
∴ WD Value = 10,00,000 (0.8)4 = 4,09,600
Sold for 2,10,000
Value of perquisite (4,09,600 -2,10,000) = 1,99,600

Question 106.
Mr. Ankur has taken interest free loan of ₹ 3,00,000 from his employer for the purpose of medical treatment of his son. The SBI rates are 8% p.a. The expenses on medical treatment were reimbursed by the insurance company. In this case taxable value of perquisite is:
(a) ₹ 90,000
(b) Nil
(c) ₹ 24,000
(d) ₹ 72,000
Answer:
(c) ₹ 24,000
As the medical expenses are reimbursed by the insurance Company, the taxable value of perquisite will be 8% of 3,00,000 = ₹ 24,000

Question 107.
Ashraf is an employee of Moon Public school. His daughter, Zara, is studying in the said school at concessional fees of ₹ 600 p.m. (Actual fee: ₹ 4,000 p.m.) the amount taxable in the hands of Ashraf will he ………………..
(a) ₹ 48,000
(b) ₹ 7,200
(c) Nil
(d) ₹ 40,800
Answer:
(d) ₹ 40,800
The cost of similar education upto ₹ 1,000 is exempt. Here it exceeds ₹ 1,000 as it is ₹  4,000 the whole amount less recovered from employee would be taxable:- value of perquisite will be
(4000-600) 12 = ₹ 40,800.

Question 108.
Medical expenditure reimbursed by the employer to the employee for treatment in private hospital will be:
(a) exempt up to ₹ 15,000p.a. per member of the household.
(b) exempt up to ₹ 15,000 p.a.
(c) fully exempt
(d) fully taxable
Answer:
(b) exempt up to ₹ 15,000 p.a.

Question 109.
Ashok took an interest-free loan of ₹ 15,000 from B Ltd. (the employer). Assuming that the market rate of interest on similar loan is 10%, the taxable value of the perquisite in the hands of Ashok will be –
(a) ₹ 150
(b) ₹ 1,500
(c) Nil
(d) None of these
Answer:
(c) Nil
Interest on loan upto ₹ 20,000 will be exempt.

Question 110.
The electricity meter is in the name of the employee. The amount of bill which is ₹ 15,400 was reimbursed by the employer. The employee is not a specified employee. The amount taxable in the hands of the employee will be:
(a) ₹ 15,400
(b) Nil as he is not a specified employee.
(c) ₹ 6,400
(d) ₹ 5,400
Answer:
(a) ₹ 15,400
If the electricity meter is in the name of employee, the perquisite is taxable in the hands of non-specified employee also.

Question 111.
Anil is employed in a company with annual salary of ₹ 8,60,000 (computed). The company paid income-tax of ₹ 37,000 on his non-monetary perquisites. He paid ₹ 1,20,000 to recognised provident fund during the year 2020-21. His taxable income would beta)
(a) ₹ 7,77,000
(b) ₹ 7,40,000
(c) ₹ 7,97,000
(d) ₹ 7,60,000
Answer:
(b) ₹ 7,40,000
Tax paid by employer on perquisites provided to employee is not treated as salary, it is not deductible in the hands of employee as a business expenses. So, only deduction u/s 80C of
₹ 1,20,000 deposited to Recognized provident fund will be allowed.
Taxable income = (8,60,000 – 1,20,000)
= 7,40,000

Question 112.
Under the Income-tax Act, 1961 Child for the purpose of valuation of perquisite of free education will include:
(a) Step child
(b) Adopted child
(c) Both (a) and (b)
(d) Grand child
Answer:
(c) Both (a) and (b)

Question 113.
Ms. Janhvi is provided with an interest free loan by her employer for the purchase of a house. The value of the perquisite shall be –
(a) Simple interest computed at the rate charged by the Central Government to its employees on 1st April of the previous year
(b) Simple interest computed at the rate charged by State Bank of India on 1 st April of the previous year
(c) Simple interest computed at the rate charged by National Housing Bank on 1 st April of the previous year
(d) Simple interest computed at the rate determined by the employer on 1st April of the previous year
Answer:
(b) Simple interest computed at the rate charged by State Bank of India on 1 st April of the previous year

Question 114.
A company acquired a motor car for ₹ 8 Lakh on 30th June, 2019. It sold the said motor car to its employee, Jayant, for ₹ 6 lakh on 10th June, 2020. The company claimed depreciation @ 15% for the year ended 31st March, 2020. The perquisite value in the hands of Jayant on sale of motor car would be –
(a) ₹ 80,000
(b) Nil
(c) ₹ 2,00,000
(d) ₹ 1,40,000
Answer:
(c) ₹ 2,00,000
As car is sold before a year, no depredation will be charged and value of perquisite = (8 lacs – 6 lacs) = ₹ 2,00,000.

Question 115.
Company has provided laptop worth ₹ 50,000 to his employee for official as well as personal purposes. The taxable amount of perquisites will be ………..
(a) ₹ 5,000
(b) ₹ 25,000
(c) ₹ 10,000
(d) Nil
Answer:
(d) Nil
Laptop for use is not a taxable perquisite.

Question 116.
Mr. Gupta is given a motor car with chauffeur by the employer which is used for the both official and personal purpose. The entire running expense of the car amounting to ₹ 64,800 was met by the employer in the previous year 2020-21. The cubic Capacity of the engine of the motor car exceeds 1.6 liters. The perquisite value of motor car taxable in the hands of Mr. Gupta is –
(a) ₹ 19,200
(b) ₹ 39,600
(c) ₹ 28,800
(d) ₹ 28,000
Answer:
(b) ₹ 39,600
(2400 + 900) = 3300 p.m Value of perquisite = 3,300 × 12 = ₹ 39,600.

Question 117.
During the previous year, The employee was reimbursed ₹ 24,000 as medical expenses incurred by him, which includes ₹ 7,000 spent in Government hospital. The taxable perquisite in this case shall be:
(a) ₹ 2,000
(b) Nil
(c) 117,000
(d) ₹ 24,000
Answer:
(a) ₹ 2,000
Medical expense incurred in govt, hospital and later on reimbursed by the employer is not taxable as perquisite.

Question 118.
Mr. Bobby employed in PQR Ltd. was permitted to admit his only son in the school run by the employer. No fee was charged on such education provided to the son of Mr. Bobby. The cost of such education for other children is ₹ 1,800 per month. The perquisite value of free education in the hands of Mr. Bobby would be:
(a) ₹ 21,600
(b) ₹ 12,000
(c) ₹ 36,000
(d) ₹ 9,600
Answer:
(a) ₹ 21,600
1,800 × 12 = ₹ 21,600

Question 119.
Which of the following is not correct about the approved superannuation fund
(a) Employees’ contribution qualifies for deduction under section 80C
(b) Any amount contributed by the employer is exempt from tax
(c) Interest on accumulated balance is exempt from income-tax
(d) Under some circumstances, payments from the fund are chargeable to income-tax
Answer:
(b) Any amount contributed by the employer is exempt from tax

Question 120.
An Employer may contribute not more than % of salary of the employee towards New pension scheme under section 80 CCD.
(a) 10
(b) 15
(c) 12
(d) 9.5
Answer:
(a) 10

Question 121.
During the previous year, Barun received a watch worth ₹ 20,000 from his employer. The taxable value of the watch will be –
(a) ₹ 20,000
(b) ₹ 15,000
(c) Nil
(d) None of the above
Answer:
(b) ₹ 15,000
Gift in kind is exempt upto ₹ 5,000.

Question 122.
Mrs. Meena retired from service with Sky Ltd. on 31st January, 2021. She received the following amounts from unrecognized provident fund:
i. Own contribution ₹ 1,50,000
ii. Interest on own contribution ₹ 21,000
iii. Employer’s contribution ₹ 1,10,000
iv. Interest on employer’s contribution ₹ 15,000
How much of the receipt is chargeable to tax as income salary –
(a) ₹ 21,000
(b) ₹ 15,000
(c) ₹ 1,25,000
(d) ₹ 1,71,000
Answer:
(c) ₹ 1,25,000
Employer’s contribution and interest thereon is chargeable to tax as salary when received from Unrecognized provident fund. (₹ 1,10,000 + 15,000) = ₹ 1,25,000.

Question 123.
Ashwin Co. Ltd. contributed 15% of the salary of the employee Virat towards recognized provident fund. The amount liable to tax as perquisite in the hands of Virat would be …………… of contribution.
(a) 5%
(b) 3%
(c) Nil
(d) Any sum exceeding ₹ 1,50,000
Answer:
(b) 3%
Employer’s contribution is exempt upto 12% of salary p.a.

Question 124.
Interest credited to statutory provident fund shall be:
(a) Fully exempt
(b) Exempt up to 8.5% p.a.
(c) Fully taxable
(d) Exempt up to 9.5% p.a.
Answer:
(a) Fully exempt

Question 125.
Ravi is employed in cotton India Ltd. as accounts manager. The employer paid ₹ 1,60,000 as contribution to approved superannuation fund to benefit the employee Ravi. The amount of such contribution liable to tax as perquisite in the hands of Mr. Ravi is –
(a) Nil
(b) ₹ 10,000
(c) ₹ 1,60,000
(d) ₹ 60,000
Answer:
(b) ₹ 10,000
Contribution to approved superannuation fund can be upto ₹ 1,50,000 p.a.

Question 126.
When interest on employee’s own contribution from unrecognized provident fund is received, it is:
(a) Taxable as income from other sources
(b) Taxable as income from salary
(c) Exempt from tax
(d) Taxable if the interest exceeds ₹ 10,000
Answer:
(a) Taxable as income from other sources

Question 127.
The year in which unrecognized provident fund is converted to recognized provident fund, this balance is known as transferred balance. It is :
(a) Fully exempt
(b) Fully taxable
(c) It will be assumed as if the provident fund was recognized right from beginning and excess amount of employer’s contribution and interest thereon that would have been chargeable, will be chargeable to tax.
(d) None of the above
Answer:
(c) It will be assumed as if the provident fund was recognized right from beginning and excess amount of employer’s contribution and interest thereon that would have been chargeable, will be chargeable to tax.

Question 128.
The salary of employee was ₹ 9,00,000. Employer contributed ₹ 1,15,000 towards recognised provident fund. The amount of employer’s contribution towards recognised provident fund taxable under the head salary will be:
(a) ₹ 1,15,000
(b) ₹ 1,08,000
(c) Nil
(d) ₹ 7,000
Answer:
(d) ₹ 7,000
1296 of ₹ 9,00,000 = ₹ 1,08,000 will be exempt balance (1,15,000 -1,08,000) = ₹ 7,000 will be taxable.

Question 129.
Interest credited to Recognized Prov-ident Fund shall be:
(a) Fully Exempt for employee
(b) Exempt up to 8.5% p.a. of total contribution
(c) Fully taxable for employee
(d) Exempt up to 9.5% p.a. of the balance in Fund
Answer:
(d) Exempt up to 9.5% p.a. of the balance in Fund

Question 130.
Mr. X has Basic salary of ₹ 90,000 and D.A @ 20% of salary forming part of salary. The commission was fixed @ 2% of the turnover achieved by him. The turnover achieved by him during the year was ₹ 50,00,000. He also received a bonus of ₹ 20,000. The employer contributed ₹ 25,000 towards recognised provident fund. What is the amount of employer’s contribution taxable under the head Salaries.
(a) ₹ 40
(b) ₹ 24,160
(c) Nil
(d) ₹ 24,960
Answer:
(a) ₹ 40
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 1
Maximum contribution is RPF exempt = 12% i.e. ₹ 24,960
The contribution is excess by ₹ 40 and therefore ₹ 40 will be added as income under the head salary.

Question 131.
Employee’s own contribution to recognized provident fund or public provident fund shall be:
(a) Allowed as deduction under section 80C
(b) Not allowed as a deduction
(c) Allowed as deduction under section 80CCD
(d) None of the above
Answer:
(a) Allowed as deduction under section 80C

Question 132.
Payment from Recognized Provident Fund after 5 years of continuous service of employee shall be:
(a) Fully Taxable for employee
(b) Fully exempt for employee
(c) Taxable to the Exempt to the extent of employer’s contribution and interest thereon
(d) Interest on own contribution would be taxable
Answer:
(b) Fully exempt for employee

Question 132A.
The amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer in a recognized provident fund, in the scheme referred to in sub-section (1) of section 80CCD and in an approved superannuation fund will be exempt from tax to the extent of ₹ ………… in a previous year
(a) 7,50,000
(b) 1,50,000
(c) 5,00,000
(d) 6,00,000
Answer:
(a) 7,50,000

Question 133.
Govt, of India paid salary of ₹ 5 lakh and allowances and perquisites valued at ₹ 2.20 lakh to a person who is citizen of India for the services rendered by him outside India for 5 months during the previous year. His total income chargeable to tax after allowing standard deduction would be –
(a) ₹ 6,80,000
(b) ₹ 4,60,000
(c) ₹ 5,70,000
(d) Nil
Answer:
(b) ₹ 4,60,000
Only salary is taxable.

Question 134.
Standard deduction up-to ₹……………is allowed to all employees from Gross salary under section 16(ia).
(a) ₹ 30,000
(b) ₹ 40,000
(c) ₹ 50,000
(d) ₹ 60,000
Answer:
(c) ₹ 50,000

Question 135.
Professional or employment tax is charged by:
(a) Income tax Act
(b) Central Government
(c) State Government
(d) Nil
Answer:
(c) State Government

Question 136.
Employment or professional tax, if paid by the employer is …………..
(a) Allowed as deduction
(b) Added to the income of Employee, then allowed as deduction from gross salary
(c) Not allowed as deduction
(d) None of the above
Answer:
(b) Added to the income of Employee, then allowed as deduction from gross salary

Question 137.
Employment or professional tax, if paid by the employee is
(a) Allowed as deduction
(b) Added to the income of Employee, then allowed as deduction from gross salary
(c) Not allowed as deduction
(d) None of the above
Answer:
(a) Allowed as deduction

Question 138.
Employment or professional tax is allowed as a deduction from gross salary under section of the Income tax Act.
(a) Section 24(b)
(b) Section 24 (a) Fully exempt for employee
(c) Section 16(ii)
(d) Section 16(iii)
Answer:
(d) Section 16(iii)

Question 139.
Total income of Nand Kishore under the head ‘Salary’, whose basic salary and DA per month was of ₹ 40,000 and ₹ 3,000 respectively and who was also paid leave salary of ₹ 6,000 and ₹ 1,000 of professional tax by the employer shall be
(a) ₹ 4,72,000
(b) ₹ 4,76,000
(c) ₹ 5,23,000
(d) ₹ 5,16,000
Answer:
(a) ₹ 4,72,000

Part 2: Income Under The Head “House Property”

Question 1.
Which is the charging section for Income from House Property
(a) Section 21
(b) Section 22
(c) Section 23
(d) Section 24
Answer:
(b) Section 22

Question 2.
If the business of the assessee is to let out houses on rent, the income will be taxable under the head:
(a) House Property
(b) Profits and Gains of Business or Profession
(c) Income from other sources
(d) Any of the above
Answer:
(a) House Property

Question 3.
Mr. X took a house on rent of ₹ 10,000. He sublet half the house to Mr. Y on a rent of ₹ 6,000. This income of ₹ 1,000 from sub-letting half the house (₹ 6,000 – ₹ 5,000) will be taxable in the hands of Mr. X under the head
(a) House Property
(b) Profits and Gains of Business or Profession
(c) Income from other sources
(d) Any of the above
Answer:
(c) Income from other sources

Question 4.
Mr. Subodh owns many house properties which are vacant. He claims that there should be no tax as there is no income. Why is Subodh’s contention right or wrong
(a) Mr. Subodh is right. He will not pay tax as rent received is nil.
(b) Mr. Subodh is right, as there is no notional income.
(c) Mr. Subodh is wrong, as tax on house property is on value of the house.
(d) Mr. Subodh is wrong. He must pay tax even without income as tax is on the capacity of the house to generate income.
Answer:
(d) Mr. Subodh is wrong. He must pay tax even without income as tax is on the capacity of the house to generate income.

Question 5.
Z gave his house on rent for ₹ 20,000 together with the parking space. The rent for the parking space was ₹ 3,000 (included in ₹ 20,000). The rent considered under the head ‘Income from house property’ is and ‘income from other sources’ is ……………….
(a) ₹ 20,000, ₹ 3,000
(b) ₹ 20,000, Nil
(c) ₹ 17,000, ₹ 3,000
(d) ₹ 17,000, Nil
Answer:
(b) ₹ 20,000, Nil
Parking lot is land appurtenant to the building, therefore entire receipts will be taxable under the head “House Property”.

Question 6.
Income will be taxable under the head house property if assessee is the owner of
(a) Land on which building is built
(b) Only the building not land
(c) Both land & Building
(d) Building and not necessarily the land
Answer:
(d) Building and not necessarily the land

Question 7.
For the purpose of Sec 22, owner may be
(a) An individual
(b) HUF
(c) Firm
(d) Any of the above
Answer:
(d) Any of the above

Question 7A.
Which of the following person can be said to have self occupied house property
(a) Individual
(b) HUF
(c) Firm
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 8.
As regards the income to be taxable under the head “ Income from house property”, which of the following condition is NOT TRUE?-
(a) The property should consist of any building or land appurtenant there to
(b) The assessee should be the owner of the property
(c) The property may not be occupied by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax.
(d) The property should not be used by the owner for the purpose of any business or profession carried on by him the profits of which are chargeable to Income-tax
Answer:
(d) The property should not be used by the owner for the purpose of any business or profession carried on by him the profits of which are chargeable to Income-tax

Question 9.
Sakhshi is in the business of letting buildings on rent. She is the owner of these buildings. The Income will be chargeable to tax under the head :
(a) House Property
(b) Business Income
(c) Income from other sources
(d) Either (a) or (b)
Answer:
(a) House Property

Question 10.
Sameer is in the business of selling properties. He constructed a property for sale. The completion certificate was received on 13.8.2017 but yet, it could not be sold. He will have to pay tax under the head house property beginning with the previous year on notional basis.
(a) 2017-18
(b) 2018-19
(c) 2019-20
(d) 2020-21
Answer:
(d) 2020-21
After the amendment Property held as stock in trade and the property or part of it is not let during the year or any part of the previous year, the annual value shall be taken as nil upto two years from the end of the financial year in which the completion certificate is received. From 1.4.2020 it shall be taxable.

Question 11.
XY Ltd. has given its owned quarters to the workers near the factory premises and it charges rent from the workers. The rental income will be charged to tax under the head
(a) House Property
(b) Profits and Gains of Business or Profession
(c) Income from other sources
(d) Any of the above
Answer:
(b) Profits and Gains of Business or Profession
The main purpose of letting the houses to the workers is smooth running of business.

Question 12.
Shivani has let out her premises to a bank for opening the branch. This would be extremely favourable for her business. The rental income generated from letting the building to the bank will be taxable as
(a) House Property
(b) Profits and Gains of Business or Profession or Income from other sources
(c) Income from other sources
(d) Profits and Gains of Business or Profession
Answer:
(d) Profits and Gains of Business or Profession
The main purpose of letting the houses to the workers is smooth running of business.

Question 13.
Z purchased a building as stock in trade on 15.11.2018. He let out the property to a tenant who was in much need for the time being. Choose the correct option.
(a) Z need not to pay any tax under house property, as property is held as stock in trade.
(b) Rental Income will be taxed as business profits.
(c) Rental Income will be taxed as house property income.
(d) Rental Income will be taxed income from other sources.
Answer:
(c) Rental Income will be taxed as house property income.
Property held as stock in trade and the property or part of it is not let during the year or any part of the previous year, the annual value shall be taken as nil upto one year from the end of the financial year in which the completion certificate is received. From 1.4.2020 it shall be 2 years. But if the property is actually let out it will be taxable under the head, “house Property.”

Question 14.
Z took an auditorium on rent for ₹ 70,000 per month. The rent of the building was ₹ 40,000 and of the furniture, fittings and furnishings was ₹ 30,000. These two lettings are not separable. In this case:
(a) Rental Income will be taxed as business profits.
(b) Rental Income will be taxed as business profits or income from other sources.
(c) Rental Income of building will be taxed as house property income and ₹ 30,000 as business profits or income from other sources.
(d) Rental Income will be taxed as in-come from other sources
Answer:
(b) Rental Income will be taxed as business profits or income from other sources.
When two lettings are not separable, rental income shall be taxed as business- income or Income from other sources.

Question 15.
Ltd. is in the business of real estate and builds & sells properties. It got the certificate of completion of construction from the authorities on 20-06-2017. It did not use the building for any purpose nor could it sell the property. It is the policy of the company not to let out any vacant property. The income from building will be.
(a) Taxable on notional basis based on Annual value from 2017-18.
(b) Taxable on notional basis from financial year 2018-19.
(c) Taxable on notional basis from financial year 2019-20, if still held as stock in trade.
(d) Will not be taxable as it is held as stock in trade.
Answer:
(c) Taxable on notional basis from financial year 2019-20, if still held as stock in trade

Question 16.
Composite rent of let-out house property, where the two lettings are not separable, is taxable as:
(a) Profits and gains from business or profession
(b) Income from other sources
(c) Income from house property
(d) Either (a) or (b) above depending upon certain conditions.
Answer:
(d) Either (a) or (b) above depending upon certain conditions.

Question 17.
When a house property is let out for a monthly rent of ₹ 25,000 during the financial year 2020-21 and maintenance expenses by way of salary to sweeper and watchman is ₹ 6,000 per month, the income from house property without standard deduction would be:
(a) ₹ 2,28,000
(b) ₹ 2,10,000
(c) ₹ 3,00,000
(d) ₹ 2,50,000
Answer:
(c) ₹ 3,00,000

Gross Annual value (25,000 X 12) 3,00,000
(-) Municipal Taxes –
Net Annual Value 3,00,000

Question 18.
Under Composite rent when letting of property is inseparable from letting of other assets then even if the rent for the two things is separately mentioned, the income is taxable as :
(a) Profits and gains from business or profession
(b) Income from house property
(c) Income from other sources
(d) Either (a) or (c) above depending upon certain conditions.
Answer:
(d) Either (a) or (c) above depending upon certain conditions.

Question 19.
The following Incomes of House Property are exempt, except
(a) Annual value of one palace of ex-Indian Ruler.
(b) Annual Value of one self- occupied house property.
(c) House property held by Registered Trade Unions.
(d) House properties used as business of letting.
Answer:
(d) House properties used as business of letting.

Question 20.
The trade union has income from head House property. It has applied for registration which has been denied. The income from head House property shall be
(a) Exempt from Tax.
(b) Taxable as house property income.
(c) Taxable as profits and gains of business income.
(d) Taxable as income from other sources.
Answer:
(b) Taxable as house property income.

Question 21.
When share of each co-owner in a house property is not definite, the income from such property shall be
(a) Taxed equally
(b) Exempt from tax
(c) Taxed as Association of persons
(d) Taxed as body of individuals
Answer:
(c) Taxed as Association of persons

Question 22.
Mr. Mukesh has possession of House Property and receives ₹ 10,000 per month as rent. His brother Mr. Anil has filed a case against him for the ownership of the house. Generally, this house property income will be
(a) Taxable in the hands of Mr. Mukesh
(b) Exempt from tax
(c) Taxable in the hands of Mr. Anil
(d) Deferred till the dispute is resolved
Answer:
(a) Taxable in the hands of Mr. Mukesh
When the ownership is disputed, rental income is generally taxable in the hands of that owner who has possession or who receives the rent.

Question 23.
Mr. X has been taxed on income under house property on the basis of possession of disputed property. The court settled the case against Mr. X. What will be the status of taxed income
(a) Mr. X will get refund of tax paid by him.
(b) The owner will now be liable to pay tax on income earlier taxed in the hands of Mr. X.
(c) Status quo will be maintained
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 24.
Mr. X owns a property which is situated in Britain. This property generates rental income. This income will be taxable in India in the hands of Mr. X in the following cases, except when Mr. X is:
(a) Not ordinarily resident, rent received in India.
(b) Ordinarily resident in India, rent received outside India.
(c) Non- resident, rent received outside India.
(d) Non- resident, rent received in India.
Answer:
(c) Non- resident, rent received outside India.

Question 24A.
Hargun gave his house on monthly rent of ₹ 40,000 whereas the expected rent of the property was ₹ 25,000 per month. He also took an interest free refundable security deposit of ₹ 20,00,000. The Assessing officer opined that notional interest on ₹ 20,00,000 should also be charged to tax as income from House property applying the provisions of Section 28(iv). Choose the right option.
(a) Notional interest shall be taxable as income from house property.
(b) Notional interest should be added to the expected rent and then compared with actual rent.
(c) Notional interest shall be taxable as income from business and profession as per section 28(iv).
(d) Notional interest is not taxable.
Answer:
(d) Notional interest is not taxable.

Question 25.
As per section 21(1), the transferor will be considered as deemed owner, when spouse transfers the
(a) Property for adequate consideration
(b) Property without adequate consideration but they decide to live apart
(c) Property without adequate consideration without agreement to live apart
(d) Money to other spouse and other spouse utilizes the money so gifted for purchase of property
Answer:
(c) Property without adequate consideration without agreement to live apart

Question 26.
Which of the following is a necessary condition for deemed ownership under section 53 A of the Transfer of Property Act:
(a) The agreement should be in writing.
(b) The purchaser should have paid the consideration or is ready to pay.
(c) The purchaser must have taken possession of the property.
(d) All of the above.
Answer:
(d) All of the above.

Question 27.
Mr. Bala transferred his let out residential property to his wife by way of Gift settlement. During the Financial year 2019-20, she earned rental income of ₹ 30,000 per month. She made fixed deposit in a bank out of such rental income and earned interest income during the year of ₹ 21,000. The total amount of income liable for clubbing in the hands of Mr. Bala for the assessment year 2020-21 is:
(a) Nil
(b) ₹ 21,000
(c) ₹ 2,52,000
(d) ₹ 2,73,000
Answer:
(a) Nil
If an individual transfers any house property to his or her spouse otherwise than for adequate consideration he shall be deemed to be owner. Hence rental income is taxable in the hands of Mr. Bala and clubbing provision are not applicable. Interest income of ₹ 21,000 will be taxable in the hands of Mrs. Bala and again clubbing provision are not attracted.
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 4

Question 28.
Sajal is the owner of a house property covered under the Rent control Act. Municipal value ₹ 30,000, actual rent ₹ 25,000, fair rent ₹ 36,000 and standard rent is ₹ 28,000. The gross annual value of the house property will be-
(a) ₹ 30,000
(b) ₹ 28,000
(c) ₹ 36,000
(d)₹ 25,000
Answer:
(b) ₹ 28,000
GAV is higher of fair rental value or Municipal value subject to standard rent. However, if Actual rent is higher than this value, Actual rent is Gross annual value. In this Question:-
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 5

Question 29.
Rohit owns a house property in Delhi which he wants to give on rent. He seeks your help to determine the reasonable expected rent when monthly municipal value is ₹ 20,000, fair rent ₹ 25,000 and Standard rent ₹ 22,000. The reasonable expected rent will be computed with reference to following amount p.m.
(a) ₹ 22,000
(b)₹ 20,000
(c) ₹ 25,000
(d) None of the above
Answer:
(a) ₹ 22,000

Question 30.
The Fair rental value of a House Property is ₹ 80,000, the Municipal valuation is ₹ 60,000 and the Standard rent is ₹ 76,000. The expected rent will be
(a) 80,000
(b) 60,000
(c) 76,000
(d) 90,000
Answer:
(c) 76,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 6

Question 31.
The Fair rental value of a House Property is ₹ 80,000, the Municipal valuation is ₹ 60,000 and the Standard rent is ₹ 76,000. The Gross annual value will be if the actual rent is ₹ 90,000
(a) 80,000
(b) 60,000
(c) 76,000
(d) 90,000
Answer:
(d) 90,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 7

Question 32.
What will be the Gross Annual Value (GAV) of a house owned by Ramesh covered by Rent Control Act remained let out during the year of which:
(i) Municipal value is ₹ 3,50,000
(ii) Actual (De Facto) Rent is ₹ 3,20,000
(iii) Fair Rent is ₹3,00,000, and
(iv) Standard Rent is ₹ 3,60,000
(a) ₹ 3,60,000
(b) ₹ 3,20,000
(c) ₹ 3,50,000
(d) ₹ 3,00,000
Answer:
(c) ₹ 3,50,000

Question 33.
During the previous year 2019-20 municipal taxes levied were ₹ 10,000, but the assessee has paid ₹ 5,000. In this case, amount allowed to be deducted is ₹ 5,000. In the next year, municipality has levied taxes of ₹ 25,000 but the assessee has paid ₹ 40,000 which includes ₹ 5,000 for the earlier year and ₹ 10,000 for the subsequent year. In this case, amount allowed to be deducted in previous year 2020-21 shall be:
(a) ₹ 25,000
(b) ₹ 40,000
(c) ₹ 30,000
(d) ₹ 10,000
Answer:
(b) ₹ 40,000
Municipal taxes paid during the year are deductible i.e. ₹ 40,000.

Question 34.
Which of the following cases will the municipal taxes allowed to be deducted from GAV
(a) Municipal taxes of last year and current year are paid by the owner. The tenant reimbursed the taxes.
(b) Municipal taxes of current year, not yet paid.
(c) Municipal taxes of last 4 years, paid this year by the owner.
(d) Municipal taxes paid during the year by the tenant.
Answer:
(c) Municipal taxes of last 4 years, paid this year by the owner.
Municipal taxed paid by the owner during the P.Y are deductible. They should not be reimbursed by the tenant. The owner should be bearing the ultimate.

Question 35.
When a house property is let-out throughout the year for a monthly rent of ₹ 22,000 and municipal tax paid for current year is ₹ 24,000 and for the earlier year paid now is ₹ 16,000, the income from house property would be:
(a) ₹ 1,68,000
(b) ₹ 1,56,800
(c) ₹ 1,84,800
(d) ₹ 2,24,000
Answer:
(b) ₹ 1,56,800

Gross Annual value (22,000 X 12) 2,64,000
(-) Municipal Taxes paid (40,000)
Net Annual Value 2,24,000
(-) standard Deduction @ 30% (67,200)
Income from house property 1,56,800

Question 36.
Ms. Padmaja let out a property for ₹ 20,000per month during the year 2020-21. The municipal tax on the let-out property was enhanced retrospectively. Hence, she paid ₹ 60,000 as municipal tax which included arrears of municipal tax of ₹ 45,000. Her income from house property is –
(a) ₹ 80,000
(b) ₹ 1,57,500
(c) ₹ 1,26,000
(d) ₹ 36,500
Answer:
(c) ₹ 1,26,000

Gross Annual value (20,000 X 12) 2,40,000
(-) Municipal Taxes (60,000)
Net Annual Value 1,80,000
(-) standard Deduction @ 30% (54,000)
Income from house property 1,26,000

Question 37.
Which of the following is allowed to be deducted from Annual value u/s 24(a)?
(a) Municipal taxes
(b) 30% of Annual value
(c) Insurance expenses
(d) Ground rent
Answer:
(b) 30% of Annual value

Question 38.
Ms. Suhashini look a loan for construction of the house and paid interest of ₹ 2,80,000 during the financial year. The loan was taken on 28.5.2013 and construction is completed on 28.6.2018. How much interest will be allowed as deduction u/s 24(b) if the house in self-occupied
(a) ₹2,80,000
(b) Nil
(c) ₹ 30,000
(d) ₹ 2,00,000
Answer:
(d) ₹ 2,00,000
As the house is self-occupied, there is a limit of ₹ 30,000/₹  2,00,000 on interest deductible u/s 24(b). Since the current period interest exceeds the limit, there is no need for calculating pre-construction period interest. The conditions for claiming higher deduction are fulfilled, therefore, ₹ 2,00,000.

Question 39.
Mr. X commenced construction of a residential house intended exclusively for his residence, on 01.11.2019. He raised a loan of ₹ 5,00,000 at 16 percent interest for the purpose of construction on 01.11.2019. Finding that there was an over-run in the cost of construction he raised a further loan of ₹ 8,00,000 at the same rate of interest on 01.10.2020. What is the interest allowable under section 24, assuming that the construction was completed by 31.03.2021
(a) ₹ 33,333
(b) ₹ 80,000
(c) ₹ 1,50,667
(d) ₹ 1,77,333
Answer:
(c) ₹ 1,50,667
Pre-construction period
1-11-19- 31.3.2020 .
Interest during pre-construction period
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 8
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 9

Question 40.
Mrs. X has taken a loan on 01.11.2014 @ 10% p.a. of ₹ 10,00,000 for purchase of one house which was purchased on 01.01.2015 and was self occupied and municipal taxes paid in previous year 2018-19 ₹ 30,000. She has repaid the loan amount in annual installments of ₹ 50,000 starting from 01.01.2016. The “Income From House property” for the P.Y 2018-19 will be:
(a) ₹ 83,750
(b) ₹ 20,000
(c) ₹ 78,750
(d) ₹ 85,250
Answer:
(a) ₹ 83,750
Loan amount = ₹ 10,00,000
Rate = 10% pa.
Interest on 8,50,000 ×10% for 9 months and on 8,00,000 × 10% for 3 months = 83,750
GAV = NIL
Municipal taxes = NIL
NAV = NIL
Deduction
24 (a) NIL
24(h) 83,750

Question 41.
Mr. X has taken a loan of ₹ 15,00,000 on 01.07.2017 @ 10% p.a. and the residential house was completed on 01.05.2019 and was let out w.e.f. 01.06.2019 @ 80,000 p.m. and fair rent of the house is ₹ 90,000 p.m. He repaid half of the loan amount on 01.01.2020. Compute the deduction u/s 24(b) for assessment year 2020-21.
(a) 183,750
(b) ₹ 1,83,750
(c) ₹ 1,31,250
(d) ₹ 2,62,500
Answer:
(b) ₹ 1,83,750
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 10

Question 42.
Mrs. X has taken a loan of 11,00,000 on 01.07.2013 at a rate of 10% per annum from SBI for construction of one house which was completed on 31.03.2015 and the house was let out at a rate of ₹ 80,000 per month w.e.f. 01.11.2018 and fair rent is ₹ 1,00,000 per month. Municipal taxes paid in previous year 2019-20 ₹ 30,000. She has taken a fresh loan of ₹ 11,00,000 on 01.07.2018(5)11% per annum and it was utilized to repay the original amount. Compute her income from house property for assessment year 2020-21.
(a) ₹ 6,90,000
(b) ₹ 1,21,000
(c) ₹ 6,98,000
(d) ₹ 6,82,500
Answer:
(c) ₹ 6,98,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 11

Question 43.
A borrowed ₹ 5,00,000 @ 12% p.a. on 1.4.2015 for construction of house property which was completed on 15.3.2019. The amount is still unpaid. The deduction of interest for previous year 2019-20 shall be:
(a) ₹ 60,000
(b) ₹ 96,000
(c) ₹ 1,80,000
(d) ₹ 2,40,000
Answer:
(b) ₹ 96,000

2015 -2016 (5,00,000 X 12%) 60,000
2016-2017 (5,00,000 X 12%) 60,000
2017-2018 (5,00,000 X 12%) 60,000

Pre-construction period will end on 31.3.2018. Therefore pre-construction period interest is ₹ 1,80,000.
Allowable in 5 equal instalments of ₹ 36,000.
As the loan is still unpaid, therefore entire interest of ₹ 60,000 will be allowed as current period interest. Total interest allowed is ₹ 96,000.

Question 44.
Mr. Ahmed acquired a property in April, 2020 for Self-residential use. The loan interest payable to State Bank of India for the financial year 2020-21 amounts to ₹ 2,10,000. The amount eligible for deduction under section 24(b) is:
(a) ₹ 30,000
(b) ₹ 2,00,000
(c) ₹ 2,10,000
(d) 1 1,50,000
Answer:
(b) ₹ 2,00,000
₹ 2,00,000 the maximum Limit.

Question 45.
The construction of a house was completed on 31st January, 2021. The owner of the house took a loan of ₹ 20,00,000 @ 6% p.a. on 1st May 2020. In this case the deduction allowable for the previous year 2020-21 towards interest on borrowings is
(a) ₹ 22,000
(b) ₹ 24,000
(c) ₹ 1,10,000
(d) None of the above
Answer:
(c) ₹ 1,10,000
Construction of house is completed on 31.1.2021. The loan was also taken during the year. Therefore, deduction for interest on loan is allowed from P.Y. 2020-21. Deduction for interest = 20,00,000 X 6% X 11/12 = 1,10,000. There is no pre-construction period interest.

Question 46.
Suresh owns two house properties. First property was used half for running his business and the other half was let-out at ₹ 4,000 p.m. the second property was wholly used as a residence by Suresh. Municipal values of the two properties were the same at 72,000 each p.a. and local taxes@ 10%. Suresh’s income from house property for the PY 2020-21 will be:
(a) ₹ 33,600
(b) ₹ 31,080
(c) ₹ 28,560
(d) ₹ 62,160
Answer:
(b) ₹ 31,080
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 12

Question 47.
The municipal value of a property is ₹ 2,10,000. Fair rent is₹ 1,90,000, Standard rent is ₹ 1,80,000 and the actual rent is ₹ 2,40,000. The gross annual value of the property would be –
(a) ₹ 1,80,000
(b) ₹ 1,90,000
(c) ₹ 2,40,000
(d) ₹ 2,10,000
Answer:
(c) ₹ 2,40,000

Question 48.
House-owned by Suresh was sold on 1st January, 2021 and till the date of sale, the house was on rent of ₹ 7,000 p.m. The other relevant details of this house are (i) municipal value ₹ 72,000 p.a. (ii) fair rent ₹ 66,000 p.a. and standard rent ₹ 60,000 p.a. The income chargeable under the head House Property in A.Y. 2021-22 of this house shall be:
(a) ₹ 63,000
(b) ₹ 50,400
(c) ₹ 46,200
(d) ₹ 44,100
Answer:
(d) ₹ 44,100

Question 49.
Ramesh let-out his house on 1.4.2020 on rent of ₹ 15,000 p.m. The fair rent and the municipal value of house are ₹ 13,500 p.m. and ₹ 16,000 p.m. respectively. Municipal taxes paid for the year were ₹ 12,000. Income from house property for the AY 2021-22 will beta)
(a) ₹ 1,26,000
(b) ₹ 1,76,080
(c) ₹ 1,05,000
(d) None of the above
Answer:
(a) ₹ 1,26,000
Computation of Income Under Various Heads – CS Executive Tax Laws MCQ 12Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 13

Question 50.
Mr. X owns five houses in Chennai, all of which are let-out. Compute the GAV of each house from the information given below:

Particulars House I House II House III House IV House V
Municipal Value 80,000 55,000 65,000 24,000 75,000
Fair Rent 90,000 60,000 65,000 25,000 80,000
Standard Rent N.A. 75,000 58,000 N.A. 78,000
Actual rent received/ receivable 72,000 72,000 60,000 30,000 72,000

(a) ₹ 72,000,72,000,60,000,30,000, 78,000 respectively.
(b) ₹ 90,000,72,000,60,000,30,000,78,000 respectively.
(c) ₹ 90,000,72,000,58,000,30,000,78,000 respectively.
(d) ₹90,000,72,000,60,000,25,000,78,000 respectively.
Answer:
(b) ₹ 90,000,72,000,60,000,30,000,78,000 respectively.
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 14

Question 51.
Compute gross annual value in the following cases for the assessment year 2021-22

Particulars
(per month)		 House I House II House III House IV
MunicipalValue 10,000 9,000 9,000 18,000
Fair Rent 9,000 13,000 12,000 16,000
Standard Rent 12,000 11,000 7,000 16,000
Actual rent 7,000 11,500 20,000 16,500
Vacancy in months 1 1 2 2

(a) ₹ 1 ,2000, 1,26,500, 2,00,000, 1,65,000 respectively.
(b) ₹ 1,44,000,1,26,500,2,00,000,1,65,000 respectively.
(c) ₹ 1,20,000,1,56,000,2,00,000,1,65,000 respectively.
(d) ₹ 1,20,000,1,56,000,1,60,000,1,25,000 respectively.
Answer:
(a) ₹ 1 ,2000, 1,26,500, 2,00,000, 1,65,000 respectively
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 25

Question 52.
Compute gross annual value in the following cases for the assessment year 2021-22:

Particu­lars
(per month)		 House I House II House III House IV
Municipal Value 12,000 11,000 18,000 9,000
Fair Rent 11,000 13,000 16,000 14,000
Standard Rent 13,000 12,000 17,000 8,000
Actual rent
received/ receivable		 8,000 12,500 17,000 21,000
Vacancy – 2 months 3 months 1 month
Unrealized rent 1 month – 1 month 3 months

(a) I ,44000, I .26500, 200,000, I ,65,000 respectively.
(b) 1,44,000,1,25,000,2,00,000, 1,65,000 respectively.
(c) 1,44,000,1,25,000,2,04.000, 1,68,000 respectively.
(d 1,20,000,1,26,000, 1,68,000,1,65,000 respectively.
Answer:
(c) 1,44,000,1,25,000,2,04.000, 1,68,000 respectively.
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 16

Question 53.
Mr. X owns five houses at Cochin. Compute the gross annual value of each house from the information given below:

Particu­lars House I House II House III House IV House V
Mu­nicipal Value 1,20,000 2,40,000 1,10,000 90,000 75,000
Fair Rent 1,50,000 2,40,000 1,14,000 84,000 80,000
Stan­dard Rent 1,08,000 N.A. 1,44,000 N.A. 78,000
Actual rent
re­ceived/ receiv­able		 1,80,000 2,10,000 1,20,000 1,08,000 72,000

(a) 1,80,000,2,40,000, 1,20,000, 1,08,500,78,000 respectively.
(b) 1,60,000,2,40,000, 1,20,000, 1,08,500,78.000 respectively.
(c) 1,60,000,2,40,000, 1.25,000, 1,08,500,78,000 respectively.
(d) 1,80,000,2,40,000, 1.20,000, 1,08,00078,000 respectively.
Answer:
(d) 1,80,000,2,40,000, 1.20,000, 1,08,00078,000 respectively.

Question 54.
Mr. X has a property whose municipal valuation is ₹ 1,30,000 p.a. The fair rent is ₹ 1,10,000 p.a. and the standard rent fixed by the Rent Control Act is ₹ 1,20,000 p.a. The property was let out for a rent of ₹ 11,000 p.m. throughout the previous year. Unrealised rent was ₹ 11,000 and all conditions prescribed by Rule 4 are satisfied. He paid municipal taxes @ 10% of municipal valuation. Interest on borrowed capital was ₹ 2,00,000 for the year. Compute his tax liability for A.Y. 2021-22.
(a) Loss from House Property ₹ 92,000
(b) Profit from House Property ₹ 92,000
(c) Tax ₹ 5,000
(d) Loss from house property ₹ 11,24,400
Answer:
(d) Loss from house property ₹ 11,24,400
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 17

Question 55.
Vinesh owned house at Delhi which was occupied by him for the purpose of his residence. He was transferred to Chandigarh in June 2020 and thereafter he let out the property with effect from 1.7.2020 on monthly rent of 18,000. Corporation tax was ₹ 12,000 out of which he paid 50% before 31.3.2021. Interest on money borrowed is ₹ 40,000. What is the income of Vinesh from house property
(a) Income ₹ 1,05,000
(b) Loss ₹ 1,05,000
(c) Income ₹ 1,07,000
(d) Loss ₹ 1,07,000
Answer:
(c) Income ₹ 1,07,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 18

Question 56.
Mr. X took a loan of ₹ 5,00,000 on 01.10.2017 @ 10% p.a. for construction of house which was completed on 31.03.2021. Compute interest on capital borrowed for the previous year 2020-21.
(a) ₹ 75,500
(b) ₹ 75,000
(c) ₹ 50,000
(d) ₹ 85,000
Answer:
(b) ₹ 75,000

Question 57.
Rahul started construction of house on 1.11.2019. He raised loan of ₹ 10,00,000 at 12% on the same date. He took further loan on 1.10.2020 for ₹ 12,00,000 at same rate of interest. Calculate the amount allowable as deduction u/s 24 of the Income-tax Act, 1961, if construction was completed by 31.3.2021
(a) ₹ 2,02,000
(b) ₹ 1,92,000
(c) ₹ 2,42,000
(d) ₹ 2,00,000
Answer:
(d) ₹ 2,00,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 19

Question 58.
Santhnam purchased in October, 2017 with the financial assistance by way of housing loan provided by PNB Housing Finance Ltd. a flat in Chennai to be used exclusively for his own residential purposes. Interest on the housing loan till March, 2019 paid by him was of ₹ 2,18,780. He wants to know the amount of deduction to be available to him in respect of interest so paid on the housing loan while computing his income for A.Y. 2019-20.
(a) ₹ 30,000
(b) ₹ 2,18,780
(c) ₹ 1,50,000
(d) ₹ 2,00,000
Answer:
(d) ₹ 2,00,000

Question 59.
Mr. X could not occupy his property in Pune as he had to shift to Bengaluru for Job purposes. He did not derive any benefit from the property. The expected rent of the property is ₹ 3,20,000. Municipal taxes are ₹ 8,000, not yet paid. His income from house property will be:
(a) ₹ 3,20,000
(b)₹ 2,24,000
(c) ₹ 2,18,400
(d) Nil
Answer:
(d) Nil
As per section 23 (2)(b) the income from house which is vacant due to employment purposes and no other benefit is derived from it is taken as Nil.

Question 60.
Mr. X has constructed one house on 01.09.2020 and it was let out ₹ 80,000 p.m. and municipal taxes paid are ₹ 35,000. The house was constructed after taking a loan from outside India and interest deductible is ₹ 2,10,000 together with pre-construction period interest but the assessee has not deducted tax at source. How much interest will be deductible under section 24(b)?
(a) ₹ 2,10,000
(b) Nil
(c) ₹ 30,000
(d) ₹2,00,000
Answer:
(b) Nil
As per section 25 if TDS is not deducted on interest paid outside India, the expense is disallowed.

Question 61.
Mr. X has constructed one house on 01.09.2020 and it was let out ₹ 80,000 p.m.
and municipal taxes paid are ₹ 35,000. The house was constructed after taking a loan from outside India and interest is ₹ 2,10,000, but the assessee has not deducted tax at source. The person who has given the loan has one agent in India as per section 163. How much interest is allowed as deduction under section 24(b).
(a) ₹ 2,10,000
(b) Nil
(c) ₹ 30,000
(d) ₹ 2,00,000
Answer:
(a) ₹ 2,10,000
As per section 25 if TDS is not deducted on interest paid outside India, the expense is disallowed. However, if an agent is present in India, deduction is allowed. As the house is let out, entire ₹ 2,10,000 will be allowed.

Question 62.
Mr. X aged 62 years has taken a loan of ₹ 5,00,000 on 01.10.2009 @ 10% p.a. for construction of a house which was completed on 01.10.2018 and the house remained self-occupied throughout the previous year 2020-21. The assessee has income under the head salary ₹ 4,00,000 (Computed). Compute tax liability for assessment year 2021-22.
(a) ₹ 6,240
(b) ₹ 2,800
(c) ₹ 5,200
(d) Nil
Answer:
(d) Nil
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 26

Question 63.
Mr. X owns a residential house in Delhi. The house is having two identical units. First unit of the house is self-occupied by Mr. X and another unit is rented for ₹ 55,000 p.m. The rented unit was vacant for three months during the year.
The particulars of the house for the previous year 2019-20 are as under:
Standard Rent ₹ 11,20,000 p.a., Municipal Valuation ₹ 10,44,000 p.a. Fair Rent ₹ 11,35,000 p.a.
Municipal tax paid by Mr. X 12% of the Municipal Valuation. Light and water charges ₹ 800 p.m. Interest on borrowed capital ₹ 2,000 p.m. Insurance charges ₹ 3,500 p.a. Painting expenses X 16,000 p.a. Compute the Income of Mr. X for the A.Y. 2020-21
(a) ₹ 2,78,652
(b) ₹ 2,78,600
(c) 2,76,650
(d) 2,76,700
Answer:
(a) ₹ 2,78,652
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 21
Unit 1 – (Self occupied)
Loss 12,000
∴ Income from House property = 2,78,652

Question 64.
From the following details calculate the Income/loss from house property:

Expected rent for year 1,05,000
Annual rent 90,000
Unrealized rent 7,500
Period of vacancy 3 months
Municipal taxes paid by tenant 4,450
Municipal taxes paid by owner 3,000
Interest on money borrowed 13,560

(a) Income ₹ 57,840
(b) Income ₹ 39,465
(c) Income ₹ 42,090
(d) Loss ₹ 8,640
Answer:
(a) Income ₹ 57,840
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 22

Question 65.
Mr. X occupied two flats for his residential purposes, particulars of which are as follows:
Determine the taxable income for the assessment year 2020-21. You are informed that Mr. X could not occupy flat for 2 months commencing from December 1st, 2019.

Particulars Flat 1 Flat 2
Municipal Value 90,000 45,000
Fair Rent 1,20,000 40,000
Standard Rent 80,000 N.A.
Municipal taxes paid 10% of M.V 10% of M.V
Interest payable on capital bor­rowed 40,000 Nil
Fire insurance Paid 1,000 600

(a) Loss ₹ 30,000
(b) Profit ₹ 9,700
(c) Loss ₹ 9,700
(d) Profit₹ 1,650
Answer:
(a) Loss ₹ 30,000
After the amendment in Finance Act, 2019, as assessee can have two houses as self -occupied.

Question 66.
Mrs. X has two houses, both of which are self-occupied. Particulars of these are given below:
Compute Mrs. X’s income from the House Property for the Assessment Year 2020-21.

Particulars House I House II
Municipal Value 1,20,000 1,15,000
Fair Rent 1,50,000 1,75,000
Standard Rent 1,00,000 1,65,000
Municipal taxes 12% (Not paid) 8% (Paid)
Interest on capital borrowed for re­pair of the house — 55,000
Date of completion of house 31.03.1999 31.03.2001

(a) ₹ 54,060,
(b) Loss ₹ 30,000,
(c) ₹ 40,000,
(d) Loss ₹ 55,000,
Answer:
(b) Loss ₹ 30,000,
After the amendment in Finance Act, 2019, as assessee can have two houses as self -occupied. Interest will be allowed for house II and the maximum limit will be ₹ 30,000 as the interest is on loan for repairs.

Question 67.
Sarthak submits following details in respect of house which is self-occupied:
What is Sarthak’s Income/Loss under the head house property assuming the loan was taken for construction of the house on 31.7.2016

Municipal value per annum 80,000
Fair rent per annum 1,20,000
Standard rent per annum 1,00,000
Municipal taxes (outstanding) 10%
Interest (outstanding) 1,50,000

(a) Loss ₹ 1,00,000
(b) Income 1,00,000
(c) Loss ₹ 1,50,000
(d) Loss ₹ 40,000
Answer:
(c) Loss ₹ 1,50,000
GAV = NIL
M. Taxes = NIL
NAV NIL
Less: Deduction u/s 24(b) – (1,50,5000)
Loss from house property

Question 68.
Rajendra a non-resident Indian in the previous year 2019-20 was in receipt of rent of house property located in Dubai of ₹ 27,50,000. The amount of rent was transferred and credited in the bank ac-count of Rajendra maintained with SBI, Vadodara by the tenant quarterly. The Annual Letting Value (ALV) of the house located in Dubai subject to tax under the head Income from house property in A.Y. 2020-21 shall be
(a) ₹ 16,50,000
(b) ₹ 19,25,000
(c) ₹ 27,50,000
(d) Not taxable as property is in Dubai and he is non-resident
Answer:
(b) ₹ 19,25,000

Question 69.
Mrs. X, a resident and ordinarily resident individual, owns a house in U.S.A. She receives rent @  2,000 per month. She paid municipal taxes of ₹1,500 during the financial year 2020-21. She also owns a two storied house in Mumbai, ground floor used for her residence and first floor is let out at a monthly rent of ₹ 10,000. Municipal taxes paid for the house amounts to ₹ 7,500. Mrs. X had constructed the house by taking a loan from a nationalized bank on 20.06.2016. She repaid the loan of ₹ 54,000 including interest of ₹ 24,000 in the current year. The value of one dollar is to be taken as ₹ 60.Compute income from house property for assessment year 2020-21.
(a) ₹ 10,02,375
(b) ₹ 10,14,375
(c) ₹ 10,14,125
(d) ₹ 9,45,000
Answer:
(a) ₹ 10,02,375
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 23

Question 70.
Mr. X is a co-owner of a house property along with his brother.
The loan for the construction of this property is jointly taken and the interest charged by the bank is ₹ 25,000 out of which ₹ 21,000 have been paid. Interest on the unpaid interest is ₹ 450. To repay this loan, ₹ and his brother have taken a fresh loan and interest charged on this loan is ₹ 5,000. The Municipal taxes of ₹ 5,100 have been paid by the tenant.
Mr. X has 50% share in the house property.
Compute the income from this property chargeable in the hands of Mr. X for A.Y. 2020-21.
(a) ₹ 96,000
(b) ₹ 50,000
(c) ₹ 50,500
(d) ₹ 48,000
Answer:
(d) ₹ 48,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 24

Question 71.
Mr. Raghav owns a house in Pune. Half Portion of the house is let out for residential purpose on monthly rent of ₹ 9,000. However, this portion remained vacant for 3 months. ’A portion is used by him for his business while remaining lA portions is used for his own residence. Municipal taxes paid were ₹ 10,000. Interest on loan for repair of house is ₹ 40,000. What is the income from house property
(a) ₹ 25,900
(b) ₹ 24,200
(c) ₹ 23,200
(d) ₹ 23,400
Answer:
(c) ₹ 23,200

Gross Annual value (9,000 X 9) 81,000
(-) Municipal Taxes proportionate (5,000)
Net Annual Value of let out part 76,000
(-) standard Deduction @ 30% (22,800)
(-) Proportionate interest (20,000)
Income from house property 33,200

Loss from self occupied portion ₹ 10,000 (proportionate interest)
Therefore Income =₹ 23,200

Question 72.
Mr. Nair a retired person of 68 years of age obtained ₹ 10,000 per month from 1st April, 2020 on reverse mortgage of his self-occupied residential property from a bank. The fair rent of the property is ₹ 15,000 per month. The income chargeable to tax in respect of amount received on reverse mortgage for his self-occupied house property for the FY 2020-21 would be :
(a) ₹1,20,000
(b) ₹  1,26,000
(c) Nil
(d) (15,000 – 10,000) × 12 = ₹ 60,000
Answer:
(c) Nil

Question 73.
Narendra engaged in retail trade let out his fully furnished house with lift, air conditioners, fridge, security staff and gardener at a rent of ₹ 1,00,000 per month. The agreement did not provide for separate rent for various facilities but is a composite agreement. The amount received by him would be chargeable to tax under the head:
(a) Other sources
(b) Business Income
(c) Income from House property
(d) Capital Gains
Answer:
(c) Income from House property

Question 74.
Find out from the following income derived from house property which is being exempt from Income Tax:
(a) Income from property of a trust for charitable or religious purposes.
(b) Income from property of a housing society
(c) Income from property of a trade association
(d) Income from property of a sports association.
Answer:
(a) Income from property of a trust for charitable or religious purposes.

Question 75.
Mr. Shukla received ₹ 80,000 as recovery of unrealised rent in the previous year 2020-21. How much amount will be taxable considering the provisions of Section 25A(1) and 25A(2).
(a) ₹ 80,000
(b) ₹ 56,000
(c) ₹ 24,000
(d) Fully exempt
Answer:
(b) ₹ 56,000
Income will be ₹80,000 – 30% of 80,000 = ₹ 56,000

Question 76.
The land lord increased the rent by ₹ 5,000 per month with retrospective effect and therefore the tenant paid ₹ 60,000 as arrears of rent in the previous year 2020 – 21. How much amount will be taxable as Income from house property due to the receipt of arrears of rent.
(a) ₹ 42,000
(b) ₹ 18,000
(c) ₹ 60,000
(d) None
Answer:
(a) ₹ 42,000
Income will be 7 60,000 – 30% = ₹ 42,000

Part 3: Income Under The Head “Profits And Gains of Business And Profession”

Question 1.
The Term business includes
(a) Any trade commerce or manufacture
(b) Any adventure or concern in the nature of trade Commerce or manufacturer
(c) Both (a) & (b)
(d) None of the above
Answer:
(c) Both (a) & (b)

Question 2.
Notional Profit from speculative business is –
(a) Taxable under the head income from profit and gains of business and profession
(b) Taxable under the head income from other sources
(c) Taxable either as income from other sources or as income from profits and gains of business and profession
(d) Not taxable
Answer:
(d) Not taxable

Question 3.
Which of the following is necessary, for an expense to be deductible from business income?
(a) The expense should relate to the previous year
(b) It should have been incurred in con¬nection with the assessee’s business
(c) Business, to which the expense is related, must continue at the commencement of previous year.
(d) All of the above.
Answer:
(d) All of the above.

Question 4.
Which expenditure is allowed to be deducted while calculating the income from illegal business?
(a) Expenses incurred due to infringement of law.
(b) Penalties and fines
(c) Ordinary business expenses
(d) All of the above.
Answer:
(c) Ordinary business expenses

Question 5.
While valuing inventory:
(a) The lower of actual cost or net realizable value shall be taken
(b) Adjustment should be made to include any tax duty or cess paid or incurred by the assessee
(c) The net realizable value shall be computed in the manner provided in ICDS.
(d) All of the above
Answer:
(d) All of the above

Question 6.
X. Manager of XYZ Ltd. since 2005 was terminated by the company on 1st August, 2018 by paying a compensation ₹ 200 lakh. Such compensation is -……………
(a) Chargeable under the Wealth-tax Act, 1957
(b) Not chargeable under the Income-tax Act, 1961
(c) Chargeable u/s 17(3)(i)(d)
(d) Chargeable u/s 28(ii)(a)
Answer:
(d) Chargeable u/s 28(ii)(a)

Question 7.
Under the head ‘Profits and gains of business or profession’, the method of accounting that should be followed by an assessee is –
(a) Cash system only
(b) Mercantile system only
(c) Hybrid system only
(d) Cash system or mercantile system only
Answer:
(d) Cash system or mercantile system only

Question 7A.
The Central Government is empowered to notify in the Official Gazette Income Computation and Disclosure Standards (ICDS) to be followed by class of assessee or in respect of class of income u/s:
(a) 145(1)
(b) 145 A
(c) 145(2)
(d) 145B
Answer:
(c) 145(2)

Question 7B.
ICDS notified by the Central Gov-ernment are compulsorily required to be followed by all assessees who follow mercantile system of accounting while computing Income under the head “Profit and gains of Business or Profession” or
“Income from other Sources” from the AY 2017-18 except:
(a) Individuals
(b) HUF
(c) All individuals or HUF who are not required to get accounts of any year audited as per section 44AB.
(d) All individuals or HUF who are not required to get accounts of the previous year audited as per Section 44AB.
Answer:
(d) All individuals or HUF who are not required to get accounts of the previous year audited as per Section 44AB.

Question 8.
The Apex Court in the case of CIT-Guja- ratv. Saurashtra Cements Ltd. (2010) 233 CTR 209 has held that liquidated damages received from the supplier on account of delay in the supply of plant and machinery shall be treated in the nature of:
(a) Capital Receipt
(b) Revenue Receipt
(c) Not a receipt but to be reduced from the cost of Plant & Machinery
(d) Compensation
Answer:
(a) Capital Receipt

Question 9.
Ashwin has speculation business loss brought forward of the assessment years 2015-16 ₹ 1,00,000; 2016-2017 ₹ 70,000 and 2017-2018 ₹ 60,000. He has income from the same speculation business for the assessment year 2021-22 t 5,40,000. His total income chargeable to tax for assessment year 2021-22 would be –
(a) ₹ 3,10,000
(b) ₹ 4,10,000
(c) ₹ 4,80,000
(d) ₹4,40,000
Answer:
(c) ₹ 4,80,000
Speculation loss of an Assessment year is allowed to be carried forward to be set off upto next 4 Assessment years.
Therefore, loss pertaining to A.Ys 2015-16 and 16-17 cannot be set off.
Only loss for the A.Y 2017-18 ₹ 60,000 would be set off against income of A.Y. 2021-22.
∴Total Income chargeable to tax will be :
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 27

Question 10.
DPM Ltd. constructed staff quarters and let out the same during the financial year 2020-21. Its rent received₹ 7,50,000 by way of rent from employees during the year. The rental receipt is taxable as:
(a) Income from house property
(b) Income from business
(c) Perquisite in the hands of employees
(d) Income from other sources
Answer:
(b) Income from business

Question 11.
Green Wood Plantation Ltd. is engaged in cultivation and processing of Tea. Their net income during A.Y. 2021-22 is to the tune of ₹ 20 Lakhs. What proportion out of the income of ₹ 20 Lakhs would be treated as agriculture income?
(a) 10%
(b) 25%
(c) 40%
(d) 60%
Answer:
(d) 60%
As per Rule 8 of the Income tax Rules, 60% of the Income is treated as agriculture Income.

Question 12.
Rate of depreciation chargeable on temporary wooden structure for the AY 2021-22 is –
(a) 25%
(b) 10%
(c) 40%
(d) 50%
Answer:
(c) 40%

Question 13.
For an expense to be allowed under section 30 of the Income-tax Act, 1961
(a) It should be rent, rates, taxes, repairs and insurance for building
(b) Rent and repairs are allowed to a tenant if tenant bears the cost of repairs
(c) Rates & taxes would be allowed, only if paid
(d) All of the above
Answer:
(d) All of the above

Question 14.
Under section 31 of the income-tax Act deduction in respect of
(a) Rent and repairs of plant & machinery (P&M) is allowed
(b) Rent repairs and insurance of P&M is allowed
(c) Repairs and insurance of P&M is allowed
(d) Rent, repairs, Taxes of P&M is allowed.
Answer:
(c) Repairs and insurance of P&M is allowed
Rent on Plant & Machinery taken on hire is allowed u/s 37 not under 31.

Question 15.
Depreciation on an asset can be claimed
(a) By Co. owner
(b) On an asset acquired on financial lease.
(c) On an asset acquired on hire-purchase
(d) All of the above
Answer:
(d) All of the above

Question 16.
A fire extinguisher was installed in a cinema hall it was not used throughout the year. Depreciation
(a) Will not be allowed during P.Y.
(b) Vi of the depreciation will be allowed
(c) Depreciation for full year will be allowed
(d) None of the above
Answer:
(c) Depreciation for full year will be allowed

Question 17.
The maximum rate of depreciation allowed at normal rates on assets under written down value method
(a) 30%
(b) 40%
(c) 60%
(d) 80%
Answer:
(b) 40%

Question 18.
Assets put to use in business for more than 180 days during the previous year consisting (i) Factory Building, (ii) Computers, (iii) Motor Vehicles used for Commercial Purposes and (iv) Intangible Assets shall be depreciated at the rate of respectively.
(a) 5%, 15%, 30%, 25%
(b) 10%, 40%, 30%, 25%
(c) 10%, 15%, 25%, 25%
(d) 5%, 40%, 15%, 25%
Answer:
(b) 10%, 40%, 30%, 25%

Question 19.
The rate of depreciation on the moulds used in rubber and plastic goods factories is:
(a) 15%
(b) 20%
(c) 30%
(d) 40%
Answer:
(c) 30%

Question 19A.
Motor cars, other than those used in the business of running them on hire, will be entitled to a higher rate of depreciation of 30% on w.d.v, if they are acquired and put to use during the period from :
(a) 23.8.2019- 31.3.2020
(b) 23.8.2019- 31.3.2021
(c) 25.7.2019-31.3.2020
(d) 25.7.2019-31.3.2021
Answer:
(a) 23.8.2019- 31.3.2020
Same type of asset with same rate of depreciation constitutes a block. They may be used in one or more divisions of the company.

Question 19B.
Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired during the period from 23.8.2019 to 31.3.2020 and put to use on or before 31.3.2020, will be entitled to a higher rate of depreciation of on w.d.v.
(a) 30%
(b) 45%
(c) 15%
(d) 40%
Answer:
(b) 45%

Question 20.
X Ltd. has two Divisions, Division Ace and Division Deluxe the following are the Assets held by ₹ Ltd.

Asset Rate Division Ace Division Deluxe
Building with de­preciation @ 5% A, B C, D
Building with de­preciation @ 10% E –
P&M with depreci­ation @ 15% F, G, H I, J
P&M with depreci­ation @ 20% K L
Furniture with de­preciation @ 10% M, N O, P

(a) Block of Building A, B -same type same rate, same division
(b) Block consisting of Building E and Furniture M, N @ same Rate same division, different asset
(c) Block consisting of building A, B, C & D same rate, same asset, may be different divisions
(d) Block consisting Building E and Furniture M, N, OP same rate, different divisions, different asset
Answer:
(c) Block consisting of building A, B, C & D same rate, same asset, may be different divisions

Question 21.
If a block of assets ceases to exist on the last day of the previous year, depreciation admissible for the block of assets will be –
(a) Nil
(b) 50% of the value of the block of assets on the first day of the previous year
(c) The total value of the block of assets on the first day of the previous year
(d) 50% of the value of the block of assets on the last day of the previous year
Answer:
(a) Nil

Question 22.
Any asset, on which depreciation is
claimed on the basis of Straight Line Method (SLM) is sold and the amount by which money payable together with scrap value, fall short of the Written Down Value (WDV) of such asset, the amount of such deficiency in value of asset is allowed to be written off in the year of sale as
(a) Balancing charge
(b) Terminal depreciation
(c) Loss on sale of asset
(d) Residual value of asset
Answer:
(b) Terminal depreciation

Question 23.
Vaibhav, deriving business income, owns a car whose WDV as on 1st April, 2019 was ₹ 3,00,000. This is the only asset in the block of assets with rate of 15%. It is estimated that one-third of the total usage of the car is for personal use in both years. The WDV of the block of assets as on 31st March, 2021 would be-
(a) ₹ 2,16,750
(b) ₹ 2,43,000
(c) ₹ 2,55,000
(d) None of the above
Answer:
(b) ₹ 2,43,000

WDV on 1.4.2019 3,00,000
(-) Depreciation for P.Y. 2019-20 (3,00,000 X 15% X 2/3) (30,000)
WDV on 31.3.2020 2,70,000
(-) Depreciation for P.Y. 2020-21 (2,66,250 X 15% X 2/3) (27,000)
WDV on 31.3.2021 2,43,000

Question 24.
A charitable trust acquired two air-conditioners for ₹ 1,40,000 on 10th June, 2020. It claimed the acquisition as application of income. The amount it can claim by way of depreciation for the said air-conditioners for the AY 2021-22 is –
(a) ₹ 21,000
(b) ₹ 1,40,000
(c) ₹ 35,000
(d) Nil
Answer:
(d) Nil
From Assessment year 2015-16, depreciation is not allowed on any asset, acquisition of which has been claimed as an application of Income.

Question 25.
The WDV of the block of asset of plant & machinery depreciated @ 15% as on 1st April, 2019 was of ₹ 13,50,000. Out of this block, one machine was sold on 1st July, 2019 for ₹ 4,50,000 and a new machine of ₹ 7,50,000 was purchased on 1st August, 2019 which could be put to use from 1st March, 2020. The amount of depreciation to be claimed on the block of plant & machinery in the computation of income for A.Y. 2020-21 shall be:
(a) ₹1,35,000
(b) ₹ 2,47,500
(c) ₹ 1,91,250
(d) ₹ 2,53,125
Answer:
(c) ₹ 1,91,250

Question 26.
Chola Ltd., engaged in manufacture acquired machineries for ₹ 27 Crore in April, 2020 All the machines were used within 45 days of acquisition. The deduction under Section 32AD for the AY 2021-22 will be if the unit is set up in the notified backwards area of Bihar.
(a) ₹ 4,05,00,000
(b) ₹ 4,50,00,000
(c) ₹ 8,55,00,000
(d) ₹ 8,40,00,000
Answer:
(a) ₹ 4,05,00,000
27,00,00,000 × 15% = 4,05,00,000

Question 27.
Madhu Ltd. owns machinery (rate of depreciation is 15%) the written down value of which as on 1st April, 2019 ₹ 30,00,000. Due to fire, entire assets in the block were destroyed and the insurer paid X 25,00,000. The eligible depreciation in respect of this machinery is –
(a) ₹ 4,50,000
(b) ₹75,000
(c) ₹ 5,00,000
(d) Nil
Answer:
(d) Nil
Amount received from insurance company is less than WDV hence the amount of ₹ 5,00,000 (30,00,000 – 25,00,000) will be STCL under the head ‘capital Gain’. Since, all assets are destroyed, no depreciation will be charged.

Question 28.
Ekta (P) Ltd., engaged in manufacturing activity, acquired new plant and machinery for ₹ 100 lakh for its manufacturing unit located in notified backward area of Bihar. The acquisition and use was from 1 st June, 2019. The assessee is eligible for additional depreciation of –
(a) ₹ 30 lakh
(b) ₹ 20 lakh
(c) ₹ 35 lakh
(d) ₹ 10 lakh
Answer:
(c) ₹ 35 lakh
The rate of additional depreciation on new Plant & machinery used in manufacturing in notified area of Bihar, West Bengal, Andhra Pradesh & Telangana is /35%. 35% of ₹ 100 lac = ₹ 35 Lakh.

Question 29.
Swan (Pvt.) Ltd. acquired machinery for ₹ 5,75,000 which included GST of ₹ 75,000 eligible for input tax credit. It bor-rowed ₹ 3,00,000 from a bank for purchase of the said machine. Interest on the bank loan up to the date of usage of machine was ascertained as ₹ 5,000. The machine was put to use from 15th September, 2019. Assume the rate of depreciation at 15%. The eligible amount of depreciation will be –
(a) ₹ 90,000
(b) ₹ 78,750
(c) ₹ 86,250
(d) ₹ 75,000
Answer:
(d) ₹ 75,000
As ITC is available on GST paid on the machine, depreciation will be allowed on Cost excluding GST i.e. ₹ 5,00,000. Depreciation = 5,00,000 × 15% = 75,000.

Question 30.
Dr. Sen has surgical equipment whose WDV as on 1.4.2019 was, 4,10,000. He acquired some more equipment in December 2019 for, ₹ 3,50,000. He sold equipment in March 2020 for, 2,00,000 whose original cost was ₹ 1,70,000. The written down value of the block for the purpose of computing depreciation for the assessment year 2020-21 is:
(a) ₹ 5,90,000
(b) ₹ 5,60,000
(c) ₹ 7,30,000
(d) ₹ 4,30,000
Answer:
(b) ₹ 5,60,000

WDV on 1.4.2019 4,10,000
Add new asset acquired in the block 3,50,000
Less asset sold (2,00,000)
WDV on 31.3.2020 5,60,000

Question 31.
Vikram Mfg. Co. Ltd. located in a backward area in the state of Andhra Pradesh acquired some machinery for ₹ 20 lakhs on 10.8.2019. It was put to use from 1.9.2019. The applicable rate of depreciation is 15%. How much would be the eligible additional depreciation for the assessment year 2020-21 in respect of the said machinery
(a) ₹ 3,00,000
(b) ₹ 4,00,000
(c) ₹ 7,00,000
(d) ₹ 20,00,000
Answer:
(c) ₹ 7,00,000
Additional depreciation on machine installed in the notified backward area of Andhra Pradesh is 35% as asset is acquired and put to use on 1.9.2019, ie. for more than 180 days. Additional depreciation = 20,00,000 × 35% = ₹ 7,00,000.

Question 32.
Ranga & Co. had as on 1.4.2019 plant and machinery whose written down value was ₹ 12, 00,000. It acquired 2 plants on 31.11.2019 for ₹6 lakhs. The applicable depreciation rate is 15%. The eligible depreciation including additional deprecation for the AY 2020-21 would be
(a) ₹ 2,70,000
(b) ₹ 2,55,000
(c) ₹ 2,85,000
(d) ₹ 2,25,000
Answer:
(c) ₹ 2,85,000
Normal Depreciation on asset put to use for more than 180 days (12,00,000 X 15%) = 1,80,000.
On asset put to use for less than 180 days depreciation @ 7.5% (6,00,000 X 7.5%) = 45,000. Additional depreciation on new asset at half rate, i.e. (6,00,000 X 10%) = 60,000.
Total depreciation = ₹ 2,85,000

Question 33.
A company engaged in manufacturing of steel balls acquired computers at a cost of ₹ 3 lakh on 10th July, 2019. The depreciation allowance for the A.Y. 2020-21 under Income-tax Act, 1961 would be:
(a) ₹ 1,80,000
(b) ₹ 1,20,000
(c) ₹ 3,00,000
(d) ₹ 45,000
Answer:
(b) ₹ 1,20,000
Depreciation is allowed @ 40% on Computers
∴ 3 Lac × 40% = 1,20,000

Question 34.
The WDV of a block of asset depreciated@ 15% as on 1st April, 2019 was of ₹ 3,00,000. Out of this block, one machine was sold for X 2,00,000 on 1 st July, 2019 and a new machine of ₹ 6,00,000 added on 1st August, 2019 was put to use only from 1st Sept., 2019. The amount of depreciation to be claimed(in the manner most beneficial to the assessee) in the A.Y. 2020-21 shall be :
(a) ₹ 1,20,000
(b) ₹ 96,000
(c) ₹ 1,05,000.
(d) ₹ 60,000
Answer:
(c) ₹ 1,05,000.
7,00,000 × 15% = ₹ 1,05,000

Question 35.
The additional depreciation on the factory building constructed during the P. Y. 2018- 19 and put to use for manufacturing of garments on 1st Feb 2019 having cost of ₹ 100 lakh shall be allowed in A.Y. 2020-21 at a rate of :
(a) 5%
(b) 10%
(c) 15%
(d) Nil
Answer:
(d) Nil
Additional depreciation is not allowed on building.

Question 36.
Hari Krishna Vidhyut Company Ltd. engaged in the business of generation and distribution of power and electricity has opted WDV method for claiming depreciation on its assets. Opening balance of the block of Plant and Machinery depreciated @ 15% on 1st April, 2019 was ₹ 15,00,000. New machines of an amount of ₹ 25,00,000 were purchased on 15th Nov. 2019 but put to use from 1st December, 2019. Computers for ₹ 2,00,000 were purchased on 9th Sept. 2019 and put to use in business since that date. The depreciation including the additional depreciation available to the company on plant and machinery and on the computers shall be of an amount of for A.Y. 2020-21.
(a) ₹ 4,92,500
(b) ₹ 5,32,500
(c) ₹ 7,82,500
(d) ₹ 7,42,500
Answer:
(c) ₹ 7,82,500
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 28

Question 37.
Depreciation whether to be allowed on the purchase and installation of a fire extinguisher by a practicing CS in his office, even when the same is not put to use or used during the year of acquisition as stipulated under section 32 of Income Tax Act, 1961 :
(a) No, Failure to use for the profession or business
(b) Yes, Safety measures and kept stand-by, treated as passive use and eligible for depreciation
(c) Yes, Allowable @ 10% of the cost
(d) Yes, Allowable @ 50% of the cost
Answer:
(a) No, Failure to use for the profession or business

Question 38.
The depreciation on plant A is 15% p.a. on written down value method. The asset was purchased for ₹ 80,000 on 15.7.2018. Assuming it to he the only asset in the block and no other asset was purchased during the period, the amount of depreciation for the P.Y. 2019-20 will be:
(a) ₹ 12,000
(b) ₹ 10,200
(c) ₹ 6,000
(d) 15,100
Answer:
(b) ₹ 10,200
Dep. For P.Y 18-19 @ 15% on 80,000 = 12,000
W.D.V. as on 1.04. 19 [ 80,000 – 12,000] = 68,000
Dep. @15% p.a. on 68,000 = 10,200

Question 39.
Z Ltd. had a Block of buildings with 3 buildings i.e. Building A, B & C and the rate of depreciation is 10%. The written down value as on 1.4.2019 was ₹ 8,00,000. The only transaction during the year was sale of Building C for ₹ 10,20,000. Building C was acquired at a cost of ₹ 6,20,000. The depreciation on the block for the P.Y.
2019- 20 will be:
(a) ₹ 40,000
(b) ₹ 2,20,000
(c) Nil
(d) ₹ 80,000
Answer:
(c) Nil
No Depreciation will be allowed. The sale consideration of Building C exceeds the W.D.V and hence short term Capital Gains will be charged under the head Capital Gain. [10,20,000 – 8,00,000] = ₹ 2,20,000 . [Sec. 50(1)].

Question 40.
The assessee had a block of Asset consisting of Plant X, plant Y and plant Z with a w.d.v. on 1.4.2019 ₹ 6,00,000 and rate of depreciation @ 20%. The plant X was sold during the year for ₹ 50,000, Y for t 1,20,000 and Z for ₹ 2,30,000. The depreciation for the A.Y. 2020-21 will be:
(a) ₹ 40,000
(b) Nil
(c) ₹ 1,20,000
(d) ₹ 60,000
Answer:
(b) Nil
No depreciation will be charged as Block is empty. STCL of ₹ 2,00,000 will be taken to the head Capital Gains u/s 50(2) as all the assets are sold for ₹ 4,00,000.

Question 41.
MR. X bought a building for ₹ 20,00,000 on 28.3.2019 and rate of depreciation was 40%. The asset was used in the business on 31.1.2020. The amount of deprecation for the P.Y. 2019-20 will be:
(a) ₹ 8,00,000
(b) ₹ 4,00,000
(c) ₹ 6,00,000
(d) ₹ 6,40,000
Answer:
(a) ₹ 8,00,000
As the asset was acquired in the P.Y 2018-19 and used for the first time in P.Y 2019-20 depreciation at full rate will be allowed.
Depreciation = 40% of 20,00,000 = ₹ 8,00,000.

Question 42.
X Ltd. a trading company bought a new plant & machinery for ₹ 15,00,000 on 10.9.2019. The amount of additional depreciation will he:
(a) ₹ 1,50,000
(b) ₹ 75,000
(c) Nil
(d) ₹ 5,25,000
Answer:
(c) Nil
Additional depreciation is not available to a trading company.

Question 43.
Sudarshan enterprise started a manufacturing unit in the notified backward area of Andhra Pradesh. It purchased a new plant on 15.10.2019 for ₹ 60,00,000 the additional depreciation for the P.Y. 2019-20 and P.Y. 2020-21 will respectively be:
(a) 10,50,000 & 8,66,250
(b) 21,00,000 & Nil
(c) 10,50,000 & Nil
(d) 10,50,000 & 10,50,000
Answer:
(d) 10,50,000 & 10,50,000
Additional depreciation in the notified Backward Area of Andhra Pradesh is @ 35% on new Plant & Machinery. If the machine is acquired during the year and put to use for less than 180 days the rate of depreciation will be 17.5% in the first year and balance 17.5% can be claimed in the next year.
Hence (d).

Question 44.
XYZ Ltd. started a undertaking in the notified backward area of Telangana. It purchased a plant for ₹ 10,00,000 on 20.6.2019. The rate of depreciation as per the block on plant is 20%. Find the amount of deduction available on plant on ground of depreciation, additional depreciation u/ s 32 and investment allowance u/s 32AD.
(a) 2,00,000, 3,50,000, 1,50,000
(b) 2,00,000, 2,80,000, 1,50,000
(c) 2,00,000, 2,80,000, 75,000
(d) 1,00,000, 2,80,000, 1,50,000
Answer:
(a) 2,00,000, 3,50,000, 1,50,000
Depreciation at Normal rate ₹ 2,00,000
Additional Depreciation ₹ 3,50,000
Investment Allowance ₹ 1,50,000

Question 44A.
Deduction in respect of deposit in Site restoration fund u/s 33ABA is available to the extent of amount deposited including credited interest or ……….. % of the profits as calculated under the head Profit and Gains of Business or Profession before giving deduction under this section whichever is less.
(a) 15%
(b) 20%
(c) 30%
(d) 40%
Answer:
(b) 20%

Question 45.
Scientific research for the purpose of section 35 means any activity for the extension of Knowledge in the field of
(a) Natural or applied science
(b) Agriculture
(c) Animal husbandry or fisheries
(d) All of the above
Answer:
(d) All of the above

Question 46.
The following revenue expenditure incurred on scientific researched is allowed except:
(a) Expenditure related to the business of the assessee
(b) Pre-commencement revenue expenditure within 3 years immediately before commencement of business.
(c) Pre-commencement revenue expenditure within 3 years immediately before the P.Y. in which business commences
(d) Expense on salary of research employees other then expenses on perquisites to employees
Answer:
(c) Pre-commencement revenue expenditure within 3 years immediately before the P.Y. in which business commences
As per section 35(1 )(i), Pre-commencement revenue expenditure incurred within 3 years immediately before commencement of business is allowed as deductible expense.

Question 47.
A company incurred the following expenditure on in-house research:
(a) ₹ 1,07,00,000
(b) ₹ 1,00,00,000
(c) ₹ 1,36,00,000
(d) ₹ 87,00,000
Answer:
(a) ₹ 1,07,00,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 35

Question 48.
X Ltd. paid ₹ 10 lakh to an approved college to be used for scientific research unrelated to its business. Amount eligible for deduction u/s 35(i)(ii) is –
(a) ₹ 5 lakh
(b) ₹ 17.5 lakh
(c) ₹ 15.00 lakh
(d) ₹ nil
Answer:
(c) ₹ 15.00 lakh
A weighed deduction of 150% is allowed u/s 35(i)(ii).

Question 49.
A company incurred capital expenditure on scientific research viz., (i) land ₹ 5 lakh
(ii) building ₹ 10 lakh (iii) equipment 7 lakh. The amount of expenditure eligible for deduction under section 35(2) would be –
(a) ₹ 22 lakh
(b) ₹ 171akh
(c) ₹ 15 lakh
(d) ₹ 5 lakh
Answer:
(b) ₹ 171akh
The amount eligible for deduction u/s 35(2) will be ₹ 17,00,000. The expenditure on building and equipments is allowed. No deduction is allowed on Land.

Question 50.
Rosy Ltd. engaged in manufacture of bio-medicines in August, 2019 converted equipment, which was used for scientific research purposes previously, for regular business use. The original cost of the plant is ₹ 15 lakhs which was acquired in April, 2017. The company had claimed deduction at 200% under section 35(2AB) in the assessment year 2018-19. The plant used for scientific research would be included in the block assets now at a value of:
(a) Nil
(b) ₹ 15,00,000
(c) ₹ 30,00,000
(d) ₹ 12,75,000
Answer:
(a) Nil
When the cost of asset has been fully claimed or weighted deduction has been availed under any provision of the Act, its value will be taken as NIL, if now used for business purpose.

Question 51.
XYZ Ltd. paid ₹ 5 Lakh on 22.1.2019 to a national level laboratory for carrying scientific research unrelated to the business of the company. The amount of deduction eligible under section 35(2AA) of the In-come-tax Act, 1961 is:
(a) ₹ 5,00,000 @ 100%
(b) ₹ 6,25,000 @ 125%
(c) ₹ 7,50,000 @ 150%
(d) ₹ 10,00,000 @ 200%
Answer:
(c) ₹ 7,50,000 @ 150%
Weighted deduction of 150% is available u/s 35(2AA) of the Income-tax Act for donation to National Laboratory.

Question 52.
Anirudh had made payment of (i) ₹ 30,000 to IIT, Kanpur for an approved scientific research programme (ii) ₹ 45,000 revenue expenditure on in house R&D facility as approved by prescribed authority and (iii) ₹ 1,00,000 to Indian Institute of Science, Bengaluru for scientific research, wants to know about the deduction avail-able while computing the income under “Profits and gains from business” in the Assessment Year 2019-20.
(a) 12,40,000
(b) ₹ 1,75,000
(c) ₹ 2,62,500
(d) ₹ 2,65,000
Answer:
(a) 12,40,000

Question 52A.
A person who is entitled to deduction u/s 35AD is:
(a) Compulsorily required to avail the deduction
(b) May opt to avail deduction during the previous year in which such expenditure is incurred.
(c) May opt to avail deduction.in any previous year subsequent to incur-ring of such expenditure.
(d) None of the above.
Answer:
(b) May opt to avail deduction during the previous year in which such expenditure is incurred.

Question 53.
Which of the following business com-menced during August, 2016 will not be eligible for deduction under section 3 5 AD –
(a) Setting-up and operating a cold chain facility
(b) Aproduction unit of fertilizer in India
(c) Operating of a 1 star hotel in a village
(d) Building a hospital of 200 beds
Answer:
(c) Operating of a 1 star hotel in a village
The Hotel should be at least 2 star. Hence (c)

Question 54.
Which of the following is a specified business’ eligible for deduction under section 35AD
(a) Operating warehousing facility for storage of agriculture produce
(b) Operating leather manufacturing unit
(c) Operating unit for manufacturing of tooth paste
(d) Units operating in Jammu & Kashmir
Answer:
(a) Operating warehousing facility for storage of agriculture produce

Question 55.
DAS Pvt. Ltd. fulfilling all the conditions as being specified in section 3 5AD of the Income Tax Act, 1961 has incurred capital expenditure of ₹ 30 lakh on purchase of land, ₹ 80 lakh (₹ 75 lakh by cheque and ₹ 5 lakh in cash) on construction of building and ₹ 10 lakh on the plant and machinery during the previous year 2019-20 for setting up and operating a warehouse for the storage of sugar. The warehouse became operational on 1st March, 2020. The amount of deduction which the company can claim for such capital expenditure as per section 35AD in A.Y. 2020-21 shall be
(a) ₹ 120 lakh
(b) ₹ 180 lakh
(c) ₹ 85 lakh
(d) ₹ 90 lakh
Answer:
(c) ₹ 85 lakh
No deduction is allowed for expenditure on land. Expenditure on construction of building will be allowed for the payment made by A/c Payee Cheque ie.₹ 75 lakh and on Plant & Machinery ₹ 10 lakh assuming to be made A/c Payee by Cheque or draft or through ECS or through any other electronic mode. Therefore, total expenditure allowed is [75 + 10] = ₹85 lakhs.

Question 56.
Prakash Ltd. started business of production fertilizers in India in the year 2010. It will get a deduction of u/s 35AD if its capital expenditure is ₹ 150 lakhs including ₹ 80 lacs on land.
(a) 1150 lakhs
(b) ₹ 225 lacs
(c) ₹ 70 lacs
(d) Nil
Answer:
(d) Nil
Fertilizer business is not specified business in the year 2010. It should have commenced on or after 1st day of April 2011.

Question 57.
X Ltd. incurred the following expenditures in the P.Y. 2019-20 on notified skill development project.

Land ₹ 2,00,000
Building ₹ 50,000
Plant ₹ 1,00,000
Revenue Expenditure ₹ 60,000
Furniture ₹ 20,000

(a) 1,80,000
(b) 2,30,000
(c) 2,70,000
(d) 3,45,000
Answer:
(c) 2,70,000
When a company incurs any expenditure on any skill development project notified by the board, 150% of expenditure is allowed u/s 35CCD, but not on Land & Building. Therefore 150% of k 1,80,000 will be allowed.

Question 58.
XYZ Ltd., engaged in manufacture of a product, has incurred an expenditure of 3 lakh on notified skill development project u/s 35CCD. The deduction available for such expenditure is ₹ lakh.
(a) 3
(b) 3.75
(c) 4.5
(d) None of the above
Answer:
(c) 4.5
When a company incurs any expenditure on any skill development project notified by the board, 150% of expenditure is allowed u/s 35CCD, but not on Land & Building. Therefore 150% of k 3,00,000 = ₹ 4.5 lakhs will be allowed.

Question 59.
Deccan Ltd. incurred an amount of ₹ 16 lakh as preliminary expenses for setting up a project costing ₹ 100 Lakhs during financial year 2019-20. The amount of deduction available as amortization of the preliminary expenses during the A.Y. 2020- 21 would be:
(a) ₹ 1,60,000
(b) ₹ 3,20,000
(c) ₹ 16,00,000
(d) ₹ 1,00,000
Answer:
(d) ₹ 1,00,000
\(\frac{1}{5}\) of Preliminary expenses(P.E) is allowed to be written off u/s 35D. But P.E. should not exceed 5% cost of Project.
∴ \(\frac{1}{5}\) of 5 lac ₹16 lac will not be considered = ₹ 1,00,000 will be allowed.

Question 60.
For the purposes of section 35D capital employed by a new company would mean
(a) Issued share capital
(b) Issued share capital, debentures, long term borrowing and amount outstanding in share premium account.
(c) Share capital & long term loan
(d) Share capital & debentures
Answer:
(b) Issued share capital, debentures, long term borrowing and amount outstanding in share premium account.

Question 61.
As per Section 35DDA, total expenditure in a voluntary retirement scheme is deductible in –
(a) 5 equal instalments
( b) 10 equal instalments
(c) 15 equal instalments
(d) The same year
Answer:
(a) 5 equal instalments

Question 62.
Any capital expenditure incurred on acquiring telecom license is deductible in –
(a) 5 equal instalments
(b) 10 equal instalments
(c) 15 equal instalments
(d) Equally over the period of the license
Answer:
(d) Equally over the period of the license

Question 63.
In the case of companies, capital expenditure incurred for the purpose of promoting family planning amongst the employees would be deductible to the extent –
(a) Equal to 1 /5th in each year for 5 years
(b) Equal to 1 / 6th in each year for 6 years
(c) Equal to 1 /4th in each year for 4 years
(d) Equal to 1/10th in each year for 10 years
Answer:
(a) Equal to 1 /5th in each year for 5 years

Question 64.
Malick & Co. engaged in trading activity could not recover ₹ 5 lakhs from a customer. It claimed the entire amount as bad debt by writing off in the books of account. The aggregate sale made during the year to the party amounts to ₹ 30 lakhs. The amount eligible for deduction by way of bad debt is –
(a) Nil
(b) ₹ 3 lakhs
(c) ₹ 5 lakhs
(d) ₹ 60,000
Answer:
(c) ₹ 5 lakhs
Bad debts not recoverable and written off in the books are allowed as deduction.

Question 65.
When ABC Ltd incurred ₹ 10 lakhs in FY 2019-20 as capital expenditure for the purpose of family planning amongst the employees, the expenditure allowable for the assessment year 2020-21 would be:
(a) Nil
(b) ₹ 2,00,000
(c) ₹ 10,00,000
(d) ₹ 5,00,000
Answer:
(b) ₹ 2,00,000
A \(\frac{1}{5}\)th of ₹ 10 lac = ₹ 2 lac is allowed as expense as. Capital expenditure is allowed to a company in 5 equal instalments u/s 36(1 )(ix).

Question 66.
XAB Ltd. has incurred amount of ₹ 4,00,000 towards capital expenditure and ₹ 1,50,000 towards bona fide revenue expenditure for the purpose of promoting family planning amongst its employees during the year 2018-19. Company can claim deduction of an amount of X …………for such expenses in the return to be filed for A.Y. 2019-20.
(a) 50% of ₹5,50,000
(b) ₹ 2,30,000
(c) Such expenses are not allowed
(d) 20% of ₹ 5,50,000
Answer:
(b) ₹ 2,30,000

Question 67.
Raghav Housing Finance Ltd., a NBFC is eligible to claim deduction in the case of provision made for bad and doubtful debts to the extent of ……………………..of total income.
(a) 10%
(b) 5%
(c) 2%
(d) 1%
Answer:
(b) 5%
An NBFC is allowed deduction for provision for bad debts @ 5%.

Question 68.
A company issued Zero Coupon bonds of Face value ₹ 10,00,000 for ₹ 7,20,000. The bond will mature after 4 years. The amount of deduction p.a. allowed to the company will be:
(a) ₹ 2,80,000
(b) ₹ 70,000
(c) ₹ 50,000
(d) Not allowed as deduction
Answer:
(b) ₹ 70,000
The expenditure of ₹ 2,80,000 ie. [Face Value- issue price [10,00,000 – 7,20,000] will be allowed in equal instalments our 4 years. [Sec. 36(1)( iu)(a)].
Here \(\frac{2,80,000}{4}\)=₹ 70,000

Question 69.
Expenses not specifically being allowed under any of sections 30 to 36 and incurred for the purpose of business or profession are allowable as per section 37(1) of the Act. The following expenses are allowable under this section :
(i) Expenditure on issue of share capital
(ii) Expenses for the installation of new telephone
(iii) Annual listing fees paid to stock exchange
(iv) Loss caused by robbery or dacoity incidental to business
(a) (ii) and (iv)
(b) (ii), (iii) and (iv)
(c) (ii) and (iii)
(d) All the four
Answer:
(c) (ii) and (iii)

Question 70.
John Miller & Co. of UK is maintaining and operating a branch in India for sale of its garment products. The adjusted total income of the branch for the year prior to charge of H.O. expenses of ₹ 20 lakh is of ₹ 100 lakh. Indian branch intends to know the maximum amount of H.O. expenses as allowable during the year under the Act. Specify the amount:
(a) ₹ 20 lakh
(b) Nil as HO is non-resident
(c) ₹ 5 lakh
(d) 8% of adjusted total income
Answer:
(c) ₹ 5 lakh
The maximum amount of head office expenses allowed to be deducted is the lower of actual expenditure or 5% of the adjusted total income. Here 5% of ₹ 100 lakhs.

Question 71.
Sakshita Pvt. Ltd., has spent a sum of ₹ 30 lakh towards meeting its Corporate Social Responsibility (CSR) obligation. The amount of deduction available while computing the business income is X :
(a) 30 lakh
(b) Nil
(c) 37.5 lakh
(d) 45 lakh
Answer:
(b) Nil
CSR Expense is not allowed as an expense for tax purposes and hence not deductible.

Question 72.
Which of the following is not deductible while calculating taxable income from business
(a) Sales tax
(b) Income-tax
(c) Customs duty
(d) Local taxes
Answer:
(b) Income-tax

Question 73.
Varun Ltd. paid fees for technical services outside India of ₹ 6 lakh and omitted to deduct tax at source and such omission continued till the ‘due date’ for filing the return of income specified in Section 139( 1). He is not an assessee in default as per first proviso to sub-section (1) of section 201. The amount of expenditure available for disallowance would be
(a) ₹ Nil
(b) ₹ 6,00,000
(c) ₹ 1,20,000
(d) ₹ 1,80,000.
Answer:
(a) ₹ Nil
100% of the payment made to a person outside India is disallowed, if tax is deductible at source under section 40(a)(1). After the Finance (No. 2) Act, 2019 if assessee is not in default under the first proviso of section 201(1), nothing will be disallowed.

Question 74.
Andhra Traders a partnership firm paid 1800 as contract charges to AKP & Co. (Firm). No tax was deducted at source for the above said payment. The amount liable for disallowance under section 40a(ia) for the assessment year 2020-21 is, if he is an assessee in default u/s 201(1)
(a) Nil
(b) ₹ 80,000
(c) ₹ 40,000
(d) ₹ 24,000
Answer:
(d) ₹ 24,000
30% of the payment made to a resident is disallowed, if tax is deductible at source under Section 40(a)(ia). But if the assessee is not in default under the first proviso of section 201(1), nothing will be disallowed.

Question 75.
The expenditure on account of royalty, fees for technical service or interest paid or payable to a non-resident or paid outside India and taxable in India will be disallowed if
(a) Not paid during the P.Y. but within due date of furnishing the return.
(b) T.D.S. deducted and deposited within due date of furnishing the return.
(c) T.D.S. not deducted nor deposited.
(d) None of the above
Answer:
(c) T.D.S. not deducted nor deposited.

Question 76.
Deduction on account of salary paid to a non-resident or outside India will not be allowed as an expense as per section 40(a)(m) if
(a) Tax is deducted and deposited
(b) Tax is deducted but not deposited
(c) Tax is neither deducted nor deposited
(d) Tax is not deducted but deposited with Govt.
Answer:
(c) Tax is neither deducted nor deposited

Question 77.
“Relative” for the purposes of section 40A(2) in relation to an Individual means
(a) Spouse
(b) Brother or sister
(c) Any lineal ascendant or descendant
(d) All of the above
Answer:
(d) All of the above

Question 78.
Under section 40A(3) which of the following payment for an expenditure incurred would not be admissible as de-duction from business income –
(a) ₹ 15,000 paid in cash to a transporter
(b) ₹ 5,000 paid in cash to a dealer in the morning and ₹ 5,000 paid in cash to the same dealer in the evening
(c) ₹ 40,000 sent through NEFT to the bank account of the dealer for goods purchased
(d) ₹ 19,000 paid through bearer cheque to the dealer for goods purchased.
Answer:
(d) ₹ 19,000 paid through bearer cheque to the dealer for goods purchased.

Question 79.
When a cash payment of ₹ 15,000 is made on 10th May, 2019 towards purchase of raw material effected in the earlier year, i.e., on 5th June 2018, the amount liable for disallowance u/s 40A(dA), in the A.Y. 2020-21 would be –
(a) Nil
(b) 100% of payment
(c) 20% of such payment
(d) 30% of such payment
Answer:
(b) 100% of payment

Question 80.
Where an assessee doing business expenditure in respect of which payments made to a person in a day exceeds ₹ 10,000 should be paid through account payee cheque or demand draft, ECS or through such other electronic mode as may be prescribed to claim deduction for such expenditure. This restriction does not apply to-
(a) Payments made to RBI
(b) Payments made to cultivators
(c) Payment of terminal benefits to employees not exceeding ₹ 50,000
(d) All of the above
Answer:
(d) All of the above
Rule 6 D

Question 81.
Ravi & Co. Paid ₹ 40,000 by cash to Mr. Balu a supplier on 5.9.2019. The cash payment was made on the day on which the bank was on strike. The amount of expenditure liable for disallowance under section 40A(3) is –
(a) ₹ 40,000
(b) ₹ 12,000
(c) ₹ 20,000
(d) Nil
Answer:
(d) Nil
Rule 6D

Question 82.
Where the payment of an expenditure claimed as deduction by any assessee carrying on business or profession other than who is in transport business exceeds ₹ 10,000, it should be paid by:
(a) Crossed cheque/draft
(b) Account payee cheque/account pay-ee draft ECS or through such other electronic mode as may be prescribed
(c) Account payee cheque
(d) Any mode other than cash
Answer:
(b) Account payee cheque/account pay-ee draft ECS or through such other electronic mode as may be prescribed

Question 83.
Patel, a textile dealer, purchases goods worth ₹ 65,000 from Anand and made the payments:
(i) ₹ 12,000 by account payee cheque on 5th June, 2019,
(ii) ₹ 8,000 by cash on 16th August, 2019
(iii) ₹ 15000 by bearer cheque on 7th November, 2019 and
(iv) ₹ 30,000 by ECS on 21st March, 2020. The amount of expenditure not allowable as per provisions of section 40A(3) would be:
(a) Nil
(b) ₹ 8,000
(c) ₹ 23,000
(d) ₹ 38,000
Answer:
(c) ₹ 23,000
When the invoice is ₹ 65,000, spreading the payment over days in cash is disallowed. So ₹ 8,000 on 16.8.18 and 15,000 by bearer Cheque on 7th November will be disallowed.
Total = ₹23,000.

Question 84.
Zed Ltd. a domestic company engaged in manufacturing activity at Mumbai acquired a plant for ₹ 5 lakh on 7th January, 2020 which is eligible for depreciation @ 15%. It paid ₹ 4 Lakh through ECS system from bank and balance ₹ 1 Lakh in cash on 23rd February, 2020. The plant was put to use on 12.03.2020. The amount of depreciation (Normal & additional)on this plant for A.Y. 2020-21 shall be:
(a) ₹ 40,000
(b) ₹ 30,000
(c) ₹ 70,000
(d) ₹ 60,000
Answer:
(c) ₹ 70,000
The depreciation will be allowed for payment made through banking channels therefore, Normal and additional depreciation will be allowed only on ₹ 4,00,000 @ half the rate as asset is acquired and put to use for less than 180 days.
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 36

Question 85.
Z an assessee incurs expenditure for acquisition of an asset in respect of which payment (or aggregate of payment made to a person in a day), otherwise than by an account payee cheque/draft or use of ECS through a bank or through such other electronic mode as may be prescribed, exceeds such payment shall not be eligible for claiming the amount of depreciation on such asset.
(a) ₹ 50,000
(b) ₹ 20,000
(c) ₹ 10,000
(d) ₹ 2,00,000
Answer:
(c) ₹ 10,000

Question 86.
SH made three different cash payments of ₹ 10,000, ₹ 10,000 and of ₹ 11,500 to a supplier for purchase of goods and material on 11th Sept., 2017. The payments were made during different times in the day. Amount to be disallowed u/s 40A(3) is :
(a) 111,500
(b) ₹ 31,500
(c) NIL
(d) None of the above
Answer:
(b) ₹ 31,500
The aggregate payment during the day for purchases of ₹ 31,500 will be disallowed even if made in parts at different times of the day. Section 40A(3) cannot be avoided in this manner.

Question 87.
Under section 40A(3), if a payment of more than ₹ 10,000 is made otherwise then by an account cheque or an account payee draft, through ECS, or through such other electronic mode as may be prescribed, ……….. % of the expenditure, which otherwise would have been allowed, shall be disallowed.
(a) 30%
(b) 100%
(c) 20%
(d) 15%
Answer:
(b) 100%

Question 88.
Mr. X the employer made a payment of ₹ 40,000 to his employee Mr. Y in cash, as Mr. Y was temporarily posted for 10 days to a place away from his normal place of duty. Mr. Y did not have any Bank A/c at the place of temporary posting. Assuming T.D.S. has been deducted the amount of salary will be,
(a) Allowed as an expense
(b) 30% disallowed
(c) 100% disallowed
(d) None of the above
Answer:
(c) 100% disallowed
Rule 6D will not be attracted as MR. Y was posted only for 10 days. Here, minimum days of posting is 15 days – Hence (C)

Question 89.
Z made a payment of ₹ 30,000 for leasing goods carriage in cash, the amount disallowed u/s 40A(3) will be
(a) ₹ 30,000
(b) ₹ 20,000
(c) ₹ 9,000
(d) Nil
Answer:
(d) Nil
Payment of freight can be made in cash upto ₹ 35,000. Therefore, nothing will be disallowed.

Question 90.
A Ltd. purchased goods on credit for ₹ 40,000 during P. Y. 2018-19 and maintains books of account on accrual basis. The same was allowed as an expense during 2018-19. The company made the payment in P.Y. 2019-20 hut it paid in cash. Choose the correct option:
(a) The payment will be taxable as business income for P.Y. 2018-19
(b) The payment will be taxable as business income for P.Y. 2019-20
(c) The amount will not be disallowed later.
(d) None of the above
Answer:
(b) The payment will be taxable as business income for P.Y. 2019-20
As per section 40A(3A), where payment is made otherwise than by Account payee cheque, or by demand draft or ECS or any other electronic mode in the subsequent year in which the expense was allowed on accrual basis, the amount will be deemed to be the profits and gains of business or profession and accordingly chargeable to tax in the subsequent year. Hence, (b) is the option.

Question 91.
Suhani purchased goods from relatives for ₹ 60,000 which were having a fair market value of ₹ 48,000. She made the payment in cash. The amount disallowed u/s 40A(2) and 40A(3) will be ………… & ……….. respectively.
(a) 12,000 & 48,000
(b) Nil & 60,000
(c) 12,000 & 60,000
(d) Nil & 48,000
Answer:
(a) 12,000 & 48,000
Payment made to relatives are disallowed u/s 40A(2) to the extent it is excessive. Hence [60,000 – 48,000] = 12,000 is disallowed as per section 40A(2) and as the entire payment is made in cash, the remaining 48,000 is disallowed as per section 40A(3)

Question 92.
During the P.Y. 2018-19, XYZ Ltd. pays Mr. Vishal ₹ 60,000 per month as salary and ₹ 10,000 per month as Dearness allowance forming part of salary. The employer provided him a rent free accommodation at Delhi, the employer also paid tax on perquisite value. What amount is deductible or not deductible u/s 40(a)(v) of the Income Tax Act, 1961 for P.Y. 2019-20 in the books of XYZ Ltd.
(a) ₹ 13,696
(b) ₹ 13,294
(c) ₹ 12,600
(d) ₹ 13,104
Answer:
(b) ₹ 13,294
Calculation of tax of the employee
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 37
Average tax rate = 99,528/9,16,000 × 100 = 10.87%
Tax on Rent free accommodation = 10.87 × 1,26,000 = 13,696.20 =₹ 13,696 Hence, (a)

Question 93.
A State Government undertaking showed a profit of ₹ 8,69,000 for the P.Y. 2019-20. It had debited, in its Profit & Loss A/c ₹ 25,000 by way of royalty paid to the Central Government and ₹ 30,000 by way of privilege fees paid to the State Government. The privilege fee was levied exclusively on this undertaking. The taxable profits of the Company during the A.Y. 2020-21 are:
(a) ₹ 8,69,000
(b) ₹ 8,39,000
(c) ₹ 8,99,000
(d) ₹ 8,44,000
Answer:
(c) ₹ 8,99,000
The fee, tax or duty levied by state government exclusively on state government undertaking is not allowed as on expense.
Therefore, By adding ₹30,000 privilege fees paid to the state government, which has been debited to P&L A/c, the profits as per Income-tax would be ₹ 8,69,000 + 30,000 = ₹ 8,99,000.

Question 94.
Sameer sold goods worth ₹ 50,000 at credit on 1st April, 2018. However, he has written off X 10,000 of it as bad debts and claimed deduction for the same during the year 2018-19, On 4th April, 2019, the defaulting debtor made payment of ₹ 45,000. The taxable amount of bad debts recovered for the year 2019-2020 would beta)
(a) ₹ 5,000
(b) ₹ 50,000
(c) ₹ 45,000
(d) ₹ 10,000
Answer:
(a) ₹ 5,000
Sameer has written off ₹ 10,000 as Bad debts. Therefore, when he receives ₹ 45,000 out of a total sum of 50,000, the bad debts are recovered to the extent of ₹ 5,000 and they are taxable under section 41(4). Hence (a) is the answer.

Question 95.
Where an asset used for scientific research for more than three years is sold without having been used for other purposes, then the sale proceeds to the extent of the cost of the asset already allowed as deduction under section 35 in the past be treated as
(a) Business income
(b) Long-term capital gain
(c) Short-term capital gain
(d) Exempted income
Answer:
(a) Business income

Question 96.
Raju succeeded to the business of his father Ramu consequent to demise of Ramu on 1.2.2019. Raju recovered ₹ 30,000 due from a Customer which was written off by late Ramu as bad debt and allowed in the assessment year 2015-16. The amount recovered is:
(a) Exempt from tax
(b) Fully taxable as business income
(c) ₹ 15,000 being 50% taxable as business income
(d) To be set off against current year bad debts
Answer:
(b) Fully taxable as business income

Question 97.
Anuj owns 6 goods carriage vehicles (weight of vehicles does not exceed 12,000 kg) out of which 2 goods vehicle are ac-quired by him on 15th January, 2019. His taxable income u/s 44AE will be –
(a) ₹ 4,05,000
(b) ₹ 3,24,000
(c) ₹ 2,46,000
(d) ₹ 3,60,000
Answer:
(a) ₹ 4,05,000
Under section 44AE, in case of vehicles other than heavy vehicles income is ₹ 7,500 per month or part of month per vehicle. Therefore the income here will be :
(4 × 12 × 7,500) + (2 × 3× 7,500) = 4,05,000

Question 98.
Provisions of Section 44AD for computation of presumptive income are not applicable to :-
(a) Limited liability partnership
(b) Partnership firm
(c) Resident Hindu Undivided Family
(d) Resident individual
Answer:
(a) Limited liability partnership

Question 99.
DP & Co. is a partnership firm with 3 partners. The capital of each partner was ₹ 2 lakh. The partnership deed authorized interest on capital @ 15% and working partner salary to each partner ₹ 10,000 per month for all the partners. The total sales amounted to ₹ 70 lakh. The total income of the firm under Section 44AD would be –
(a) ₹ 5,60,000
(b) ₹ 4,32,000
(c) ₹ 1,28,000
(d) ₹ 3,50,000
Answer:
(a) ₹ 5,60,000
The total income of the firm will be 8% of the Sales u/s 44AD. No further expense is allowed. Even remuneration or interest to partner is not allowed in the case of firm opting for presumptive taxation.

Question 100.
Mr. Siraj engaged in retail trade reports a turnover of ₹ 43 lakhs for the previous year 2018-19. He deposited ₹30,000 in his PPF account held with SBI. Turnover or gross receipts represents amount received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in Section 139(1). His total income for the assessment year 2019-20 by applying section 44AD provision is:
(a) ₹ 3,14,000
(b) ₹ 3,44,000
(c) ₹ 2,28,000
(d) ₹ 4,00,000
Answer:
(c) ₹ 2,28,000
If the receipts are through banking channels like A/c payee cheques or ECS etc. then presumptive income is 6% of the turnover u/s 44AD. Here, 6% of ₹ 43,00,000 = ₹ 2,58,000 (2,58,000 – Deduction of ₹ 30,000) = 2,28,000

Question 101.
Alpha & Co. is a proprietary concern owned by Vimala. The total turnover for the year 2019-20 is X 52 lakhs which includes proceeds realized through banking channel ₹ 12 lakhs. The presumptive income under section 44AD would be –
(a) ₹ 4,16,000
(b) ₹ 2,60,000
(c) ₹ 3,92,000
(d) ₹ 5,20,000
Answer:
(c) ₹ 3,92,000
Presumptive Income u/s 44AD (6% on ₹ 12,00,000 + 8% on balance ₹ 40,00,000) Total income = ₹ 72,000 + 3,20,000 = 3,92,000

Question 102.
Tulip & Co. is a partnership firm of two partners. Total turnover of the firm during financial year 2019-20 is ₹ 160 lakh inclusive of ₹ 60 lakh made through account payee cheques and ECS. The partnership deed provided for monthly working salary of₹ 30,000 to each of the partners. The income of the firm by applying section 44AD for A.Y. 2019-20 would be :
(a) ₹ 11,60,000
(b) ₹ 12,80,000
(c) ₹ 5,00,000
(d) ₹ 4,40,000
Answer:
(a) ₹ 11,60,000
U/s 44AD presumptive tax is @ 6% on receipts though ECS and @ 8% on other- receipts. Here 6% of ₹ 60,00,000 + 8% of ₹ 1,00,00,000 = ₹ 11,60,000. No further deduction allowed even to a firm for payments of salaries etc. to partners after the omission by the Finance Act, 2016 w.e.f 1.4.2017.

Question 103.
Kant, is engaged in the business of purchase and sale of pieces of various lands. During the F.Y. 2019-20, he sold pieces of lands for ₹ 32 lakh. All these sales were made through cheques and Electronic Clearing System (ECS). The valuation of these pieces was ₹ 41 Lakhs. He wants to pay tax on the income as per section 44AD. The income as per this section for A.Y. 2020-21 shall be:
(a) ₹ 2,46,000
(b) ₹ 3,28,000
(c) ₹ 2,56,000
(d) ₹ 1,92,000
Answer:
(a) ₹ 2,46,000
6% of ₹ 41 Lacs = ₹ 2,46,000. As 41 lacs > 32 lacs + 10%

Question 104.
Ping Pong is a Proprietorship firm of Pinga, resident in India having turnover from manufacturing and sale of Steel balls for the year 2018-19 of ₹ 148 lakh which is inclusive of amount of ₹ 42 lakh received through electronic clearing system/RTGS/ NEFT. The accounts are not properly main-tained by Pinga and therefore he wants to pay tax on the income computed under section 44AD of Act. Advise Pinga, on how much income he will be required to pay tax for A.Y. 2019-20 as per section 44AD:
(a) ₹ 11,84,000
(b) Not allowed to opt 44AD being turnover above ₹ 100 lakh
(c) ₹ 11,00,000
(d) ₹ 8,88,000
Answer:
(c) ₹ 11,00,000

Question 105.
Zing Zang is an individual, manufacturing a product. He has turnover of ₹ 98,50,000 which is inclusive of amount of ₹ 25 lakh received through electronic clearing system. The accounts are not properly maintained and you have advised him to pay tax u/s 44AD of the Act. On how much income he will pay tax for A.Y. 2020-21 :
(a) ₹ 7,88,000
(b) ₹ 7,38,000
(c) Manufacturers not allowed u/s 44AD
(d) ₹ 5,91,000
Answer:
(b) ₹ 7,38,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 38

Question  106.
Radhey a trader having turnover of ₹ 90,00,000 from textile business inclusive of turnover of ₹ 20,00,000 carried through banking channel by way of drafts and on-line payments had opted to pay tax as per section 44AD of the Income Tax Act. The amount of income which shall be taken for the purpose of tax for Asst. Year 2020-21 under the head income from business and profession is
(a) ₹ 9,00,000
(b) ₹ 6,80,000
(c) ₹ 7,20,000
(d) ₹ 5,40,000
Answer:
(b) ₹ 6,80,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 39

Question 107.
X applied for presumptive taxation scheme u/s 44AD( 1) in the year 2018-19,but in the current previous year 2019-20, it claims to have lower income and does not declare profits in accordance with section 44AD(1). Mr. X cannot claim the benefit of the provisions of the section 44AD up…………. to Assessment year:
(a) 2023-24
(b) 2024-25
(c) 2025-26
(d) 2026-27
Answer:
(c) 2025-26

Question 108.
Sukhdev Singh engaged in the business of plying, hiring or leasing of heavy goods carriages owned 6 vehicles during the period 1st April, 2019 to 31st March, 2020 which were given on lease for plying to GS Transport Company on a fixed rate of ₹ 5,000 p.m. per truck for whole year. He had opted to pay tax as per section 44AE of the Income Tax Act. The amount of income which shall be taken for all such trucks for the purpose of tax for Asst. Year
2020-21 is
(a) ₹ 5,40,000
(b) ₹ 3,60,000
(c) ₹ 6,48,000
(d) ₹ 6,84,000
Answer:
(a) ₹ 5,40,000
6 × 12 × 7500 = 5,40,000

Question 109.
Mr. Ramanand, engaged in the business of plying, hiring or leasing of goods carriers as on 1 st April, 2018 was having 3 trucks of gross vehicles weight of less than 12,000 kgs. each. One truck out of these 3 trucks was sold by him on 23rd July,2018 and after its sale, 2 more trucks (1 of less than 12,000 kgs. and 1 of 16,900 kgs.) were purchased on 5th September, 2018. He wants to declare the income of trucks as per provisions of section 44AE of the Act and be required to declare such income at ₹ in the return for A.Y. 2019-20 from plying of these vehicles during the previous year ended on 31st March, 2019. :
(a) ₹ 3,54,500
(b) ₹ 3,81,500
(c) ₹ 3,15,000
(d) ₹ 3,74,000
Answer:
(b) ₹ 3,81,500

Question 110.
Dr. Ravi practicing medicine has gross receipt of ₹ 18,40,000 for the financial year 2019-20. His presumptive income under Section 44ADA would be:
(a) ₹ 1,47,200 @8%
(b) ₹ 92,000 @ 5%
(c) ₹ 9,20,000 @ 50%
(d) ₹ 4,60,000 @ 25%
Answer:
(c) ₹ 9,20,000 @ 50%

Question 111.
Rahim had 5 light goods carriage vehicles on 1.4.2019. He acquired and used 3 vehicles from 1.9.2019. What is the presumptive income under section 44AE
(a) ₹ 8,10,000
(b) ₹ 3,64,500
(c) ₹ 2,02,500
(d) ₹ 6,07,500
Answer:
(d) ₹ 6,07,500
Under section 44AE, in case of vehicles other than heavy vehicles income is ₹ 7,500 per month or part of month per vehicle. Therefore the income here will be : (5 × 12 × 7,500) + (3 × 7 × 7,500)
= 6,07,500

Question 112.
When a person carries on the business of carrying goods for hire for the whole year with 5 self-owned and 3 leasehold goods vehicles (gross vehicle weight of which does not exceed, 12,000 kg), the presumptive income chargeable to tax u/s 44AE; would beta)
(a) ₹ 4,80,000
(b) ₹ 7,20,000
(c) ₹ 3,96,000
(d) ₹ 3,36,000
Answer:
(b) ₹ 7,20,000
Under section 44 AE, in case of vehicles other than heavy vehicles income is ₹ 7,500 per month or part of month per vehicle. Therefore the income here will be : (8 × 12 × 7,500) = 7,20,000

Question 113.
The base for determination of notional income arising from the operation of a ship, in case of Indian Shipping Company under sections 115V to 115VZC of the Income Tax Act, 1961 is taken :
(a) Aggregate turnover/receipt/sales of the ship
(b) Tonnage of the ship
(c) @ 8% of turnover/receipts/sales of the ship
(d) Gross profit rate of preceding year
Answer:
(b) Tonnage of the ship

Question 114.
Income of a non-resident from airline business under section 44BBA of Income Tax Act, 1961 is calculated at the rate of …………… percentage of the aggregate amounts specified, on presumptive basis.
(a) 7.5%
(b) 5%
(c) 10%
(d) 15%
Answer:
(b) 5%

Question 115.
The lock in period under the scheme of presumptive taxation based on the tonnage of the ship, in case of Shipping Company, under the provisions of Sections 115 to 115VZC is:
(a) 5 years
(b) 7 years
(c) 10 years
(d) 3 years
Answer:
(c) 10 years

Question 116.
A person carrying on profession will also have to get his accounts audited before the specified date, if gross receipts from the profession for a previous year or years relevant to assessment year exceed
(a) ₹ 50 Lakh
(b) ₹ 10 Lakh
(c) ₹ 1 Crore
(d) ₹ 25 Lakh
Answer:
(a) ₹ 50 Lakh

Question  117.
Books of account of an individual is liable for audit under section 44AB on mandatory basis, if the annual turnover exceeds:
(a) ₹ 40 lakhs
(b) ₹ 60 lakhs
(c) ₹ 100 lakhs
(d) ₹ 200 lakhs
Answer:
(c) ₹ 100 lakhs

Question 118.
A professional is required to get his accounts audited under section 44AB of the Income-tax Act, 1961, where the gross receipts from profession during the financial year 2019-20:
(a) Exceeds ₹ 100 lakhs
(b) Equal to or exceeds ₹ 50 lakhs
(c) Equal to or exceeds ₹ 100 lakhs
(d) Exceeds ₹ 50 lakhs
Answer:
(d) Exceeds ₹ 50 lakhs

Question 118A.
In cases where aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five percent of the said amount and aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five percent of the said payment, the tax audit u/s 44AB will apply when the turn¬over exceeds ₹ crores.
(a) 1
(b) 2
(c) 5
(d) 8
Answer:
(c) 5

Question 118B.
Under section 44AB of the Act, every person carrying on business is required to get his accounts audited before
(a) A date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139
(b) the due date for furnishing the return of income under sub-section (1) of section 139
(c) 31st December of the relevant assessment year
(d) None of these
Answer:
(a) A date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139

Question 119.
Maintenance of books of account in the case of an HUF carrying business is mandatory, if the turnover or gross receipts in any one of the three years immediately preceding the previous year exceeds:
(a) ₹ 10 lakhs
(b) ₹ 15 lakhs
(c) ₹ 25 lakhs
(d) ₹ 100 lakhs
Answer:
(a) ₹ 10 lakhs

Question 120.
A person carrying specif ied prof ession will have to maintain books of account prescribed by Rule 6F of the Income Tax Rules, 1962, if gross receipts are more than ₹ 1,50,000 for …………..
(a) All preceding 5 years
(b) Any of the preceding 5 years
(c) All preceding 3 years
(d) Any of the preceding 3 years
Answer:
(c) All preceding 3 years

Question 121.
Sunil acquired a building for ₹ 15 lakh in June, 2017 in addition to cost of land beneath the building of ₹ 3 lakh. It was used for personal purposes until he commenced business in June, 2019 and since then it was used for business purposes. The amount of depreciation eligible in his case for the AY 2020-21 would be-
(d) ₹ 1,50,000
(b) ₹ 75,000
(c) 137,500
(d) ₹ 1,21,500
Answer:
(d) ₹ 1,21,500
When an as set used as a personal asset, being building is now used for business purposes, it is assumed that the value of building to the business will be, as if it was used for business from the beginning and depreciated at the rates as per Block of assets. Here, depreciation for P.Ys 17-18 and 18-19 would already be charged @ 1096 p.a. and therefore, the depreciation for P.Y 19-20 will be :-
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 40

Question 122.
A machine owned by AB & Co. was transferred to XYZ & Co. on 1st January, 2019 for ₹ 5 lakh of which actual cost and WDV was ₹ 3 lakh and 2 lakh respectively. However, the fair market value on the date of transfer of machine was of ₹ 4 lakh. XYZ & Co. will be allowed depreciation on such machine by taking value thereof at
(a) 5 lakh
( b) 2 lakh
(c) 3 lakh
(d) 4 lakh
Answer:
(a) 5 lakh

Question 123.
Saraswath Ltd. made provision of ₹ 12 lakh for bonus payable for the year ended 31st March, 2019. It paid ₹ 7 lakh on 31st July, 2019; ₹ 3 lakh on 30th September, 2019; and 2 lakh on 15th December, 2019. The amount eligible for deduction u/s 43B would be –
(a) ₹ 10 lakh
(b) ₹ 12 lakh
(c) ₹ 7 lakh
(d) ₹ 3 lakh.
Answer:
(a) ₹ 10 lakh
Deduction is allowed only if Bonus is paid on or before due date of furnishing of return.
So only 7 lac + 3 lac = ₹ 10 lac will be allowed.

Question  124.
Appu Ltd. contributed ₹ 8,70,000 towards provident fund account of its employees. It actually remitted ₹ 5,00,000 up to 31st March and ₹ 2,50,000 up to the due date for filing the return specified in section 139(1). The amount liable to tax in its assessment would be –
(a) ₹ 3,70,000
(b) ₹ 1,20,000
(c) Nil
(d) ₹ 8,70,000
Answer:
(b) ₹ 1,20,000

Question 125.
As per section 43(5)(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association is not deemed to be a speculative transaction if commodity transaction tax is chargeable. This requirement of chargeability of commodity transaction tax is not applicable in case of:
(a) Agricultural Commodity derivatives
(b) Metal commodity derivatives
(c) All Non-agricultural derivatives
(d) None of the above.
Answer:
(a) Agricultural Commodity derivatives
After the insertion in second proviso to section 43(5) by the Finance Act, 2019, the requirement of chargeability of commodity transaction tax is not applicable in case of agricultural commodity derivative.

Question 126.
A building was sold by Mr. X for ₹ 6,00,000 as a part of his business. The stamp duty authorities valued the building for ₹ 6,25,000. The sale consideration for the purpose of computation of business income shall be:
(a) ₹ 6,00,000
(b) ₹ 6,25,000
(c) At the discretion of Assessing officer
(d) As determined by the valuation officer.
Answer:
(a) ₹ 6,00,000
As per the newly inserted proviso to section 43CA w.e.f. 1.4.2019, where the value adopted or assessed or assessable by the authority for the purpose of payment of Stamp duty does not exceed 10596 of the consideration received or accruing as a result of transfer, the consideration shall be deemed to be the full value of consideration for the computation of business income.

Part 4: Income Under The Head “Capital Gains”

Question 1.
What is the charging section for income under the head “capital gains”
(a) Section 43
(b) Section 45
(c) Section 46
(d) Section 48
Answer:
(b) Section 45

Question 2.
The following conditions must be satisfied for attracting capital gains tax liability except:
(a) There should be a capital asset
(b) It must be transferred by the assessee within the meaning of sections 46 and 47.
(c) The transfer takes place during the previous years
(d) The gains arising are not exempt.
Answer:
(b) It must be transferred by the assessee within the meaning of sections 46 and 47.

Question 3.
As per section 2(14) a capital asset means
(i) Property of any kind (if) Right in relation to an Indian company
(iii) Securities held by foreign institutional investor invested in accordance with the regulations made under the SEBI Act
(iv) Urban agricultural land
(v) Stock-in-trade
(a) (i)&(iv)
(b) (i), (iii) & (iv)
(c) (i), (ii), (iii) & (iv)
(d) All of the above
Answer:
(c) (i), (ii), (iii) & (iv)

Question 4.
Which of the following is not a requisite for charging income-tax on capital gains₹
(a) The transfer must have been effected in the relevant assessment year
(b) There must be a gain arising on transfer of capital asset
(c) Capital gains should not be exempt u/s 54
(d) Capital gains should not be exempt u/s 54EC
Answer:
(a) The transfer must have been effected in the relevant assessment year

Question 5.
Capital asset excludes all except-
(a) Stock-in-trade
(b) Personal effects
(c) Jewellery
(d) Rural agricultural land in India
Answer:
(c) Jewellery

Question 6.
In terms of Section 2(42A), unlisted shares treated as long-term capital asset, if they are held for a period more than-
(a) 24 Months
(b) 36 Months
(c) 12 Months
(d) 48 Months
Answer:
(a) 24 Months

Question 7.
Which of the following is not a requisite for charging income-tax on capital gains
(a) The transfer must have been effected in the relevant assessment year
(b) There must be a gain arising on transfer of capital asset
(c) Capital gains should not be exempt u/s 54
(d) Capital gains should not be exempt u/s 54EC
Answer:
(a) The transfer must have been effected in the relevant assessment year

Question 8.
Long-term capital gains on zero coupon bonds are chargeable to tax –
(a) @ 20% computed after indexation of such bonds
(b) @10% computed without indexation of such bonds
(c) Higher of (A) or (B)
(d) Lower of (A) or (B)
Answer:
(d) Lower of (A) or (B)

Question 9.
D transferred Zero Coupon Bonds on 20th August, 2019. These bonds were acquired during the financial year 2011-12. The capital gain computed on the redemption with indexation benefit is ₹ 2 Lakh and without indexation benefit is ₹ 3 Lakh. The long term gain would be chargeable to tax on such Zero Coupon Bonds in A.Y. 2020-21
(a) @ 5%
(b) @10%
(c) @ 20%
(d) @30%
Answer:
(b) @10%
Tax liability is 20% after indexation and 10% without indexation.
Lower of {2,00,000 × 20% i.e. ₹ 40,000} or {3,00,000 × 10% i.e. ₹ 30,000}
Therefore, Mr. D will opt for 10% without indexation.

Question 10.
Section 50C makes special provision for determining the full value of consideration in cases of transfer of –
(a) Plant and machinery
(b) Land or building
(c) All movable property other than plant & machinery and computers
(d) Computers
Answer:
(b) Land or building

Question 11.
Land or building, or both, if transferred on or after 1st April, 2018 shall be treated as a long term capital asset, if it is being held immediately prior to the date of its transfer for more than :
(a) 36 months
(b) 12 months
(c) 24 months
(d) None of the above
Answer:
(c) 24 months

Question 12.
Radhey has sold his house on 11th August, 2017 for ₹ 80 lakh. The value applied by Stamp Valuation Authority is ₹ 100 lakh. He disputed this valuation and the departmental valuation cell made the valuation at ₹ 110 lakh. The value to be taken for calculation of capital gain as per section 50C is ₹ :……………
(a) 80 lakh
(b) 110 lakh
(c) 100 lakh
(d) None of the above
Answer:
(c) 100 lakh
If valuation officer increases the value of asset, it is ignored and stamp duty valuation is considered, if it is more than 110% of sale consideration.

Question  13.
Chirag entered into an agreement for sale of his house property located at Jaipur to Yash on 1st August, 2019 for a total sale consideration of ₹ 95 lakhs. Yash paid an amount of ₹ 20 lakh by account payee Cheque to Chirag on 1st August, 2019 and balance was agreed to be paid at the time of registration of the Conveyance Deed which could only be executed by Chirag on 1 st September 2020. The Stamp Valuation Authority determined the value of the house property on the date of registration deed at ₹ 140 lakh. However, the value determined by the Stamp Valuation Authority of the house on the date of agreement (1 st August, 2019) was ₹ 104 lakh. The sale value for the purpose of computing the capital gain of the property in A.Y. 2021-22 to be taken by Chirag shall be:
(a) ₹ 95 lakh
(b) f 110 lakh
(c) ₹ 140 lakh
(d) ₹ 120 lakh
Answer:
(a) ₹ 95 lakh

Question  14.
X entered into an agreement for sale of his house located at Jaipur to Y on 1st April, 2019 for a total sale consideration of ₹ 90 lakh. Y paid an amount of ₹ 20 lakh by account payee cheque to X on the date of agreement and balance was to be paid at the time of registration of deed. However, the conveyance deed could not be executed till 1st Sept., 2020. The Stamp Valuation Authority determined the value of the property on the date of registration of conveyance deed at ₹ 120 lakh and the value determined by the Stamp Valuation Authority on the date of agreement was ₹ 100 lakh. The value for the purpose of capital gain u/s 50C shall be taken :
(a) ₹ 90 lakh
(b) ₹ 120 lakh
(c) ₹ 20 lakh
(d) ₹ 100 lakh
Answer:
(d) ₹ 100 lakh
Value at the time of agreement is considered provided some money is exchanged otherwise than by cash and as it exceeds 110% of 90 lacs.

Question 15.
Radhey has sold his residential house on 11th Sept., 2020 for ₹ 75 lakh. Value applied by the Stamp Valuation Authority on the date of registration of the Convey-ance Deed on 15th Sept., 2020 was of ₹ 115 lakh. Radhey disputed the valuation made by the Stamp Valuation Authority and asked the departmental valuation officer to determine the value of the house on the date of registration of deed. The departmental valuation officer determined the value of the house on the date of registration of the deed at ₹ 120 lacs. Sale value of the house to be taken for calculation of capital gain in A. Y. 2021 -22 as per section shall be of
(a) 50C, ₹ 115 lakh
(b) 50C, ₹ 120 lakh
(c) 48, ₹ 75 lakh
(d) 45, Indexed cost of ₹ 75 lakh
Answer:
(a) 50C, ₹ 115 lakh

Question 16.
The following are not capital Asset within section 2(14)
(i) Personal effects
(ii) Agricultural land in rural area
(iii) Jewellery, paintings archaeological collections
(iv) Gold Deposit Bonds
(a) (i) & (ii)
(b) (i), (ii) & (iii)
(c) (i), (it), (iii) & (iv)
(d) (i), (ii) & (iv)
Answer:
(d) (i), (ii) & (iv)

Question 17.
Mr. Z bought a beautiful sofa set for ₹ 1,40,000 for his personal use. He sold the sofa set after 6 months for ₹ 1,60,000. The amount of ₹ 20,000 will be taxable in the hands of Mr. Z as:
(a) Business Income
(b) Capital gains
(c) Income from other sources
(d) Not Taxable at all.
Answer:
(d) Not Taxable at all.

Question  18.
Out of the following, which income is chargeable as capital gain :
(i) from transfer of self-generated good-will of profession
(ii) from transfer of personal jewellery
(iii) from transfer of paintings and art-work
(iv) from transfer of furniture utilised for personal use
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i), (ii) and (iii)
(d) All the four
Answer:
(c) (i), (ii) and (iii)

Question 19.
Mr. Sukhdev has a agricultural land in village “khera” having population of 16000 as per preceding census. The land will be treated as
(a) Capital asset hence gains will be taxable
(b) Not a capital asset
(c) Capital asset but gains would be exempt
(d) Capital asset but losses if any will not be allowed
Answer:
(a) Capital asset hence gains will be taxable

Question 20.
The population of a municipality is 80,000. The land within kms from the local limits of municipality will not qualify as rural agricultural land
(a) 2 kilometers
(b) 6 kilometers
(c) 8 kilometers
(d) None of these
Answer:
(a) 2 kilometers

Question 21.
Suparna held a house property for 2 years and 10 months and then sold it her gains will be
(a) Taxable as short-term capital gains
(b) Taxable as long-term capital gains
(c) Not Taxable at all.
(d) Taxable under “House Property”
Answer:
(b) Taxable as long-term capital gains

Question 22.
The following assets will be treated as long term capital assets, if transferred after 12 months, except:
(a) Listed equity or preference shares in a company
(b) Listed securities
(c) Units of UTI or of an equity oriented mutual fund whether or not quoted.
(d) Unlisted shares
Answer:
(d) Unlisted shares

Question 23.
A Mutual fund invests in another fund. The fund will be considered as an equity oriented Mutual fund if the investment in the units of other fund is………… % and other funds invests a minimum of ………… % of its total proceeds in the equity shares of domestic companies listed on recognized stock exchange.
(a) 65%, 90%
(b) 65%, 65%
(c) 90%, 90%
(d) 90%, 65%
Answer:
(c) 90%, 90%

Question 24.
Units of a business trust are transferred after 14 months. The Capital gains of ₹ 1,80,000 arising in the transaction shall be taxable as:
(a) STCG @ 1596
(b) LTCG@20%long termas transferred after 12 months.
(c) STCG at normal slab rates.
(d) LTCG @ 1096 on 80,000
Answer:
(a) STCG @ 1596
Units of a business trust are long term after 36 months.

Question 25.
Which one of the following asset will be treated as long term capital asset.
(a) building held for 2 years and 5 days and transferred on 10.6.2016
(b) unlisted shares in a company held for 2 years 4 months transferred on 6.6.2016.
(c) jeweller held for 2 years 6 months transferred on 19.11.2017
(d) unlisted shares in a company held for 2 years 7 months
Answer:
(d) unlisted shares in a company held for 2 years 7 months

Question 26.
For computation of capital gains, sale consideration
(a) Should be adequate
(b) Adequacy is relevant only when the capital asset is land or building or both
(c) Is the fair market value of asset transferred
(d) Should not be in kind only cash
Answer:
(b) Adequacy is relevant only when the capital asset is land or building or both

Question 27.
Short-term capital gains arising from the transfer of equity shares in a company or units of an equity oriented fund or units of a business trust charged with security transaction tax are subject to income-tax at the rate of –
(a) 1096
(b) 15%
(c) 2096
(d) Normal rate
Answer:
(b) 15%

Question 28.
Land or building, or both, if transferred on or after 1st April, 2017 shall be treated as a long term capital asset, if it is being held immediately prior to the date of its transfer for more than :
(a) 36 months
(b) 12 months
(c) 24 months
(d) None of the above
Answer:
(c) 24 months

Question 29.
Z purchased equity shares in X Ltd. the shares were listed and purchased through stock exchange on 1.10.2018, the broker contract note was dated 8.10.2018 Z sold the shares during P.Y. 2019-20 on 6.10.2019 and gained ₹ 20,000. Choose the correct option:
(a) The gains are LTCG as shares held for more than 12 months
(b) The gains are LTCG and exempt u/s 112A, as total gain is less than ₹ 1,00,000
(c) The gains are STCG counting from 8-10-2017 to 6-10-2018.
(d) None of these
Answer:
(c) The gains are STCG counting from 8-10-2017 to 6-10-2018.
The date of Broker contract note is relevant.

Question 30.
When shares of a listed company held for more than 36 months are transferred privately for ₹ 8 lakh, with original cost of acquisition of ₹ 1 lakh whose indexed cost: of acquisition is ₹ 2 lakh the income-tax payable would be –
(a) ₹ 1,44,200
(b) ₹ 72,800
(c) ₹ 1,24,800
(d) ₹ 61,800
Answer:
(c) ₹ 1,24,800

₹ ……………………………..
Sale Consideration 8,00,000
Less: Indexed cost of acquisition 2,00,000
Long term Capital Gains 6,00,000
Tax @20% 1,20,000
Add: HEC @ 4% 4,800
Total tax liability 1,24,800

Question 31.
A foreign institutional investor (FII) has total income which includes short-term capital gains on sale of listed shares of ₹ 30 lakh. The rate of tax for charging such income to tax is –
(a) 1096
(b) 30%
(c) 1596
(d) 4096
Answer:
(c) 1596

Question 32.
Rajat purchased a car for his personal use for ₹ 5,00,000 in April 2018 and sold the same for ₹ 5,50,000 in July 2018. The taxable capital gains would be -…………..
(a) Nil
(b) ₹ 5,50,000
(c) ₹ 50,000
(d) ₹ 4,00,000
Answer:
(a) Nil
Capital asset, as defined by section 2( 14) of Income Tax Act, 1961, does not include items held for personal use. Therefore, car used for personal purposes is not a capital asset.

Question 33.
There was a transfer of unit of Business trust. STT was not paid at the time of purchase but it was paid at the time of transfer. Will long term Capital Gains be taxable u/s 112A
(a) No, as STT must have been paid at the time of purchase and at the time of transfer.
(b) Yes, on excess, if Capital Gains from transaction exceed ₹ 1,00,000.
(c) Yes entire Capital Gains will be taxable irrespective of amount.
(d) Yes if Capital Gains exceed ₹ 1,00,000, entire Capital Gains will be taxable.
Answer:
(b) Yes, on excess, if Capital Gains from transaction exceed ₹ 1,00,000.
(b) In case of units of business trust STT at the time of acquisition is not required but at the time of sale it is compulsory and tax is levied @ 10% on Capital Gains in excess of ₹ 1,00,000.

Question 34.
Mrs. Lakshmi purchased shares of ABB Ltd. for ₹ 5 lakhs on 3rd April, 2017. The shares were sold on 5th June, 2019 for ₹ 7 lakhs. She paid STT of ₹ 700 and brokerage of ₹ 500. Capital gain chargeable to tax:
(a) Nil, as it is exempt u/s 10(38)
(b) @ 10% u/s 112A without benefit of indexation (in excess of ₹ 1,00,000)
(c) @ 20% u/s 112 without benefit of indexation
(d) @ 10% u/s 112A with benefit of indexation (in excess of ₹ 1,00,000)
Answer:
(b) @ 10% u/s 112A without benefit of indexation (in excess of ₹ 1,00,000)
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 34
Or sale consideration,                                                                 95,00,000

Question 35.
X acquires 1,00,000 equity shares on 10.1.2018 for ₹ 80 per share and sold them for ₹ 95 per share. The FMV of asset on date of transfer is ₹ 98 Find the amount taxable u /s 112 A. STT was paid at the time of purchase and sale of shares. Indexed cost of acquisition may be taken as 82,35,295.
(a) ₹ 15,00,000 being LTCG, ₹ 14,00,000 will be taxable @ 10%.
(b) As equity shares are acquired before 1.2.2018 LTCG of 15 lac will taxable @ 20%.
(c) LTCG taxable ₹ 12,64,705 (95,00,GOO- 82,35,295)
(d) Nil.
Answer:
(d) Nil.

Question 36.
X transferred shares to Mr. Y on 20.3.2020. The shares certificate was delivered to Y on the same day. However, the company registered them on 4.4.2020 the capital gains will pertain to:
(a) PY 2018-19
(b) PY 2019-20
(c) PY 2020-21
(d) Either (b) or (c)
Answer:
(b) PY 2019-20

Question 37.
Which one of the following transfer of a capital asset is not a transfer for the purpose of section 45.
(a) Compulsory acquisition by Government
(b) Sale of plant & Machinery to relocate undertaking to rural area.
(c) Transfer by X Ltd. to Y Ltd. is an Indian company and X holds 96% shares in Y Ltd.
(d) Transfer of artistic work to government.
Answer:
(d) Transfer of artistic work to government.

Question 38.
A transfer of capital asset by a private company or unlisted public company shall not be treated as transfer u/s 47(extend) of the Act on Conversion into LLP on fulfilment of the conditions which inter alia include that the total value of assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion took place does not exceed
(a) ₹ 5,00,00,000
(b) t 10,00,00,000
(c) ₹ 20,00,00,000
(d) ₹ 1,00,00,000
Answer:
(a) ₹ 5,00,00,000

Question 39.
The transfer of capital Asset includes
(a) Sale or exchange
(b) Compulsory acquisition
(c) Extinguishment of right therein
(d) All of the above
Answer:
(d) All of the above

Question 40.
X Ltd. has Building purchased on 15.3.2008 the Building was used in the company Depreciation has been charged at the rate of 10% p.a. for over the years. The written down value of the building is ₹ 33,125. The Building was sold for 1,50,0 choose the correct option
(a) LTCG of ₹ 50,000
(b) LTCG of ₹ 1,16,875
(c) STCG of ₹ 1,16,875 if Building is the only asset in the block
(d) No gains or losses on sale of business assets
Answer:
(c) STCG of ₹ 1,16,875 if Building is the only asset in the block
Depreciating assets are always charged to tax as Short term Capital Gains.

Question 40A.
As per the newly inserted proviso to section 55(2)(b)(ii) by the Finance Act, 2020, in case the capital asset is land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall
not exceed .wherever available, of
such asset as on the 1st day of April, 2001.
(a) the stamp duty value
(b) the cost of acquisition
(c) the registered value
(d) none of the above.
Answer:
(a) the stamp duty value

Question 40B.
Radhey Shyam acquired a building for ₹ 4,00,000 in the year 1998. He sold the building on 10.8.2020 for ₹ 36,00,000. The Fair market value and the stamp duty value as on 1.4.2001 is ₹ 8,00,000 and ₹ 6,40,000 respectively. The cost of acquisition for the purposes of sections 48 and 49 will be:
(a) 8,00,000
(b) 6,40,000
(c) 4,00,000
(d) None of the above
Answer:
(b) 6,40,000

Question 41.
Indexed cost of acquisition of the house property purchased for ₹ 80 lakh in June, 1998 and was sold in December, 2018 will be of ₹ (worked out by taking the CII of 1998-99 as 351; of the year 2001 -02 as 100; of the year 2020-21 as 301) and FMV of the house property as on 1st April, 2001 of ₹ 90 lakh, and stamp duty valuation on 1.4.2001 is 100 lakh.
(a) ₹ 63,81,766
(b) ₹ 90 lakh
(c) ₹ 270.9 lakh
(d) ₹ 71,79,487
Answer:
(c) ₹ 270.9 lakh

Question 42.
Suresh bought debentures of a company on 19.11.2015 for ₹ 1,86,046 and sold it for ₹ 2,25,000 on 27.3.2021.
The CII of 2015-16=254 The CII of 2020-21=301
Te Indexed Cost of acquisition = 220472 Choose the best option
(a) Take the benefit of indexation and pay tax @ 20% on LTCG
(b) Do not take the benefit of indexation and pay tax @ 10%
(c) The option of indexation is not available in case of all bonds and debentures
(d) None of these
Answer:
(a) Take the benefit of indexation and pay tax @ 20% on LTCG
If benefit of indexation is taken, Capital Gains = (2,25,000 – 2,20,472) = ₹ 4,528. Tax @ 20% ₹ 906
If benefit of indexation is not used, then Capital gains = 25,000
i.e. (2,25,000-2,00,000)
Tax @ 10% = ₹ 2,500
Since, ₹ 906 is less than ₹ 2,500, the tax should be paid @ 20% after taking the benefit of indexation.

Question 43.
The cost inflation index of the Financial year 2019-20 is:
(a) 286
(b) 288
(c) 289
(d) 301
Answer:
(c) 289

Question 43A.
The cost inflation index of the Financial year 2020-21 is:
(a) 286
(b) 288
(c) 289
(d) 301
Answer:
(d) 301

Question 43B.
As per clause (v) of the explanation to section 48, “cost inflation index” in relation to previous year means such index as the Central Government may, by notification in the Official Gazette, specify in this behalf, having regard to % of average rise in Consumer price index (Urban) for the immediately preceding previous year to such previous year.
(a) 40%
(b) 65%
(c) 75%
(d) 90%
Answer:
(c) 75%

Question 44.
Base year for the purpose of calculation of indexed cost of acquisition or the cost of improvement in respect of long term capital asset acquired prior to 1st April, 2001 shall be taken as :
(a) 1981-82
(b) 2001-02
(c) 1991-92
(d) 2011-12
Answer:
(b) 2001-02

Question 45.
CCD Ltd. used agricultural land for agricultural purposes, when the Government compulsorily acquired the land. The long-term capital gains on transfer were ₹ 3,50,000. The tax on LTCG u/s 112 (ignore HEC) will be:
(a) Exempt u/s 10(37)
(b) ₹ 70,000
(c) ₹ 72,800
(d) ₹ 1,05,000
Answer:
(b) ₹ 70,000
Exemption under section 10(37) is available only to individual and HUF not to a Company

Question 46.
On 15th November, 2020, Mohan sold 1 kg of gold, the sale consideration of which was ₹ 1,14,000. He had acquired the gold on 11th December, 2000 for ₹ 59,535. Fair market value of 1 kg gold on 1st April, 2001 was ₹ 52,000. The amount of capital gains chargeable to tax for the AY 2021 -22 shall beta)
(a) 17,200
(b) 50,000
(c) (65,200) loss
(d) (70,080) loss
Answer:
(c) (65,200) loss
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 33

Question 47.
On 1.6.2020 Kamlesh transferred his vacant land to Rajesh for ₹ 12 lakhs. The land was acquired on 1.9.2015. The indexed cost of acquisition of the said land is ₹ 3,70,909. The taxable capital gain would be:
(a) long term capital gain ₹ 8,29,091
(b) short-term capital gain ₹ 9 lakhs
(c) long-term capital gain ₹ 9 lakhs
(d) short term capital gain ₹ 8.70 lakhs
Answer:
(a) long term capital gain ₹ 8,29,091
Since period of holding is more than 24 months, it will be Long term capital gain, i.e. X 12,00,000 minus X 3,70,909 = X 8,29,091

Question 48.
Dr. Sam sold a vacant land to Mr. Roy for ₹ 36 lakhs, For stamp-duty purposes, the value of land was X 41 lakhs. The indexed cost of acquisition of land was computed at ₹ 20 lakhs. The taxable long-term capital gain would be:
(a) ₹ 2lakhs
(b) ₹ 16 lakhs
(c) ₹ 5 lakhs
(d) ₹ 20 lakhs
Answer:
(a) ₹ 2lakhs

Question 49.
Durafon (P.) Ltd., engaged in steel industry, acquired a vacant piece of land on 15th May, 2016. The company sold the said land in December, 2018. The profit earned on sale of vacant land of X 10 lakh shall be taxable as:
(a) Business Income
(b) Income from other sources
(c) Short term Capital Gain
(d) Long term Capital Gain
Answer:
(d) Long term Capital Gain

Question 50.
The cost of improvement in relation to the capital asset being goodwill of the business shall be taken to be as :
(a) Cost incurred by the previous owner
(b) Actual cost incurred by the assessee
(c) Incurred cost after indexation
(d) None of the above
Answer:
(d) None of the above
The cost of improvement of assets like goodwill, whether self-generated or purchased, is considered Nil.

Question 51.
Sarath has received a sum of ₹ 3,40,000 as interest on enhanced compensation for compulsory acquisition of land by State Government in May, 2018. Of this, only ₹ 12,000 pertains to the current year and the rest pertains to earlier years. The amount chargeable to tax for the AY 2019- 20 would be-
(a) ₹ 12,000
(b) ₹ 6,000
(c) ₹ 3,40,000
(d) ₹ 1,70,000
Answer:
(d) ₹ 1,70,000

Question 52.
The Compensation on compulsory acquisition of land u/s 10(37) should be determined by
(a) RBI
(b) Central Government
(c) (a) or (b)
(d) Local Authority
Answer:
(c) (a) or (b)
Interest on enhanced compensation is taxable in the year of receipt. It is taxable as “Income from the other sources” after allowing deduction of 50% of interest under section 57. Therefore, amount chargeable to tax = 3 40,000 X 50%
= 21,70,000

Question 53.
The capital gains on conversion of a Indian branch of a foreign Bank into an Indian subsidiary in accordance with scheme framed by RBI and subject to conditions notified by central Govt, is exempt u/s
(a) 10(39)
(b) 10(38)
(c) 115VJ
(d) 115JG
Answer:
(d) 115JG

Question 54.
Capital gain under land pooling scheme of Andhra Pradesh Government is exempt u/s
(a) 10(37)
(b) 10(37A)
(c) 10(38)
(d) 10(39)
Answer:
(b) 10(37A)

Question 55.
The exemption u/s 10(37A) is avail-able to
(a) Individual
(b) Hindi-undivided family
(c) Company
(d) Both (a) & (b)
Answer:
(d) Both (a) & (b)

Question 56.
For exemption u/s 10(37A), the assessee should have held the land or building or both as on
(a) 1st July 2017
(b) 1st July 2016
(c) 2nd June 2014
(d) 1st April 2015
Answer:
(c) 2nd June 2014

Question 57.
The capital gains arising from the following transaction are not chargeable to Tax
(i) Sale of land pooling ownership certificate
(ii) Transfer of capital asset under land pooling scheme
(iii) Sale of reconstituted plot or land after 2 years from the end of the financial year in which possession is handed over under the scheme.
(a) (i) Only
(b) (i) & (ii)
(c) (i) & (ii)
(d) (i), (ii) & (iii)
Answer:
(c) (i) & (ii)

Question 58.
The following are expenses of transfer, allowed to be deducted from sale consideration for calculation of capital gains, except:
(a) Brokerage and interest
(b) Registration & stamp duty
(c) Securities transaction tax on sale of equity shares when sold through stock exchange
(d) Travelling expenses incurred in connection with transfer
Answer:
(c) Securities transaction tax on sale of equity shares when sold through stock exchange

Question 59.
Manoj acquired 1,000 equity shares of ₹ 10 each in a listed company for ₹ 35,000 on 1st July, 2012. The company issued 1,000 rights shares in April, 2014 at, Rs. 15 per share. The company issued 2,000 bonus shares in June, 2018. The market price was ₹ 50 per share before bonus issue and ₹ 25 after such issue. The cost of acquisition of bonus shares would be
(a) Nil
(b) ₹ 50,000
(c) ₹ 20,000
(d) ₹ 1,00,000
Answer:
(a) Nil
The cost of acquisition of Bonus shares issued after 1.4.2001 is taken as Nil.

Question 60.
Cost of acquisition of securities held with depositories is to be computed by –
(a) Average cost method
(b) First in first out
(c) Last in first out
(d) Weighted average cost method
Answer:
(b) First in first out

Question 61.
Ms. Netra acquired 1,000 equity shares of MMC Ltd. (unlisted company) for ₹ 4 lakhs in April, 2007. She received bonus shares on 1:1 basis in April, 2018 from the company. She sold bonus shares in January, 2020 for ₹ 8 lakhs. The capital gain chargeable to tax in the hands of Ms. Netra for the assessment year 2020-21 is:
(a) ₹ 8lakhs
(b) Nil, since the entire gain is exempt from tax
(c) ₹ 2 lakhs
(d) ₹ 80,000
Answer:
(b) Nil, since the entire gain is exempt from tax
The cost of acquisition of Bonus shares issued after 1.4.2001 is taken as Nil. Therefore entire sale consideration is taxable as Short term Capital Gain.

Question 62.
In a scheme of buy back of shares, XYZ Ltd., a listed company, paid ₹ 6 lakh to a shareholder X on 12-3-2019. The distributed income received by X who had bought these shares 2 years back will be
(a) Taxable in full
(b) Fully exempt in the hands of Mr. X
(c) Taxable @ 20% in the hand of company u/s 115QA
(d) Both (b) and (c)
Answer:
(d) Both (b) and (c)

Question 63.
XYZ Pvt. Ltd. had distributed income of ₹ 9,00,000 to Rajesh for the reason of buyback of its shares from him on 1st March, 2020. These shares were purchased by him for ₹ 5,00,000 on 1st March, 2013. The income out of the amount received by Rajesh against the buyback of shares from the company XYZ Pvt. Ltd. shall be subject to tax in A.Y. 2020-21 shall be of
(a) ₹ 4 lakh
(b) ₹ 9 lakh
(c) Nil being exempt u/s 10(34A) of Act
(d) None of the above
Answer:
(c) Nil being exempt u/s 10(34A) of Act

Question 64.
XYZ Pvt. Ltd. had distributed income of ₹ 6 lakh to Rajesh for the reason of buyback of its shares (Not being listed on a recognized stock exchange) from him on 1st February, 2019. The amount of ₹ 6 lakh received by Rajesh in the A.Y. 2019-20 shall be
(a) Taxable in full
(b) Exempt u/s 10(34A)
(c) Taxable @ 20%
(d) Taxable at normal rate of tax
Answer:
(b) Exempt u/s 10(34A)

Question 65.
Sona purchased a building on 10.10.2004 for ₹ 7,44,186 and sold it for ₹ 20,00,000 on 15.11.2018. The amount taxable as capital gains for A.Y. 2021-22 will be:
Given index 2004-05 = 113,2020-21=301
(a) LTC Gain 17,700
(b) LTC Loss 17,700
(c) Short term capital loss 12,00,000
(d) None of the above
Answer:
(a) LTC Gain 17,700
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 32

Question 66.
Cost of acquisition in case of bonus shares allotted before 1.4.2001 will be –
(a) Face value on the date of allotment
(b) Nil
(c) Market value as on 1.4.2001
(d) Current market value
Answer:
(d) Current market value as on 1.4.2001
The cost of acquisition of Bonus shares allotted before 1.4.2001 is the Fair market Value as on 1.4.2001.

Question 67.
Aman entered into an agreement with Brij for sale of a building for ₹ 20 lakh in June, 2019. Aman received advance of ₹ 2 lakh. Subsequently, the agreement was cancelled and Aman forfeited the advance money. The advance money is –
(a) To be reduced from the cost of ac-quisition
(b) To be reduced from indexed cost of acquisition
(c) Taxable as capital gains
(d) Taxable as income under the head ‘Income from other sources’
Answer:
(d) Taxable as income under the head ‘Income from other sources’
After the amendment made in Finance Act, 2014, the advance money forfeited on or after A.Y. 2015-16 is taxable as Income from other sources u/s 56(2)(uc).

Question 68.
Ramesh received ₹ 7 lakh by way of enhanced compensation in March, 2020. A further sum of 12 lakh decreed by the Court is due but not received till 31st March, 2020. The amount of income chargeable to tax for the AY 2020-21 would be-
(a) ₹ 3,50,000
(b) ₹ 7,00,000
(c) ₹ 9,00,000
(d) ₹ 4,50,000
Answer:
(b) ₹ 7,00,000
Compensation and enhanced compensation is taxable in the year when it is received.

Question 69.
Sahil was using an urban land for agricultural purposes when the land was compulsorily acquired by the Govt, in the year 2002-03. He received a compensation of ₹ 8,00,000 which he contested in the court. The court gave decision in favour of Sahil and Government gave him an enhanced compensation of ₹ 6,00,000 on 17.11.2019. The assessing officer is of the opinion that, exemption u/s 10(37) is not available as the land was compulsorily acquired before 1.4.2004 and therefore, Sahil should pay tax on LTCG. Choose the right answer
(a) Tax is payable @ 20% on ₹ 6,00,000 & 8,00,000.
(b) Full compensation is exempt u/s 10(37)
(c) Compensation of ₹ 8,00,000 was taxable but ₹ 6,00,000 will be exempt u/s 10(37)
(d) Exemption is not available on Enhanced compensation as the land was initially acquired before 1.4.2004, the date when the exemption came in force.
Answer:
Compensation of ₹ 8,00,000 was taxable but ₹ 6,00,000 will be exempt u/s 10(37)
Exemption is available to an Individual on compensation or enhanced compensation which is received on or after 1.4.2004. As enhanced compensation is received after 1.4.2004, it will exempt u/s 10(37), though initial compensation would have been subjected to Capital Gains tax after deducting expenses and cost of acquisition or indexed cost of acquisition, as the case may be.

Question 70.
Ms. Smita inherited a vacant site land consequent to the demise of her father on 10th June, 2011. The land was acquired by her father on 10th April, 1991 for 140,000. The fair market value of the land on 1 st April, 2001 was ₹60,000 and on the date of inher¬itance, i.e., 10th June, 2011 was ₹ 2,00,000. The cost of acquisition for Ms. Smita is –
(a) ₹ 10,000
(b) Nil
(c) ₹ 60,000
(d) ₹ 2,00,000
Answer:
(c) ₹ 60,000
In case of transfer u/s 49, the cost to the previous owner is taken into consideration for the purpose of calculation of Capital Gains. If the asset of the previous is acquired by him before, 1.4.2001, the assessee may take Fair market value if it is higher than cost of acquisition. Hence ₹ 60.000 will be the answer.

Question 71.
B joined Avtar & Co. as a partner on 1st June, 2018. He contributed his vacant land in the firm as his capital which was recorded in the books of the firm at ₹ 5 Lakhs. The land was inherited by B from his father in April 2010 and the fair market value on that date was ₹ 2,00,000. The land was originally acquired by his father in August 2005 for ₹ 1,00,000. The fair market value on 1st June, 2018 was ₹ 10 Lakh. The full value of consideration received as a result of transfer of land by B as capital would be taken as:
(a) ₹ 1,00,000
(b) ₹ 2,00,000
(c) ₹ 5,00,000
(d) ₹ 10,00,000
Answer:
(c) ₹ 5,00,000
The sale consideration is deemed to be the book value in the books of the firm, when a capital asset is transferred by the partner to the firm as Capital contribution.

Question 72.
A residential house is sold for ₹ 90 lakh and the long term capital gains computed are ₹ 50 lakh. The assessee bought two residential houses for ₹ 30 lakh and ₹ 20 lakh respectively. The amount eligible for exemption u/s 54 would be-………………..
(a) ₹ 50 lakh
(b) ₹ 20 lakh
(c) ₹ 30 lakh
(d) Nil
Answer:
(a) ₹ 50 lakh
After the amendment u/s 54 made by the Finance Act, 2019, where capital gain arising on sale of long term residential house does not exceed ₹2 Crore, the tax-payer is allowed to invest in two residential house in India (earlier it was allowed to invest in one house only) Hence, now the entire ₹50 Lakh will be exempted.

Question 73.
Z sold his residential house and got Capital Gains of ₹ 2,80,00,000. He invested in two residential houses in India to avail exemption u/s 54. House I was purchased for ₹ 1,80,00,000 and House II was constructed within the period for ₹ 80,00,000. The exemption available u/s 54 will be:
(a) ₹ 2,80,00,000
(b) ₹ 2,60,00,000
(c) ₹ 1,80,00,000
(d) ₹ 80,00,000
Answer:
(c) ₹ 1,80,00,000
Exemption u/s 54 is available only in respect of one residential house if Capital Gains exceed ₹ 2,00,00,000.

Question 74.
Sanskriti sold one residential house property and invested the Capital Gains in two residential houses. She got entire Capital Gains exempted u/s 54. Later on she sold one of the two houses. And again invested the Capital Gains of ₹ 70,00,000 in two residential house of ₹ 42,00,000 and ₹ 20,00,000. Calculate the exemption available to Sanskriti u/s 54 during the Assessment year 2020-21.
(a) 70,00,000
(b) 42,00,000
(c) 62,00,000
(d) Nil
Answer:
(b) 42,00,000
Investment in two houses is exempt u/s 54 only once in the life time of assessee. Subsequently he can claim exemption only in respect of 1 house therefore (b).

Question 75.
In order to enjoy exemption u/s 54EC, the resultant long-term capital gains should be invested in specified bonds within a period of from the date of transfer.
(a) 36 Months
(b) 4 Months
(c) 6 Months
(d) 12 Months
Answer:
(c) 6 Months

Question 76.
Long-term capital gains on sale of a long-term capital asset in October, 2018 is ₹ 105 lakh. The assessee invested ₹ 50 lakh in REC bonds in March, 2019 and t 55 lakh in NHAI bonds in May, 2019. The amount of exemption eligible under Section 54EC is-
(a) Nil
(b) ₹ 50 lakh
(c) ₹ 55 lakh
(d) ₹ 105 lakh
Answer:
(b) ₹ 50 lakh
The exemption u/s 54EC is limited to the amount of ₹ 50 lakh invested out of capital gains, in the P.Y. and in the subsequent financial year in which the asset is transferred.

Question 77.
Mr. Madan sold a vacant land for ₹ 120 lakhs on 10.10.2018. The indexed cost of acquisition amounts to ₹ 18 lakhs. He deposited ₹ 50 lakhs in REC bonds in January 2019 and another ₹ 50 lakhs in March, 2019. The amount of capital gain liable to tax after deduction under section 54EC is:
(a) ₹ 2 lakhs
(b) ₹ 52 lakhs
(c) ₹ 102 lakhs
(d) ₹ 18 lakhs
Answer:
(b) ₹ 52 lakhs
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 31
The amount has been deposited within 6 months in notified bonds. Maximum limit is ₹ 50 lacs in a financial year.

Question 78.
For claiming exemption u/s 54G, an assessee has to invest the resultant capital gains within a specified period. Which of the following is not eligible for such investment
(a) Furniture
(b) Land
(c) Building
(d) Plant or machinery
Answer:
(a) Furniture

Question 79.
Exemption under section 54G on fulfilling of specified conditions is available on:
(a) Shifting of industrial undertaking from urban area to a Special Economic Zone (SEZ)
(b) Shifting of industrial undertaking from urban area by Government.
(c) Compulsory acquisition of land and building
(d) Transfer of certain capital asset as specified.
Answer:
(a) Shifting of industrial undertaking from urban area to a Special Economic Zone (SEZ)

Question 80.
Under which section, the assessee has to reinvest the entire net consideration to claim full exemption for the long-term capital gains earned during a previous year-
(a) Section 54EC
(b) Section 54F
(c) Section 54GA
(d) Section 54D
Answer:
(b) Section 54F

Question 81.
Under section 115E, the tax rate applicable for any income from investment or income from long-term capital gains of an asset other than a specified asset for a non-resident as envisaged by Section 115C, is-
(a) 5%
(b) 20%
(c) 15%
(d) 10%
Answer:
(b) 20%

Question 82.
Mr. X transferred his residential house property in the Previous year 2016-17 on 10th April 2016 and invested the entire net sale consideration of ₹ 10,00,000 in equity shares of an eligible startup company on the same day. The startup company acquired assets by using the proceeds. It acquired a computer and computer software worth ₹ 10,00,000 on 15.6.2016. It sold the computer along with the software on 20.06.2019. Compute the taxable income of Mr. X due to sale by the eligible startup for the Assessment year 2020-21.
(a) The exemption availed in 2016-17 will be taxable in P.Y. 2019-2020, as the computer is sold within 5 yrs. from date of acquisition.
(b) The exemption availed in 2016-17 will be taxable in P.Y. 2019-20, as the computer is sold within 5 yrs. from date of acquisition along with the capital gains on sale of computer and software if any.
(c) As the computer is sold after 3 years, nothing will be taxable.
(d) None of the above.
Answer:
(c) As the computer is sold after 3 years, nothing will be taxable.

Part 5: Income Under The Head Income From Other Source

Question 1.
The charging section for “Income from other sources” is:
(a) 55
(b) 56
(c) 57
(d) 58
Answer:
(b) 56

Question 2.
The method of accounting followed by the assessee has ………. u/s 145 for computation of income from other sources
(a) Relevance
(b) No relevance
(c) None of the above
(d) Both (a) & (b)
Answer:
(a) Relevance

Question 3.
The provision of sections 40 and 40A have implication on
(a) Profit & Gains of Business & profession
(b) Income from other sources
(c) Both (a) & (b)
(d) None of the above
Answer:
(c) Both (a) & (b)

Question 4.
Which of the following income is always taxable under the head Income from other sources
(a) Dividend income of ₹ 8,00,000 in aggregate received by Mr. X from Domestic companies
(b) Gift of 80,000 received by Mr. X from friends on his birthday.
(c) Interest on compensation due from authority.
(d) Advance money received on 4.8.2008 in the course of negotiations for transfer of capital asset
Answer:
(b) Gift of 80,000 received by Mr. X from friends on his birthday.

Question 5.
Income can be taxed under the head “Income from other sources” if
(a) It is income
(b) It is not an exempt income
(c) It is not taxable under any other head
(d) All the above.
Answer:
(d) All the above

Question 6.
Which of the following will not be taxable as Income from other sources
(a) Director’s fee
(b) Income from subletting
(c) Rent of vacant plot of land
(d) Salary received by managing director.
Answer:
(d) Salary received by managing director.

Question 7.
The word “dividend” under the income-tax Act, 1961 is to be construed as
(a) Strictly as defined u/s 2(22) of the Act, as definition is exhaustive
(b) Dividend as per the Companies Act, 2013
(c) The definition as per Income-tax Act, 1961 is inclusive, therefore a receipt can still be dividend under ordinary meaning of expression
(d) None of the above
Answer:
(c) The definition as per Income-tax Act, 1961 is inclusive, therefore a receipt can still be dividend under ordinary meaning of expression

Question 8.
Deemed dividends include:
(i) Any distribution entailing release of company assets
(ii) Any distribution on liquidation of company
(iii) Any distribution on reduction of capital
(a) Only (ii)
(b) (ii) and (iii)
(c) (i)&(ii)
(d) (i), (ii) & (iii)
Answer:
(d) (i), (ii) & (iii)

Question 8A.
Which one of the following shall be treated as dividends
(a) Amount paid to the shareholders on buy back of shares.
(b) Dividend adjusted against loan given by a closely held company to its member having substantial interest treated as deemed dividend u/s 2(22)(e) earlier.
(c) Distribution of shares to the share-holders on demerger of a company by the resulting company.
(d) Distribution of bonus shares to preference shareholders.
Answer:
(d) Distribution of bonus shares to preference shareholders.

Question 9.
Which of the following is not included in taxable income –
(a) Income from smuggling activity
(b) Casual income
(c) Gifts of personal nature subject to a maximum of ₹ 50,000 received in cash
(d) Income received in kind
Answer:
(c) Gifts of personal nature subject to a maximum of ₹ 50,000 received in cash

Question 10.
Which of the following income will be taxable as income from other sources
(a) Purchase of house from husband for inadequate consideration
(b) Purchase of painting from registered dealer at invoice value which is less than fair market value
(c) Cash gift of ₹ 65,000 from a Non-resident friend on marriage anniversary
(d) All of the above
Answer:
(c) Cash gift of ₹ 65,000 from a Non-resident friend on marriage anniversary

Question 11.
John, engaged in fertilizer trade, received rent by sub-letting a building. This will be taxable under the head –
(a) Income from house property
(b) Income from capital gains
(c) Income from profits and gains of business and profession
(d) Income from other sources
Answer:
(c) Income from profits and gains of business and profession

Question 12.
A member of Parliament received ₹ 1,50,000 per month as salary and ₹ 4,50,000 as daily allowances during PY 2017-18. The taxable amount will be –
(a) Salary ₹ 18,00,000
(b) Income from profession ₹ 22,50,000
(c) Income from other sources ₹ 18,00,000
(d) Nil
Answer:
(c) Income from other sources ₹ 18,00,000

Question 13.
R has taken a house on rent and sub-lets the same to G. Income from such house property shall be taxable under the head:
(a) income from house property
(b) income from house property or income from other sources as per the discretion of R
(c) income from other sources
(d) none of the above
Answer:
(c) income from other sources

Question 14.
Akshay received a gift of ₹ 35,000 from his three friends each on 22nd May, 2018. The amount chargeable to tax in this case would be –
(a) ₹ 50,000
(b) ₹ 1,05,000
(c) Nil
(d) ₹ 55,000
Answer:
(b) ₹ 1,05,000
Gift in excess of ₹ 50,000 in aggregate from friends is taxable. As the 3 friends have gifted ₹ 35,000 each, the total gift amount is ₹ 35,000 × 3 = ₹ 1,05,000. Therefore, the entire ₹ 1,05,000 is taxable.

Question 15.
Rajiv (aged 28 years) received cash gift of ₹ 2 lakh on the occasion of his marriage. It includes gift from non-relative of ₹80,000. His income by way of lottery winnings is ₹ 3 lakh. His net income tax liability (ignoring TDS) would be –
(a) ₹ 93,600
(b) ₹ 22,660
(c) ₹12,360
(d) ₹ 25,750
Answer:
(a) ₹ 93,600
Gift on the occasion of marriage is exempt. Only lottery winning’s will be taxable
u/s 115BB (a) 30% + 4% HEC.
∴ 3,0, 000 × 30% = 90,000
+ HEC @ 4%      3,600
Total tax liability ₹ 93,600

Question 16.
Rishabh received the following gifts during the previous year:
(i) ₹ 50,000 from his employer
(ii) ₹ 1,00,000 from mother’s sister
(iii) ₹ 10,000 from his friend on the occasion of his marriage
(iv) ₹ 60,000 in the form of scholarship from a registered charitable Trust
The amount of taxable gift under the head ‘income from other sources’ is
(a) Nil
(b) ₹ 50,000
(c) ₹ 1,50,000
(d) ₹ 2,10,000
Answer:
(a) Nil

Taxable amount ₹
Gift from employer is taxable as salary Nil
Gift from relative is exempt Nil
Gift on the occasion of marriage is exempt Nil
Gift as scholarship from registered charitable society is exempt. Nil

Question 17.
A lady received gifts worth ₹ 1,00,000 from her relatives as defined under the Income Tax Act, 1961 and X 60,000 from her office colleagues on her marriage anniversary. The taxable amount of gifts would be –
(a) ₹ 1,60,000
(b) ₹ 60,000
(c) ₹10,000
(d) ₹1,10,000
Answer:
(b) ₹ 60,000
Gift on marriage anniversary from non-relative is fully taxable if it exceeds  ₹ 50,000.

Question 18.
Mr. Ram received cash gift of ₹ 51,000 from his friends on the occasion of his 50th birthday. None of the friends are relative. The amount liable to tax in the hands of Mr. Ram would be:
(a) Nil
(b) ₹ 1,000
(c) ₹ 51,000
(d) ₹ 46,000 after deducting causal in-come of ₹ 5,000
Answer:
(c) ₹ 51,000
Gift on Birthday from non-relative is fully taxable if it exceeds ₹ 50,000.

Question 19.
Rakesh acquired a motor car for ₹ 3,00,000 from his friend (non-relative) when the fair market value of the motor car was ₹5,00,000. The amount liable to tax in the hands of Rakesh from the transaction is:
(a) ₹ 3,00,000
(b) ₹ 2,00,000
(c) ₹ 1,50,000.
(d) Nil
Answer:
(d) Nil
Motor Car is not an asset for taxability of Gift.

Question 20.
Ram received ₹ 80,000 by way of gift from friends upon retirement from service in a private company. The amount of gift chargeable to income-tax would be:
(a) Nil
(b) ₹ 30,000
(c) ₹ 70,000
(d) ₹ 80,000
Answer:
(d) ₹ 80,000
Gift on retirement from friends is fully taxable if it exceeds ₹ 50,000.

Question 21.
Lokesh (age 62) received following gifts on the occasion of his birthday:
(i) Cash gift from elder brother ₹ 30,000;
(ii) Gold chain from younger sister mar-ket value on the date of gift ₹ 38,000; (in) Cash gifts from friends (non-relatives) ₹ 45,000;
(iv) Purchased shares from younger brother for ₹ 1 lakh when the market value of the shares was ₹ 1,35,000. Amount of income chargeable to tax in respect to the above transactions would be:
(a) ₹ 1,48,000
(b) ₹ 48,000
(c) ₹ 80,000
(d) Nil
Answer:
(d) Nil

Taxable amount ₹
Gift from elder brother is exempt as he is a relative. Nil
Gift from younger sister is exempt as gift from relative is exempt Nil
Gift from friends is exempt being the amount not exceeding X 50,000. Nil
Purchase of shares from Brother is exempt as difference be­tween Fair market value and sale consideration does not exceed X 50,000. Nil

Question 22.
Money or property received by without consideration or with inadequate consideration is taxable u/s 56(2)(x)
(a) Individual only
(b) Individual and HUF
(c) Any person
(d) Individual, HUF, BOI & AOP
Answer:
(c) Any person

Question 23.
Mr. X received ₹ 50,000 from his friends as gift on his clearing CS professional examinations. The amount shall be ;
(a) Taxable as business income
(b) Taxable as income from other sources
(c) 50% is allowed as deduction
(d) Exempt
Answer:
(d) Exempt

Question 24.
Surbhi received ₹ 84,000 as gift from friends – during the P.Y. 2019-20. The amount taxable as income from other sources will be
(a) ₹ 50,000
(b) ₹ 84,000
(c) ₹ 34,000
(d) Nil
Answer:
(b) ₹ 84,000

Question 25.
Sameer received a cash gift of ₹ 72,000 from his employer during 2019-20. The amount taxable as income from other
sources will be:-
(a) ₹ 50,000
(b) ₹ 72,000
(c) ₹ 22,000
(d) Nil
Answer:
(d) Nil

Question 26.
Surya brought a gold chain FMV ₹ 1,80,000 for ₹ 1,32,000 from a friend and another friend sold him a gold ring with FMV ₹ 24,000 for ₹ 10,000, the amount taxable in the hands of Surya as income from other sources will be:
(a) ₹ 2,04,000
(b) Nil
(c) ₹ 62,000
(d) ₹ 1,42,000
Answer:
(c) ₹ 62,000

Purchase of Gold chain from friend and the difference between Fair market value and sale consideration is ₹ 1,80,000 – 1,32,000 48,000
Purchase of Gold ring from friend and the difference between Fair market value and sale consideration is ₹ 24,000-10,000 14,000
Total 62,000
As total value exceeds ₹ 50,000, the entire value of ₹ 62,000 is taxable

Question 27.
Aarti bought a wristwatch from her friend the FMV of wrist watch was ₹ 90,000 but she got it for ₹ 30,000. The amount taxable in the hands of Aarti will be:
(a) ₹ 90,000
(b) ₹ 60,000
(c) Nil
(d) ₹ 30,000
Answer:
(c) Nil
Wrist watch is not a asset for tax on gift.

Question 28.
If the money or property is received it is exempt.
(a) From a relative
(b) On the occasion of the marriage of individual
(c) By way of will/inheritance
(d) All of these
Answer:
(d) All of these

Question 29.
Money or property received in the following cases is exempt from tax except:
(a) Received in contemplation of death of payer
(b) Received from local authority
(c) Received on marriage anniversary
(d) Received from fund or institution referred in section 10(23C)
Answer:
(c) Received on marriage anniversary

Question 30.
For the purposes of determining the value of gift as taxable under section 56(2)(x), the fair market value of the movable asset is taken as on the date of
(a) Agreement
(b) Receipt of movable asset
(c) None of the above
(d) At the option of assessee
Answer:
(b) Receipt of movable asset

Question 31.
The value of immovable property gifted shall be generally taken as the
(a) Fair market value on the date of agreement
(b) Fair market value on the date of registration
(c) Stamp duty valuation on the date of agreement
(d) Stamp duty valuation on the date of registration
Answer:
(c) Stamp duty valuation on the date of agreement

Question 31A.
A sold a immovable property to Mr. Y for ₹ 50,00,000 whereas the stamp duty valuation of the property as on the relevant date was ₹ 54,00,000 the value of gift u/s 56(2)(x) will be :
(a) ₹ 4,00,000
(b) t 54,00,000
(c) ₹ 50,000
(d) Nil.
Answer:
(d) Nil.

Question 31B.
A sold a immovable property to Mr.Y for ₹ 4,00,000 whereas the stamp duty valuation of the property as on the relevant date was ₹ 4,45,000 the value of gift u/s 56(2)(x) will be :
(a) ₹ 4,45,000
(b) ₹ 45,000
(c) ₹ 50,000
(d) Nil.
Answer:
(d) Nil.

Question 31C.
A sold a immovable property to Mr. Y for ₹ 4,00,000 whereas the stamp duty valuation of the property as on the relevant date was ₹ 4,70,000 the value of gift u/s 56(2)(x) will be :
(a) ₹ 4,70,000
(b) ₹ 70,000
(c) ₹ 50,000
(d) Nil.
Answer:
(b) ₹ 70,000

Question 32.
Relative for the purpose of exemption taxability of gift u/s 56 includes
(a) Spouse of the individual
(b) Brother/sister of the individual
(c) Brother or sister of the spouse of individual
(d) All of the above
Answer:
(d) All of the above

Question 33.
₹ 65,000 received from
will be exempt from tax
(a) Brother of spouse of father’s sister
(b) Spouse of sister
(c) Sister of grand mother
(d) None of the above
Answer:
(b) Spouse of sister

Question 34.
For gift income the
Answer:
(a) Donor must be resident
(b) Donee must be resident
(c) Donor must be resident whereas donee may be resident or non-resident.
(d) Donor may be resident or non-resident and donee may be resident or non-resident
Answer:
(d) Donor may be resident or non-resident and donee may be resident or non-resident

Question 35.
Shourya purchased a painting from a registered dealer for ₹ 6,50,000 whose fair market value was ₹ 7,80,000. The invoice was of ₹ 6,50,000. The amount taxable u/s 56(2)(x) will be:
(a) 7,80,000
(b) 1,30,000
(c) 6,50,000
(d) Nil as purchase from a registered dealer, the invoice value is the fair market value
Answer:
(d) Nil as purchase from a registered dealer, the invoice value is the fair market value

Question 36.
Where a firm or closely held company received from any person any property being shares of closely held company without consideration:
(a) The whole of the fair market value of the shares shall be taxable
(b) The whole of the FMV shall be taxable if it exceeds ₹ 50,000
(c) The whole of FMV shall be exempt
(d) The whole of the cost of such shares shall be exempt
Answer:
(a) The whole of the fair market value of the shares shall be taxable

Question 37.
Money or property received on or after April 1, 2017 without consideration or inadequate consideration is taxable under:
(a) 56(2)(vii)
(b) 56(2)(vii)
(c) 56(2)(x)
(d) All of the above
Answer:
(c) 56(2)(x)

Question 38.
Z Ltd. has accumulated profits to the extent of ₹ 8,00,000. It distributed ₹ 11,00,000 on reduction of capital to the shareholders.
(a) ₹ 11,00,000 will be
dividend income
(b) ₹ 8,00,000 will be dividend
(c) ₹ 8,00,000 will be treated as deemed dividend u/s 2(22)(d)
(d) ₹ 11,00,000 will be treated as deemed
Answer:
(c) ₹ 8,00,000 will be treated as deemed dividend u/s 2(22)(d)

Question 39.
The profit available to Zara Ltd. is ₹ 15,00,000 but it has further outstanding interest of ₹ 3,00,000 Income tax expenses ₹ 80,000 on the date of liquidation. The accumulated profit of Zara Ltd. as on the date of liquidation is:
(a) ₹ 15,00,000
(b) ₹ 12,00,000
(c) ₹ 11,20,000
(d) ₹ 14,20,000
Answer:
(c) ₹ 11,20,000
Computation of Income Under Various Heads - CS Executive Tax Laws MCQ 41

Question 40.
While calculating accumulated profits for the purpose of dividends, depreciation must be deducted as per
(a) Straight line method
(b) Written down value method
(c) Companies Act
(d) Income-tax Act.
Answer:
(d) Income-tax Act.

Question 41.
Deposit certificate issued to ……… will be treated as deemed dividends
(i) Equity shareholders
(ii) Preference shareholders
(iii) Debenture holders
(a) (i) only
(b) (ii) & (iii)
(c) (i)&(ii)
(d) (i), (ii) & (iii)
Answer:
(c) (i)&(ii)

Question 42.
Payment by way of loan/advance by a closely- held company is treated as deemed dividend if it is given to a shareholder holding or more of equity shares in the company or to a concern, in which such shareholder holds at least ………….. or entitled to at least
(a) 10%, 20% equity shares, 20% income
(b) 10%, 20% equity or preference shares, 20% voting power
(c) 10%, 20% equity or preference shares, 20% voting power
(d) 20%, 10% shares , 10% voting power
Answer:
(a) 10%, 20% equity shares, 20% income

Question 43.
Saba Ltd. is a closely held company into the business of money lending and trading. 80% of its income is through money-lend¬ing. It has ₹ 70,00,000 as accumulated profits. Mr. Zahir holding 25% shares in Saba Ltd. took a loan of ₹ 9,00,000 from the company. The loan will be treated as deemed dividend in th
Answer:e hands of Mr. Zakir to the extent of :
(a) ₹ 70,00,000
(b) ₹ 9,00,000
(c) Nil
(d) None of the above
Answer:
(c) Nil
It is the business of the company to give loans and advances and substantial part of the income is from this activity. Therefore, it becomes the ordinary business of Company and in that case loan to Mr. Zahir is not treated as deemed dividend.

Question 44.
X received deemed dividend to the tune of ₹ 12,00,000 u/s 2(22)(e). The amount of tax payable by Mr. X for the P.Y. 2020-21
(a) 2,00,000 @ 10% = ₹ 20,000 u/s 115BBDA
(b) 12,00,000 will be added as IFOS
(c) Nil
(d) None of this
Answer:
(b) 12,00,000 will be added as IFOS
Deemed dividends are not taxable in the hands of shareholder. The Company pays dividend distribution tax u/s 115-0. Section 115BBDA is also not applicable to deemed dividends u/s 2(22)(e). As dividends u/s 2(22)(e) are taxable in the hands of company @ 30% + surcharge @12% + HEC @ 4%. Hence. (c)

Question 45.
The closely held company giving loan to a member having substantial interest is liable to pay dividend distribution tax @ u/s 115-0 for P.Y. 2020-21
(a) 17.472%
(b) Nil
(c) 17.94%
(d) 35.88%
Answer:
(b) Nil

Question 46.
Dividends received from a foreign company in the hands of an individual are:
(a) Exempt
(b) Taxable @10%
(c) Taxable as normal rates
(d) Taxable @15%
Answer:
(c) Taxable as normal rates

Question 47.
A domestic company declares a dividend and the following shareholders receive ₹ 12,00,000 each.
(i) An individual Mr. X
(ii) SUN Ltd. a Domestic Co.
(iii) A trust formed for charitable purpose and registered u/s 12A. The amount of dividend will be taxable @ 10% + S.C (if applicable) + Health and education cess (H.E.C) on dividends in excess of ₹ 10,00,000 u/s 115BBDA in the hands of
(a) None
(b) (i) and (ii) only
(c) (i) & (iii) only
(d) (i), (ii) and (iii)
Answer:
(a) None

Question 48.
A foreign company distributes divi-dends. The recipients are
(i) An individual
(ii) A domestic Co. ‘A’ which holds 35% shares in foreign Co.
(iii) A domestic Co. ‘B’ which holds 30% shares in foreign Co.
(a) Taxable in the hands Individual
(b) Taxable on company A at special rate
(c) Taxable on company B @ 15%
(d) All of the above
Answer:
(d) All of the above

Question 49.
Normal dividends are taxable as in-come, if not exempt u/s 10(34), of the year
(a) As per the method of accounting employed by assessee
(b) In which they are paid by the company
(c) In which they are declared by the company
(d) In which they are unconditionally made available by the company
Answer:
(c) In which they are declared by the company

Question 50.
Hemant holds 100 shares of Gold Ltd., a domestic company. He has been paid dividend of ₹ 10,000 during the year 2020-21. Dividend distribution tax payable u/s 115-0 will be-
(a) ₹ 1,765, payable by Gold Ltd.
(b) ₹ 1,765, payable by Hemant.
(c) Nil payable by Gold Ltd.
(d) ₹ 2,106, payable by Hemant.
Answer:
(c) Nil payable by Gold Ltd.
Dividend distribution tax has been omitted by the Finance Act, 2020. A domestic company is no longer required to pay dividend distribution tax u/s 115-0.

Question 51.
Libra P. Ltd. engaged in trading activity had accumulated profits of ₹ 15,00,000 as on 1.4.2020, Mr. Gautam having 30% of the equity shares and voting rights in the company received ₹ 5 lakhs as loan on 1.6.2020 from the company. The loan was repaid by him on 30.11.2020. The amount liable to tax in the hands of company u/s 115-0 as deemed dividend is –
(a) ₹ 4,50,000
(b) ₹ 15,00,000
(c) Nil
(d) ₹ 1,50,000
Answer:
(c) Nil

Question 52.
A private limited company engaged in manufacturing activity had general reserve of ₹ 20 lakh. It granted a loan of ₹ 5 lakh to a director who held 13% shareholding cum voting rights in the company. The said loan was re-paid by him before the end of the year. The amount of deemed dividend arising out of the above transaction is –
(a) ₹ 2,60,000
(b) ₹ 2,40,000
(c) ₹ 5,00,000
(d) Nil
Answer:
(c) ₹ 5,00,000

Question 53.
Comfort (Pvt.) Ltd. issued 10,000 equity shares to Pawan at ₹ 18 per share when the fair market value of each share was determined at ₹ 11 per share. The tax implication of the transaction is –
(a) ₹ 70, 000 taxable as income for Comfort (Pvt.) Ltd.
(b) ₹ 20,000 taxable as income for Pawan
(c) ₹ 10,000 taxable as income for Pawan
(d) Nil
Answer:
(a) ₹ 70, 000 taxable as income for Comfort (Pvt.) Ltd.
Amount is taxable under income from other sources if issue price exceed both the Fair market value as well as the Face Value. In this question it is taxable. (₹ 18 – ₹ 11) × 10,000 = ₹ 70,000

Question 54.
Agni (P) Ltd. issued equity shares of ₹ 10 each at ₹ 40 per share. The fair market value of the share on the date of issue was ascertained as ₹ 25 per share. The company issued 1,00,000 equity shares. The amount liable to tax in the hands of the company would be:
(a) ₹ 15,00,000
(b) ₹ 30,00,000
(c) Nil
(d) ₹ 40,00,000
Answer:
(a) ₹ 15,00,000
Amount is taxable under income from other sources if issue price exceed both the Fair market value as well as the Face Value. In this question it is taxable. (₹ 40 – ₹ 25) X 1,00,000 = ₹ 15,00,000

Question 55.
Ms. Anshureceived dividend of ₹ 80,000 for her equity shareholding in MNO Ltd. (a listed company). She paid interest of ₹ 12,500 for the amounts borrowed for investment in those shares. The taxable dividend income would be:
(a) ₹ 80,000
(b) Nil
(c) ₹ 67,500
(d) ₹ 92,500
Answer:
(b) Nil
Dividend income received from a Company which has paid CDT is exempt upto ₹ 10,00,000.

Question 56.
X Ltd. is a public limited company, but the shares of the company are not listed. It issued shares at a price of ₹ 60. The face value of the share is ₹ 10 per share and the fair market value is ₹ 80 the amount taxable u/s 56(2)(viib) per share would be:
(a) ₹60
(b) ₹10
(c) ₹ 50
(d) Nil
Answer:
(d) Nil
The Issue price does not exceed the Fair Market Value.

Question 57.
The shares of Y. Ltd. a public Co. in which the public is not substantially interested were issued for ₹ 18 per share to Mr. X resident whereas the face value was ₹ 10 and FMV ₹ 15. The amount taxable would be.
(a) ₹ 18
(b) ₹ 15
(c) ₹ 10
(d) ₹ 3
Answer:
(d) ₹ 3
The price exceeds the face value as well as Fair market value. Therefore ₹ 3 (18-15) will be taxable.

Question 57A.
A Private company issued 50,000 shares at a price of ₹ 40 whereas the fair market value of the shares was ₹ 25. The amount was not taxable as income as the company claimed to be a Startup and claimed exemption under clause (ii) of section 56(2)(viib). However, it had failed to comply with the conditions necessary for availing exemption. The amount of penalty will be:
(a) ₹ 7,50,000
(b) ₹ 15,00,000
(c) 200% of tax on ₹ 7,50,000
(d) 300% of tax on ₹ 7,50,000
Answer:
(c) 200% of tax on ₹ 7,50,000

Question 58.
Amit received ₹ 70,000 being winnings from lottery after deduction of tax at source. His gross winnings from lottery to be included in the total income is –
(a) Nil
(b) ₹ 1,00,000
(c) ₹ 70,000
(d) ₹ 30,000
Answer:
(b) ₹ 1,00,000
T.D.S is deducted @ 30% on winnings from lotteries u/s 194B.
Therefore if the received amount is ₹ 70,000:
Gross winnings  = \(\frac{70,000}{1-0.3} \)=₹ 1,00,000.

Question 59.
Mr. Ravi solved a crossword puzzle and received ₹ 84,000 after deduction of tax at source. His income from crossword puzzle chargeable to tax would be:
(a) ₹ 84,000
(b) Nil
(c) ₹ 72,000
(d) ₹ 1,20,000
Answer:
(d) ₹ 1,20,000
T.D.S is deducted @ 30% on winnings from lotteries u/s 194B. Therefore if the
received amount is ₹ 84,000, then gross winnings will be \(=\frac{84,000}{10.3}=1,20,000\)

Question 60.
Suresh (age 65) won a prize on lottery ticket on 30.9.2018. The prize amount was ₹ 5,50,000. He had bought lottery tickets for ₹ 75,000 during the year. Assuming that he had no other income chargeable to tax for the year, his income tax liability (including cess @ 4%) would be:
(a) ₹ 1,71,600
(b) t 30,900
(c) ₹ 36,050
(d) ₹ 10,300
Answer:
(a) ₹ 1,71,600
The tax liability on winnings will be ₹ 5,50,000 × 31.2% = ₹ 1,71,600

Question 61.
Winnings from lottery, races, cross word puzzles, and card games are
(a) Taxable u/s 56(2)(ib)
(h) No expenses are allowed to be deducted from winnings
(c) Gross winning are taxable
(d) All of the above
Answer:
(d) All of the above

Question 62.
In respect of winnings from lotteries and races choose the correct statement
(a) Tax is charged at a flat rate of 30% percent + surcharge (if applicable ) and health & educationcess
(b) Tax is deducted @ 30% + surcharge if applicable, if winnings from lotteries or cross word puzzles exceeds ₹ 10,000
(c) If winnings from horse races exceeds ₹ 10,000 payer is liable to deduct tax at source
(d) All of the above
Answer:
(b) Tax is deducted @ 30% + surcharge if applicable, if winnings from lotteries or cross word puzzles exceeds ₹ 10,000

Question 63.
Mr. Sandeep has received ₹ 21,000 as winnings from camel races. What is his gross winnings
(a) ₹ 21,000
(b) ₹ 30,000
(c) 130,523
(d) ₹ 26,250
Answer:
(a) ₹ 21,000

Question 64.
Interest on securities is taxable
(a) On receipt basis
(b) On due basis
(c) On the basis of method of accounting regularly employed by one assessee
(d) As per the discretion of Assessing Officer
Answer:
(c) On the basis of method of accounting regularly employed by one assessee

Question 65.
Saagar who follows mercantile system of accounting held securities of face value of ₹ 20,000 from 1.10.2019 – 30.1.2020 giving interest @ 12% p.a. The due date of interest were 30th June and 31 st December every year. The interest income ……….. will be taxable in the hands of Mr. Saagar for the P.Y ………The interest was received on 15.4.2020
(a) ₹ 1200 for P.Y. 2019-20
(b) ₹ 1,200 in the P.Y. 2020-21
(c) Not taxable in the hands of Mr. Saagar
(d) ₹ 800 will be taxable for P.Y. 2019-20
Answer:
(a) ₹ 1200 for P.Y. 2019-20

Question 66.
A person may avoid tax on securities by transferring securities to another just before due date and reacquiring them later. This practice is curbed by the Income-tax Act, 1961 u/s
(a) 92(1)
(b) 94(1)
(c) 94(2)
(d) 92(2)
Answer:
(b) 94(1)

Question 67.
An assessee can avoid taxability of interest u/s 94(1) or 94(2) by proving to the Assessing Officer that, there has been no avoidance of income tax or there was no avoidance u/s 94(l)/(2) during preceding the previous years.
(a) 2 years
(b) 3 years
(c) 5 years
(d) 7 years
Answer:
(a) 2 years

Question 68.
Interest received on Compensation or enhanced compensation is taxable as Income from other sources under section:
(a) 56(2)(viii)
(b) 56(2)(iv)
(c) 56(2)(ix)
(d) 56(2)(vi)
Answer:
(a) 56(2)(viii)

Question 69.
Interest received on Compensation or enhanced compensation is taxable as Income from other sources in the year in which it is received as per Section
(a) 145B(3)
(b) 145A(1)
(c) 144B(1)
(d) 145B(1)
Answer:
(d) 145B(1)

Question 70.
Deduction from interest on compensation or enhanced compensation is available @………..
(a) 30%
(b) 50%
(c) 40%
(d) On the basis of actual expenses in-curred.
Answer:
(b) 50%

Question 71.
The amount deductible from family pension is up to –
(a) ₹ 15,000 or 1/3rd of family pension whichever is less
(b) ₹ 15,000 or 1/2 of family pension whichever is less
(c) ₹ 10,000 or 1/3rd of family pension whichever is less
(d) No deduction
Answer:
(a) ₹ 15,000 or 1/3rd of family pension whichever is less

Question 72.
Ms. Sitara is in receipt of family pension of ₹ 15,000 p.m. during 2019-20. Income chargeable to tax for AY 2020-21 of Ms. Sitara is –
(a) ₹ 1,80,000
(b) ₹ 1,20,000
(c) ₹ 1,65,000
(d) Nil
Answer:
(c) ₹ 1,65,000
₹ [(15000 × 12) – ₹ 15,000] = ₹ 1,65,000

Question 73.
Ms. Mala received family pension of ₹ 15,000 per month during the previous year 2019-20. Also, she was employed in a private firm where she got a monthly consolidated salary of ₹ 20,000 per month. Her total income chargeable to tax is:
(a) ₹ 4,20,000
(b) ₹ 2,40,000
(c) ₹ 3,55,000
(d) ₹ 4,05,000
Answer:
(c) ₹ 3,55,000

Salary income (20,000 × 12) 2,40,000
(-) Standard deduction (50,000)
1,90,000
Family pension received (15,000 × 12) 1,80,000
(-) Exempt (1/3rd of such pension or ₹ 15,000 whichever is less) (15,000) 1,65,000
Total income 3.55,000

Question 74.
Ms. Laxmi received ₹ 60,000 by way of family pension from State Government. The amount of family pension eligible for exemption under section 10(19) is:
(a) ₹ 60,000
(b) ₹ 40,000
(c) ₹ 20,000
(d) ₹ 15,000
Answer:
(d) ₹ 15,000

Family Pension received ₹ 60,000
(-) Exemption: Lower of the following two;
– 1/3rd of the family pension received 20,000
– Amount specified 15,000 (15,000)
Taxable amount 45,000

Question 75.
Sameer received the following income during PY 2019-20: Director’s fees, 5,000, income from agricultural land in Pakistan, 15.000 rent from let out land in Jaipur, 20.000 interest on deposit with HDFC Bank, 1,000 and dividend from Indian company, 5,000. His income from other sources is…..
(a) ₹ 41,000
(b) ₹ 46,000
(c) ₹ 31,000
(d) ₹ 26,000
Answer:
(a) ₹ 41,000

Question 76.
Where a foreign institutional investor received income in respect of securities other than income by way of dividend referred to in Section 115-0 or received in respect of securities other than units referred to in section 115AB, such income is taxable @
(a) 15%
(b) 10%
(c) 20%
(d) 30%
Answer:
(c) 20%

Director’s Fees ₹ 5,000
Agricultural Income from land in Pakistan 15,000
Rent from vacant land 20,000
Interest on Bank deposit 1,000
Total 41,000

 

Incomes Which Do Not Form Part of Total Income – CS Executive Tax Laws MCQ

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Going through the Incomes Which Do Not Form Part of Total Income – CS Executive Tax Laws MCQ Questions with Answers you can quickly revise the concepts.

Incomes Which Do Not Form Part of Total Income – Tax Laws CS Executive MCQs

Question 1.
The following incomes derived, received and earned during the previous year are not subject to tax being exempt under the Act:
(i) Money received by an individual as a member of HUF
(ii) Share of profit received by partner from LLP
(iii) Interest on Savings bank account
(iv) Income of SAARC Fund
(a) (i) and (ii)
(b) (i), (ii) and (iv)
(c) None of the above
(d) All of the above
Answer:
(b) (i), (ii) and (iv)

Question 2.
HSP, a LLP had taken Key Men insurance policy on the life of its Managing Partner. The policy got matured on 13th September, 2017 and amount of ₹ 75 lakh was paid by the insurers to the Managing Partner. The amount so received on maturity of the policy by the managing partner:
(a) Is exempt in full u/s 10(10D)
(b) 50% of ₹ 75 lakh is exempt
(c) ₹ 75 lakh is taxable
(d) ₹ 25 lakh is exempt and balance is taxable
Answer:
(c) ₹ 75 lakh is taxable

Question 3.
The Income of Mr. A includes ₹ 40,000 income of his minor child. The amount exempt u/s 10(32) will be X
(a) 6000
(b) 1500
(c) 40,000
(d) Nil
Answer:
(b) 1500
The income of a minor which is clubbed in the hands of the parents is exempt u/s 10(32) to the extent of ₹ 1500 per child.

Question 4.
Saksham received educational scholarship from his employer, of ₹ 14,000. Saksh-am spend only ₹ 9,000 for cost of education and saved ₹ 5,000. The amount exempt u/s 10( 16) of the Income-tax Act, 1961 will be:
(a) ₹ 9,000
(b) ₹ 14,000
(c) ₹ 5,000
(d) Fully-taxable
Answer:
(b) ₹ 14,000
The amount exempt u/s 10(16) does not depend upon the expenditure for the said purposes.

Question 5.
Mr. Sankar received ₹ 50,000 as educational scholarship from Nehru memorial Trust (a charitable trust). The scholarship is to assist Mr. Sankar for pursuing M.A. (History) at Jawaharlal Nehru University, New Delhi. The amount of scholarship liable to tax is:
(a) ₹ 50,000
(b) ₹ 10,000
(c) ₹ 25,000
(d) Nil
Answer:
(d) Nil

Question 6.
Exemption to Member of parliament and state legislature is available u/s 10(17), in respect of the following allowances;
(i) Daily Allowance
(ii) Any other allowance received under Member of Parliament (Constituency Allowance) Rules, 1986.
(iii) Constituency allowance received by reason of his membership of any state legislature.
(a) Only (i)
(b) (i) & (ii)
(c) (i), (ii) & (iii)
(d) (ii),(iii)
Answer:
(c) (i), (ii) & (iii)

Question 7.
A professional institution satisfying the required conditions is exempt u/s 10(23A) from any income except:
(i) Income from house property
(ii) Income by way of interest on investment or
(iii) Income by way of dividend on investment.
(a) only (i)
(b) Only (ii)
(c) (i), (ii) & (iii)
(d) None of these
Answer:
(c) (i), (ii) & (iii)

Question 8.
X Ltd. an Indian company made an agreement with Sophie Ltd. a Swedish company with the approval of Central Government for lease of aircraft. The agreement was made on 28.3.2007. During the previous year 2020-21, X paid ₹ 7,00,000 as rent and also paid ₹ 60,000 for providing spares. The amount exempt in the hands of Sophie Ltd. u/s 10(15A) will be:
(a) ₹ 7,60,000
(b) ₹ 7,00,000
(c) ₹ 60,000
(d) Nil
Answer:
(b) ₹ 7,00,000
If payment made to a foreign enterprise, exemption u/s 10( 15A) is available only if payment is made to acquire an aircraft or an aircraft engine, not for payment made towards providing spares, facilities or services in connection with operation of leased aircraft. Hence (b)

Question 9.
Amount received under keyman insurance policy is:
(a) Exempt u/s 10(10D)
(b) Not exempt
(c) 60% Exempt u/s 10(10D)
(d) None of this
Answer:
(b) Not exempt
Amount received under Keyman Insurance policy is fully taxable. It is not exempt u/s [10(10D)].

Question 10.
HSK, an LLP had taken keyman insurance policy on the life of its managing partner. The policy got matured on 13th September, 2020 and an amount of ₹ 75 lakh was paid by the insurers to the managing partner. The amount so received on maturity of the policy by the managing partner is
(a) Is exempt in full u/s 10(10D)
(b) 50% of ₹ 75 lakh is exempt
(c) ₹ 75 lakh is taxable
(d) ₹ 25 lakh is exempt and balance is taxable
Answer:
(c) ₹ 75 lakh is taxable

Question 11.
Raman & Co., a partnership firm, received ₹ 5,00,000 from an insurance company under keyman insurance policy consequent to demise of partner ‘Pramod’. The amount of premium ₹ 2,30,000 paid earlier was claimed as deduction under Section 37 by the firm. The amount received from the insurance company is-
(a) Tax-free under section 10(10D)
(b) Fully taxable as income
(c) ₹ 2,70,000 is taxable
(d) ₹ 2,30,000 is taxable
Answer:
(b) Fully taxable as income
Amount received under Keyman Insurance policy is fully taxable. It is not exempt u/s [10(10D)].

Question 12.
Any income of a pension fund setup by the Life Insurance Corporation of India in terms of section 10(23AAB) of the Income-tax Act, 1961, is:
(a) Liable for tax
(b) Fully exempt from tax
(c) Partly liable for tax
(d) Taxable @10%
Answer:
(b) Fully exempt from tax

Question 13.
Which of the following amount received on life insurance policy is exempt u/s 10(10D)
(a) Amount received under section 80DD(3)
(b) Keyman insurance policy
(c) Any sum received on the death of a person from any other policy.
(d) Received from policy issued on 15.9.2012, on maturity, and premium paid was 18% of the sum assured.
Answer:
(c) Any sum received on the death of a person from any other policy

Question 14.
The income received on behalf of following funds except is exempt u/s 10(23C) from tax.
(a) Prime Minister’s National Relief Fund
(b) Clean Ganga fund setup by Central Government
(c) Swachh Bharat Kosh setup by Central Government
(d) Sampoorna Siksha Fund
Answer:
(d) Sampoorna Siksha Fund

Question 15.
The income of following education institution which exist solely for educational purposes and not for profit making is exempt from tax under section 10(23C) except:
(a) If it is wholly or substantially financed by the Government
(b) If the aggregate annual receipt does not exceed ₹ 1 crore
(c) If the institution is approved by prescribed authority under conditions
(d) If the annual receipts do not exceed ₹ 50 lakh
Answer:
(d) If the annual receipts do not exceed ₹ 50 lakh

Question 16.
A trust eligible for exemption u/s 10(23C)(v) will lose the benefit of exemption in respect of
(a) Anonymous donations u/s 115BBC
(b) If its activities are not genuine.
(c) If the institution applies or accumulates income for objects other than for which it is established
(d) All of the above
Answer:
(d) All of the above

Question 17.
A registered trade union earned income by way of interest on fixed deposit held with State Bank of India of ₹ 5,60,000. The interest income chargeable to tax in the hands of trade union would be:
(a) ₹ 5,60,000
(b) Nil
(c) ₹ 2,60,000
(d) ₹ 3,10,000
Answer:
(b) Nil
Any income of a registered Trade Union from “Income from House Property” and “Income from other sources” is fully exempt under section 10(24)

Question 18.
Any Income of a venture capital company or venture capital fund from investment in venture capital undertaking is exempt u/s from A.Y. 2001-2002
(a) 10(23FA)
(b) 10(2 3 FB)
(c) 10(23FC)
(d) Both (a) and (b)
Answer:
(b) 10(2 3 FB)

Question 19.
Dividend received u/s 2(22)(e) is:
(a) Taxable
(b) Exempt u/s 10(35)
(c) Exempt from A.Y. 2018-2019 u/s 10(34).
(d) Exempt from A.Y 2021-22 u/s 10(34).
Answer:
(a) Taxable

Question 20.
Sarthak, aged 72 years mortgages his property with housing finance company under a reverse mortgage scheme. The company paid, Sarthak, ₹ 25,000 p.m during the P.Y 20-21. The amount
(a) Of ₹ 3,00,000 will be taxable
(b) Of ₹ 3,00,000 will be exempt
(c) 50% of the receipt will be taxable
(d) None of the above.
Answer:
(b) Of ₹ 3,00,000 will be exempt
Monthly instalments or lump sum payment received under reverse mortgage are exempt u/s 10(43). Hence ₹ 25,000 X 12 = ₹ 3,00,000 will be exempt

Question 21.
Nair, a retired person of 68 years of age obtained 110,000 per month from 1 st April 2020 on reverse mortgage of his self-occupied residential property from a bank. The fair rent of the property is ₹ 15,000 per month. The income chargeable to tax in respect of amount received on reverse mortgage for his self-occupied house property for the F.Y. 2020-21 would be:
(a) ₹ 1,20,000
(b) ₹ 1,26,000
(c) Nil
(d) (15,000 -10,000) X 12 = 60,000
Answer:
(c) Nil
Monthly installments or lump sum payment received under reverse mortgage are exempt u/s 10(43). Hence the taxable amount will be Nil.

Question 22.
In case of retired chairman and members of UPSC a sum of maximum per month, received for defraying the services of an orderly and for meeting expenses incurred towards secretarial assistance on contractual basis is exempt in the A.Y. 2021-22 to the extent of:
(a) ₹ 14,000
(b) ₹ 12,000
(c) ₹ 10,000
(d) None of the above
Answer:
(d) None of the above

Question 23.
The donations received by an electoral trust will be exempt under section 13B if
(a) The trust is approved by the CBDT
(b) The electoral trust distributes to the political parties 95% of the aggregate donations received by it during P.Y along with any brought forward surplus
(c) The trust functions in accordance with the rules made in this regard by the Central Government
(d) All of the above
Answer:
(d) All of the above

Question 24.
An electoral trust receiving voluntary contributions for the purpose of distributing to political parties registered under Section 29A of the Representation of the People Act, 1951 must distribute of such contributions.
(a) 10096
(b) 9596
(c) 7596
(d) 5096
Answer:
(b) 9596

Question 25.
Which of the following income derived by a political party is exempt u/s 13A
(a) Income from house property
(b) Income from other sources
(c) Capital gains & voluntary contributions
(d) All of the above
Answer:
(d) All of the above

Question 26.
A political party shall be allowed exemption u/s 13A of any income by way of voluntary contributions provided donation exceeding ₹ to be received by account payee cheque/draft
(a) ₹ 10,000
(b) t 5,000
(c) ₹ 2,000
(d) ₹ 8,000
Answer:
(c) ₹ 2,000

Question 27.
Mr. Sridhar employed in K L Ltd, took voluntary retirement in December 2020 and received ₹ 2,00,000 from National Pension System Trust. The amount so received chargeable to income-tax is:
(a) Nil as 10096 is exempt
(b) ₹ 1,20,000 as 4096 is exempt
(c) ₹ 1,00,000 as 5096 is exempt
(d) ₹ 80,000 as 60% is exempt
Answer:
(d) ₹ 80,000 as 60% is exempt
Amended by the Finance (No. 2) Act, 2019, now 60% is exempt instead of 40%.

Question 28.
Section 115BBC taxes anonymous donations at a special rate of
(a) 20%
(b) 15%
(c) 30%
(d) 10%
Answer:
(c) 30%

Question 29.
Section 115BBC is not applicable
(a) If aggregate anonymous donation is 1 lakh or less
(b) If aggregate anonymous donation is not more than 5% of total donation received by the assessee.
(c) It is received by wholly religious entities
(d) All of the above
Answer:
(d) All of the above
Under section 115BBC anonymous donations are taxable at a special rate of 30%, but the section is not applicable if
(i) institution receiving donation is wholly religious entities;
(ii) If aggregate donation is ₹ 1,00,000 or less;
(iii) If donation is more than ₹ 1,00,000 but not more than 5% of the total donation received is anonymous.
Hence, (d).

Question 30.
Deduction u/s 10AA is available to an entrepreneur who set up a unit in special economic Zone on or after 1.4.2006 but before 1.4.2021 the deduction will be
(a) Profit of the business of undertaking
(b) Profit x \(\frac{\text { export turnover }}{\text { total turnover }}\)
(c) 100% of the profit x\( \frac{\text { export turnover }}{\text { total turnover }}\)
(d) None of the above
Answer:
(c) 100% of the profit x\( \frac{\text { export turnover }}{\text { total turnover }}\)
Deduction under Section 10AA depends upon the quantum of profits derived from
export of article or things or services. It is calculated as: Profit x turnover
Total turnover
100% of the profits are deductible for first five years and 50% of such profits are deductible in the next 5 years.

Question 31.
Tax holiday under Section 10AA in respect of new established units in SEZ is allowed for a total period of –
(a) 5 Years
(b) 10 Years
(c) 15 Years
(d) 20 Years
Answer:
(c) 15 Years

Question 32.
Income of a minor child up to ₹ in respect of each minor
child whose income is includible under section 64(1A) is exempt u/s 10(32)
(a) ₹ 1500 per month
(b) ₹ 3000 per month
(c) ₹ 1500 per child
(d) ₹ 1500 per child up-to 2 children
Answer:
(c) ₹ 1500 per child

Question 33.
Incomes of two minor children are included in the income of their father. Father is entitled to exemption u/s 10(32) upto
(a) ₹ 1,500
(b) ₹ 1,000.
(c) ₹ 3,000
(d) ₹ 2,000
Answer:
(c) ₹ 3,000

Question 34.
Pension and family pension of gallantry award winners is
(a) Exempt upto ₹ 15,000
(b) Exempt upto 1/3rd of pension received
(c) Fully exempt u/s 10(18)
(d) None of the above
Answer:
(c) Fully exempt u/s 10(18)

Question 35.
Salary received by a foreign citizen as an employer of a foreign enterprise provided his stay in India does not exceed days is exempt u/s 10(6)(vi)
(a) 100 days
(b) 90 days
(c) 180 days
(d) 60 days
Answer:
(b) 90 days

Question 36.
Share of a partner from the firm is
(a) Taxable as salary
(b) Taxable as business Income
(c) Exempt u/s 10(2A)
(d) Taxable as income from other sources
Answer:
(c) Exempt u/s 10(2A)

Question 37.
The share of a member of an HUF is
(a) Taxable in the hands of members
(b) Exempt is the hand of member
(c) Partly exempt
(d) 40% taxable 60% exempt
Answer:
(b) Exempt is the hand of member

Question 38.
Murali received ₹ 1 lakh from the HUF of which he is a coparcener. The HUF consists of four coparceners including his father who is the Karta of the HUF. The amount paid was by way of debit to the capital account of HUF engaged in textile business. Is the amount of receipt chargeable to tax –
(a) Yes, full amount is taxable
(b) 50%, i.e. ₹ 50,000 is taxable
(c) Nil, i.e. it is exempt from tax
(d) 25%, i.e. ₹ 25,000 is taxable
Answer:
(b) 50%, i.e. ₹ 50,000 is taxable

Question 39.
Choose the correct statement
(a) All Exempted income are fully exempt for all assessee
(b) All types of incomes are exempt for trade unions.
(c) Exempted income have no role in calculation of tax liability
(d) Exempted income like agriculture income may be integrated with non-agriculture income in order to determine tax liabilities
Answer:
(d) Exempted income like agriculture income may be integrated with non-agriculture income in order to determine tax liabilities

Question 40.
Income of an assessee engaged in the business growing and manufacturing tea in India is taxable to the extent of-
(a) 40% of such income
(b) 60% of such income
(c) 70% of such income
(d) 30% of such income
Answer:
(a) 40% of such income

Question 41.
Any subsidy received from Tea Board for replanting or replacement of Tea bushes or consolidation or rejuvenation of areas used for cultivation is exempt u/s
(a) 10(32)
(b) 10(31)
(c) 10(30)
(d) 10(29)
Answer:
(c) 10(30)

Question 42.
If non -agricultural income is ₹ 2,52,000 and net agricultural income is ₹ 40,000 the tax liability of an individual assessee will be
(a) ₹ Nil
(b) ₹200
(c) ₹ 206
(d) ₹ 4,326
Answer:
(a) ₹ Nil

Question 43.
Which of the following additional in-comes will not be treated as agricultural income
(a) Additional income from selling ginned cotton as compared to un-ginned cotton
(b) Additional income from selling dried-up coffee as compared to raw coffee
(c) Additional income from selling cured tobacco as compared to green tobacco leaves
(d) Additional income from selling dried up tea leaves as compared to raw tea leaves
Answer:
(c) Additional income from selling cured tobacco as compared to green tobacco leaves

Question 44.
Pawan reports net income of ₹ 5 lakh from the activity of growing and manufacturing rubber. How much of such income is to be treated as non-agricultural income –
(a) ₹ 1,75,000
(b) ₹ 2,00,000
(c) X 1,25,000
(d) Nil
Answer:
(a) ₹ 1,75,000

Question 45.
Mrs. Rose derives ₹ 5,40,000 by way of income from sale of coffee grown and manufactured in India. The income charge-able to income tax would be –
(a) 50%, i.e. ₹ 2,70,000
(b) 25%, i.e. ₹ 1,35,000
(c) 40%, i.e. ₹ 2,16,000
(d) 60%, i.e. X3,24,000
Answer:
(b) 25%, i.e. ₹ 1,35,000

Question 46.
Mr. Robert aged 52 years received monthly pension of ₹ 30,000 during the Financial year 2020-2021. His agricultural income in India is ₹ 50,000. His net income-tax liability is:
(a) ₹ 1,040
(b) ₹ 9,270
(c) ₹ 4,120
(d) ₹ Nil
Answer:
(d) ₹ Nil
Incomes Which Do Not Form Part of Total Income - CS Executive Tax Laws MCQ

Question 47.
Mr. Vinayak derived income from sale of tea manufactured and grown in Coorg, Karnataka. His income for the previous year 2020-21 from the said activity is ₹ 20 lakhs. The amount exempt from tax by way of agricultural income is:
(a) ₹ 8 lakhs (40%)
(b) ₹ 5 lakhs (25%)
(c) ₹12 lakhs (60%)
(d) ₹ 7 lakhs (35%)
Answer:
(c) ₹12 lakhs (60%)

Question 48.
Mr. Ramesh engaged in the business of growing and manufacturing tea in India received 21 lakhs from Tea Board towards replacement of tea hushes destroyed by forest fire. The amount received from Tea Board by Mr. Ramesh is:
(a) Liable to tax
(b) Exempt from tax
(c) 50%, is exempt from tax
(d) 25% is exempt from tax
Answer:
(b) Exempt from tax

Question 49.
Mr. Menon having tea estate in Munnar (Kerala) earned X 5 lakh by way of growing tea leaves and manufacturing tea. The income chargeable to tax would be:
(a) ₹ 2,00,000
(b) ₹ 1,75,000
(c) ₹ 1,25,000
(d) ₹ 3,00,000
Answer:
(a) ₹ 2,00,000
As per Rule 8, ₹ 5,00,000 X 40% =₹ 2,00,000

Question 50.
Registered political parties have to maintain a record of the contributions and names and addresses of the persons who have made such contribution where each contribution exceeds:
(a) ₹ 1,000
(b) ₹ 5,000
(c) ₹ 10,000
(d) ₹  20,000
Answer:
(d) ₹  20,000

Question 51.
Mr. X grows sugarcane and manufactures Sugar. The cost of cultivating sugar cane was ₹ 75,00,000 where as the market price of this sugarcane was X 89,00,000. His total profits were ₹ 30,00,000. What will be his agricultural income, as exempt under section 10(1) of the Income-tax Act, 1961 and Rule 7 of the Income-tax Rules, 1962.
(a) ₹ 75 lakhs
(b) ₹ 16 lakhs
(c) ₹ 14 lakhs
(d) Cannot be determined
Answer:
(c) ₹ 14 lakhs
As per Rule 7, the agricultural income will be market price of the sugarcane i.e. ₹ 89,00,000 minus cost of cultivation (i.e. ₹ 75,00,000). Therefore, agricultural income is ₹ 14 lakhs

Question 52.
The income derived from growing, manufacturing and sale of Centrifuged latex or Cenex or Latex based crops as per Rule 7A of the Incometax Rules, 1962 shall be taken as agricultural and non-agricultural income in the following ratio :
(a) 75% and 25%
(b) 60% and 40%
(c) 65% and 35%
(d) None of the above
Answer:
(c) 65% and 35%

Question 53.
A non-resident (other than company) and a foreign company will pay tax on the income of interest received from an infra-structure debt fund referred to in section 10(47) at the rate of :
(a) 20%
(b) 5%
(c) 10%
(d) 7.5%
Answer:
(b) 5%

Question 54.
Any income by way of interest pay-able to a non-resident, not being a company or a foreign company, by an Indian Company or business trust in respect of monies borrowed from a source outside India by issue of Rupee denominated bond during the period beginning from the …….. and ending on ……… is exempt under section 10(4C).
(a) 17.10.2018,31.3.2019.
(b) 17.9.2018,31.3.2019.
(c) 17.9.2018,31.3.2020.
(d) 1.10.2018,31.3.2020.
Answer:
(b) 17.9.2018,31.3.2019.
As inserted by Finance (No. 2) Act, 2019, w.e.f. 1.4.2019

Question 55.
As per the newly inserted section 10(15)(ix) any income by way of interest payable to a non-resident by a unit located in an International Financial Services Centre in respect of monies borrowed by
it on or after the ………..shall be exempt from the Assessment year 2021-22.
(a) 1st day of September, 2018
(b) 1st day of September, 2019
(c) 1st day of April, 2019
(d) 1 st day of October, 2019
Answer:
(b) 1st day of September, 2019
As inserted by the Finance (No. 2) Act, 2019.

Question 56.
The income of a news agency which applies its income or accumulates it for the sole purpose of collection and distribution of news and does not distribute to its members is exempt under section
(a) [10(22B)]
(b) [10(22C)]
(c) [10(23B)]
(d) [10(23BB)]
Answer:
(a) [10(22B)]

Question 57.
Any Income arising from providing any specified services and chargeable to equalization levy is exempt under section:
(a) [10(45)]
(b) [10(47)]
(c) [10(50)]
(d) [10(53)]
Answer:
(c) [10(50)]

Question 58.
The reason for totally exempting agricultural income from the scope of Income-tax is :
(a) To encourage the agriculture industry.
(b) Since there is not much profit in agriculture.
(c) To encourage the primary sector.
(d) under the Constitution, the Central Government has no power to levy a tax on agricultural income
Answer:
(d) under the Constitution, the Central Government has no power to levy a tax on agricultural income

Question 59.
As per Explanation 3 to Section 2(1 A) income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural income :
(a) Whether or not the basic operations were carried out on land.
(b) If some basic operations are carried out on land before transplanting the saplings.
(c) If some basic operations like cultivating etc. is performed on land.
(d) Income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural income.
Answer:
(a) Whether or not the basic operations were carried out on land.

Question 60.
The process employed by Mr. X to render the agricultural produce fit to be taken to the market is exempt u/s 10(1) as agricultural income if:
(a) Mr. X was the cultivator.
(b) Mr. X had given the land to Mr. Y on rent and Y who used the land for agricultural operations paid Mr. X, some amount in terms of money as rent.
(c) Mr. X had given the land to Mr. Y on rent and Y who used the land for agricultural operations paid Mr. X, the cultivated crops as rent.
(d) Either (a) or (c).
Answer:
(d) Either (a) or (c).

Question 61.
As per Rule 7 of the Income-tax Rules, 1962, in determination of market value of agricultural produce which is not capable of being sold in the market in raw form or after application of any ordinary process, the market value will be:
(a) Expenses of cultivation.
(b) The land revenue or rent paid for the area on which it was grown.
(c) Amount which the Assessing officer may regard as representing the reasonable profit.
(d) Total of all of the above.
Answer:
(d) Total of all of the above.

Question 62.
Income from the sale of forest trees of spontaneous growth:
(a) Constitutes agricultural income.
(b) Does not constitute agricultural income.
(c) 65% of the total income is considered agricultural income.
(d) 60% of the total income is considered agricultural income.
Answer:
(b) Does not constitute agricultural income.

Question 63.
Any income of a specified person in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or share capital or unit, is exempt u/s 10(23FE) if the investment is held for at least:
(a) 2 years
(b) 3 years
(c) 4 years
(d) 5 years
Answer:
(b) 3 years

Question 64.
Any income of a specified person in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or share capital or unit, is exempt u/s 10(23FE) if it is made on or after but on or before the 31st day of March, 2024.
(a) 1.4.2020
(b) 1.4.2021
(c) 30.6.2020
(d) 30.6.2021
Answer:
(a) 1.4.2020

Question 65.
Arty income of a specified person in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or share capital or unit, is exempt u/s 10(23FE) if it is made in the:
(a) a Category-I or Category-II Alter-native Investment Fund regulated under the Securities and Exchange Board of India having hundred percent investment in one or more of the company or enterprise or entity referred to in option(c)
(b) a business trust referred to in sub-clause (z) of clause (13A) of section 2
(c) a company or enterprise or an entity carrying on the business of developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (z) of sub-section (4) of section 80-IA or such other business as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(d) All of the above.
Answer:
(d) All of the above.

Question 66.
Which of the following is not a “Specified person” for the purposes of section 10(23FE):
(a) a wholly owned subsidiary of the Abu Dhabi Investment Authority which is a resident of the United Arab Emirates and makes investment, directly or indirectly, out of the fund owned by the Government of the United Arab Emirates.
(b) a sovereign wealth fund which satisfies certain conditions.
(c) a wealth fund created as per the guidelines in India.
(d) a pension fund, which is created or established under the law of a foreign country and is not liable to tax in such foreign country provided it satisfies such other conditions as may be prescribed and is specified by the Central Government.
Answer:
(c) a wealth fund created as per the guidelines in India.

Question 67.
Exemption u/s 10(48C) is available to:
(a) Indian Strategic Petroleum Reserves Limited.
(b) Oil Industry Development Board.
(c) Oil and Natural Gas Co. Ltd.
(d) Oil Industry Ltd.
Answer:
(a) Indian Strategic Petroleum Reserves Limited.

Question 68.
Exemption u/s 10(48C) will not be available if the crude oil is not replenished in the storage facility within years
from the end of the financial year in which the crude oil was removed from the storage facility for the first time.
(a) 1 year
(b) 2 years.
(c) 3 years.
(d) 5 years.
Answer:
(c) 3 years.

Question 69.
Any income accruing or arising to, or received by, a unit holder from a “specified fund” or on transfer of units in a specified fund i.e. a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment
Fund) Regulations, 2012 and which is located in any International Financial Services Centre of which all the units are held by non-residents other than unit held by a sponsor or manager is exempt w.e.f 1.4.2021 u/s:
(a) 10(2 3 FBB)
(b) 10(23FBC)
(c) 10(23FC)
(d) 10(23FCB)
Answer:
(b) 10(23FBC)

Question 70.
Exemption u/s will not be available in the Assessment year 2021-22 as the section has been omitted w.e.f. 1.4.2021.
(a) 10(34)
(b) 10(45)
(c) 10(35)
(d) All of the above.
Answer:
(b) 10(45)

Introduction – CS Executive Tax Laws MCQ

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Going through the Introduction – CS Executive Tax Laws MCQ Questions with Answers you can quickly revise the concepts.

Introduction – Tax Laws CS Executive MCQs

Question 1.
The word tax is based on the Latin word “taxo” which means:
(a) To charge
(b) To levy
(c) To estimate
(d) To apply
Answer:
(c) To estimate

Question 2.
The taxes collected by the Govern¬ment have been used to carry out many functions:
The following are the functions except:
(a) Expenditure on war
(b) Enforcement of law and public order
(c) Social engineering
(d) Giving loan to foreign countries
Answer:
(d) Giving loan to foreign countries

Question 3.
The Government can use taxes to fund welfare and public services which include-
(a) Education system
(b) Health care system
(c) Pension for the elderly
(d) All of the above
Answer:
(d) All of the above

Question 4.
What are the sources of revenue for Government to finance its expenditures
(a) Tax collection
(b) Loan from Central Bank or abroad
(c) Sale of publicly owned assets
(d) All of the above
Answer:
(d) All of the above

Question 5.
The objectives of taxation include:
(a) Means for economic development
(b) Enforcing Government policy
(c) Redistribution of income & wealth
(d) All of the above
Answer:
(d) All of the above

Question 6.
The following are the characteristics of tax except:
(a) Tax is compulsory
(b) Tax is for public benefit
(c) Tax is cost of the benefit
(d) Tax is for economic growths & public welfare
Answer:
(c) Tax is cost of the benefit

Question 7.
A good tax system must have which of the following characteristics?
(a) Equity & certainty
(b) Economy & redistribution
(c) Convenience & flexibility
(d) All of the above
Answer:
(d) All of the above

Question 8.
Canons of taxation are related to the following except:
(a) Rate
(b) Amount
(c) Certainty
(d) Method of levy & collection of tax
Answer:
(c) Certainty

Question 9.
The fundamental canons of taxation are the canon of:
(a) Economy, equity, certainty & convenience
(b) Equity, certainty, flexibility & convenience
(c) Economy, equity, certainty & flexibility
(d) Economy, equity, redistribution & convenience
Answer:
(a) Economy, equity, certainty & convenience

Question 10.
The canons have been added by modern economists like to update & expand the basic principle of taxation.
(a) Charles F Bastable, Keynes
(b) Charles F Bastable, H. Dalton
(c) H. Dalton, Marshall
(d) H. Dalton, Adam Smith
Answer:
(b) Charles F Bastable, H. Dalton

Question 11.
Horizontal equity implies:
(a) Taxpayer with equal ability to pay more tax
(b) Taxpayer with greater ability to pay same tax
(c) All taxpayer to pay same tax
(d) Taxpayer with equal ability to pay equal tax.
Answer:
(d) Taxpayer with equal ability to pay equal tax.

Question 12.
Canon of certainty specifies all of the following except:
(a) When tax is to be paid
(b) How tax is to be paid
(c) How the amount to be paid is to be determined
(d) All of the above.
Answer:
(d) All of the above.

Question 13.
The canon of convenience:
(a) Helps in ensuring compliance
(b) It makes tax payment convenient to the taxpayer
(c) Both (a) & (b)
(d) None of the above
Answer:
(c) Both (a) & (b)

Question 14.
Canon of economy:
(a) Is closely related to the principle of simplicity
(b) It implies decreasing the administra-tive cost of collection at the highest level
(c) It implies decreasing the administra-tive cost of collection at the lowest level
(d) Both (a) & (c)
Answer:
(d) Both (a) & (c)

Question 15.
Which one of the following is not an advantage of direct tax
(a) As compared to indirect tax, it is easy to extract from public
(b) Based on principle of equity & certainty
(c) Convenient to taxpayer
(d) Acts as automatic stabilizer.
Answer:
(a) As compared to indirect tax, it is easy to extract from public

Question 16.
The following are demerits of direct taxes except:
(a) Tax evasion rises
(b) Uneconomical
(c) Disincentive to work hard and earn more or save more after reaching a level of income
(d) Not based on principle of equity.
Answer:
(d) Not based on principle of equity.

Question 17.
The tax system has been in force even in the ancient times, there are references in-
(a) Manu Smriti
(b) Arthashastra
(c) Both (a) &(b)
(d) Vedas
Answer:
(c) Both (a) &(b)

Question 18.
The agricultural income was first defined and exempted from tax liability in the Income-tax Act,
(a) 1860
(b) 1886
(c) 1918
(d) 1922
Answer:
(b) 1886

Question 19.
The flexibility to revise rates through Finance Acts, and not by amending Income-tax Act was given for the first time in Income-tax Act,
(a) 1860
(b) 1886
(c) 1918
(d) 1922
Answer:
(d) 1922

Question 20.
The Constitution of India provides that “No tax shall be levied or collected except by the Authority of law” is given under-
(a) Article 246
(b) Article 265
(c) Article 289
(d) Article 272
Answer:
(b) Article 265

Question 21.
The distribution of legislative powers between the Parliament of India and the State legislature is given under of the Constitution
(a) Article 265
(b) Article 285
(c) Article 246
(d) Article 272
Answer:
(c) Article 246

Question 22.
The power to legislate has been enumerated under three lists which are, the union list, the legislative list and the concurrent list as given in
(a) Schedule V
(b) Schedule VI
(c) Schedule VII
(d) Schedule VIII
Answer:
(c) Schedule VII

Question 23.
Central Government can impose taxes on all of the following except:
(a) Taxes on Income
(b) Corporation tax
(c) Taxes on agricultural income
(d) Taxes on inter-state consignment of goods.
Answer:
(c) Taxes on agricultural income

Question 24.
The state may levy taxes on all of the following except-
(a) Octroi or entry tax
(b) Tax on professionals, trades, callings & employees
(c) Tax on advertisements other than that in newspapers.
(d) Customs including export duties
Answer:
(d) Customs including export duties

Question 25.
The apex body charged with the administration of taxes is:
(a) The Central Board of Direct taxes
(b) The Central Board of Revenue or Department of revenues
(c) Ministry of Finance
(d) Central Board of Excise & Customs
Answer:
(b) The Central Board of Revenue or Department of revenues

Question 26.
The Central Board of Direct Taxes(CBDT) provides essential inputs for policy and planning of direct taxes in India and is a functioning under the Central Board of Revenue Act, 1963.
(a) Constituted Authority
(b) Revenue Administration Authority
(c) Statutory Authority
(d) Central Authority
Answer:
(c) Statutory Authority

Question 27.
The India’s official “Financial Action Task Force” (FATF) unit is
(a) The Central Board of Revenue
(b) The Central Board of Direct tax (CBDT)
(c) The Central Board of Excise & Custom
(d) The GST council
Answer:
(b) The Central Board of Direct tax (CBDT)

Question 28.
The Central Board of Direct Taxes is headed by chairman and comprise of:
(a) 3 Members
(b) 4 Members
(c) 5 Members
(d) 6 Members
Answer:
(d) 6 Members

Question 29.
The members hold the rank of
(a) Secretary to Government
(b) Special Secretary to Government
(c) Additional Secretary to Government
(d) Joint Secretary to Government
Answer:
(c) Additional Secretary to Government

Question 30.
The member of CBDT are all except:
(a) Member (Income Tax)
(b) Member (Personal & Vigilance)
(c) Member (Investigation)
(d) Member (Medical)
Answer:
(d) Member (Medical)

Question 31.
The CBDT Chairman & member are appointed by:
(a) Government of India
(b) President of India
(c) Selection from Indian Revenue Service (IRS)
(d) Prime Minister of India
Answer:
(c) Selection from Indian Revenue Service (IRS)

Question 32.
The Central Board of Direct Taxes (CBDT) is headed by Chairman and also comprises of six members. The Chairman and all the Members of the CBDT are being selected:
(a) By Finance Minister
(b) From IRS
(c) By Prime Minister
(d) By Chief Justice of India
Answer:
(b) From IRS

Question 33.
The income tax department is responsible for administering or enforcing all except:
(a) The Income-tax Act, 1961
(b) Various Finance Acts passed every year
(c) Double Taxation Avoidance Agreements
(d) Goods and Service Tax
Answer:
(d) Goods and Service Tax

CS Executive Tax Laws MCQ

CS Executive Tax Laws MCQ Questions with Answers | CS Executive Tax MCQ Book PDF

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Tax Laws MCQ for CS Executive New Syllabus | Tax Laws CS Executive MCQs

Tax Laws CS Executive MCQs | CS Executive Tax MCQ Book Pdf for June 2021

  1. Introduction MCQs
  2. Basic Concept of Income Tax MCQs
  3. Incomes Which Do Not Form Part of Total Income MCQs
  4. Computation of Income Under Various Heads MCQs
  5. Clubbing Provisions and Set off AND/OR Carry Forward of Losses MCQs
  6. Deductions From Gross Total Income, Rebate and Relief MCQs
  7. Computation of Total Income and Tax Liability of Various Entities MCQs
  8. Classification and Tax Incidence on Companies MCQs
  9. Procedural Compliance MCQs
  10. Assessment, Appeals & Revision MCQs
  11. Concept of Indirect Taxes at a Glance MCQs
  12. Basics of Goods and Services Tax MCQs
  13. Concept of Time, Value & Place of Taxable Supply MCQs
  14. Input Tax Credit, Computation of GST Liability & Job Work MCQs
  15. Procedural Compliances Under GST MCQs
  16. Basic Overview on IGST, UtGST and GST Compensation Cess MCQs
  17. Overview of Customs Act MCQs