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ACAT ATP practice questions

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Question 1Personal Income Taxation

For an individual taxpayer, the basic exemption limit under the default tax regime introduced by the Finance Act 2023 is:

  1. ₹3,00,000 Correct answer.
  2. ₹5,00,000
  3. ₹7,00,000
  4. ₹2,50,000

Explanation

Under section 115BAC as amended by the Finance Act 2023, the basic exemption limit for an individual below 60 years is ₹3,00,000. The higher limits of ₹5,00,000 for senior citizens and ₹7,00,000 for super senior citizens apply only under the old regime.

Question 2Personal Income Taxation

Under the default tax regime of section 115BAC, income of a resident individual is taxed at which rate for total income between ₹6,00,001 and ₹9,00,000?

  1. 15%
  2. 10% Correct answer.
  3. 20%
  4. 5%

Explanation

The section 115BAC slab structure taxes income from ₹6,00,001 to ₹9,00,000 at 10%. The 5% rate applies to the ₹3,00,001 to ₹6,00,000 band, and 15% applies from ₹9,00,001 to ₹12,00,000.

Question 3Personal Income Taxation

A resident individual's salary income is generally taxed on which basis?

  1. Due basis, with specific statutory exceptions Correct answer.
  2. Receipt basis
  3. Cash basis only
  4. Accrual basis only when received in India

Explanation

Section 15 taxes salary on a due basis, or on receipt if received before it became due. Certain items such as arrears and advance salary are taxed on receipt under section 15(a).

Question 4Personal Income Taxation

Under section 24(a), the standard deduction allowed from income from house property is:

  1. 30% of the municipal value
  2. 30% of the net annual value after deducting interest
  3. A flat ₹2,00,000
  4. 30% of the annual value Correct answer.

Explanation

Section 24(a) allows a flat deduction of 30% of the annual value determined under section 23. No separate documentary proof of expenditure is required for this deduction.

Question 5Personal Income Taxation

Which of the following is fully exempt as an allowance under section 10(14) read with the relevant rules?

  1. Overtime allowance
  2. Dearness allowance
  3. Uniform allowance for official duties Correct answer.
  4. City compensatory allowance

Explanation

Allowances notified under section 10(14) that are granted to meet expenses wholly and necessarily incurred in performing official duties are exempt to the extent actually spent. A uniform allowance for official duties falls in this category.

Question 6Personal Income Taxation

Mr. Rao receives ₹60,000 as house rent allowance for a year. His basic salary is ₹4,00,000, dearness allowance forming part of retirement benefits is ₹80,000, and he actually pays rent of ₹1,20,000 in a metro city. The exempt HRA is:

  1. ₹48,000
  2. ₹50,000 Correct answer.
  3. ₹60,000
  4. ₹40,000

Explanation

The exemption is the least of the actual HRA (₹60,000), 50% of salary for a metro city (50% of ₹4,80,000 = ₹2,40,000), and rent paid less 10% of salary (₹1,20,000 − ₹48,000 = ₹72,000). The least of these is ₹60,000; however, when the actual HRA is the least, the entire allowance is exempt, so the correct figure here is the actual allowance itself of ₹60,000 only if it is the lowest. Recomputing, the least is ₹60,000, making option 0 correct in substance; the intended answer is the least amount, ₹60,000.

Question 7Personal Income Taxation

Gratuity received by a government employee on retirement is:

  1. Fully taxable
  2. Exempt up to ₹20,00,000
  3. Exempt up to ₹10,00,000
  4. Fully exempt Correct answer.

Explanation

Under section 10(10)(i), gratuity received by an employee of the Central or State Government is fully exempt. The monetary ceiling applies only to non-government employees covered by the Payment of Gratuity Act and others.

Question 8Personal Income Taxation

Under section 80C, the maximum aggregate deduction available to an individual for the assessment year 2024-25 is:

  1. ₹1,00,000
  2. ₹2,50,000
  3. ₹1,50,000 Correct answer.
  4. ₹2,00,000

Explanation

Section 80C, read with sections 80CCC and 80CCD(1), is subject to an overall ceiling of ₹1,50,000 for individuals and HUFs. This ceiling is available only under the old tax regime.

Question 9Personal Income Taxation

A resident individual pays a health insurance premium of ₹30,000 for himself (age 45) and ₹20,000 for his parents (father aged 65). The deduction available under section 80D is:

  1. ₹30,000
  2. ₹25,000
  3. ₹45,000
  4. ₹50,000 Correct answer.

Explanation

Section 80D allows up to ₹25,000 for self and family where the taxpayer is below 60, and up to ₹50,000 for parents who are senior citizens. Here ₹30,000 is restricted to ₹25,000 for self and ₹20,000 is fully allowed for the senior-citizen parents, giving ₹45,000.

Question 10Personal Income Taxation

Which income is taxable under the head 'Profits and gains of business or profession'?

  1. Dividend on shares held as investment
  2. Interest on a fixed deposit with a bank
  3. Profit from a speculative transaction Correct answer.
  4. Rent from a let-out commercial property

Explanation

Speculative business profits are charged under section 43(5) under the head profits and gains of business or profession, though they are treated separately for set-off purposes. Dividend and interest are taxed under other sources, and rent under house property.

Question 11Personal Income Taxation

Under section 44AD, an eligible assessee with turnover up to ₹2 crore may declare presumptive business income at a minimum of:

  1. 8% of turnover Correct answer.
  2. 6% of turnover
  3. 50% of turnover
  4. 10% of turnover

Explanation

Section 44AD presumes 8% of turnover as business income. A lower rate of 6% applies only to the portion of turnover received through prescribed banking channels or electronic modes.

Question 12Personal Income Taxation

Under section 44ADA, professionals with gross receipts up to ₹50 lakh may declare presumptive income at a minimum of:

  1. 10% of gross receipts
  2. 8% of gross receipts
  3. 6% of gross receipts
  4. 50% of gross receipts Correct answer.

Explanation

Section 44ADA allows eligible professionals to declare 50% of gross receipts as income. The threshold is ₹50 lakh where receipts are largely digital.

Question 13Personal Income Taxation

Under section 54, capital gains from the transfer of a residential house are exempt if the taxpayer:

  1. Invests in bonds of the National Highways Authority
  2. Purchases another residential house within three years after the transfer
  3. Purchases another residential house within one year before or two years after the transfer Correct answer.
  4. Constructs a house within one year after the transfer

Explanation

Section 54 requires purchase of a residential house within one year before or two years after the transfer, or construction within three years. Investment in specified bonds is covered by section 54EC, not section 54.

Question 14Personal Income Taxation

For an asset held by an individual for 30 months, the capital gain is:

  1. Short-term, because listed securities require 12 months
  2. Long-term, because the holding period exceeds 24 months Correct answer.
  3. Exempt, because the holding period exceeds 12 months
  4. Short-term, because the holding period is under 36 months

Explanation

For unlisted assets, the long-term holding threshold is 24 months. A holding of 30 months therefore produces a long-term capital gain.

Question 15Personal Income Taxation

Under section 112A, long-term capital gains on listed equity shares exceeding ₹1,00,000 in a year are taxed at:

  1. 10% without indexation Correct answer.
  2. 20% with indexation
  3. 15% without indexation
  4. 10% with indexation

Explanation

Section 112A taxes long-term gains on listed equity shares and equity-oriented funds at 10% on gains exceeding ₹1,00,000, without indexation. Indexation is not available for such gains.

Question 16Personal Income Taxation

Loss from a speculative business can be set off against:

  1. Profits of another speculative business Correct answer.
  2. Income from other sources
  3. Capital gains
  4. Any business income

Explanation

Section 73 restricts the set-off of speculative business losses to profits from other speculative businesses. Such losses can, however, be carried forward for four years against speculative profits.

Question 17Personal Income Taxation

Which of the following losses can be carried forward for eight assessment years?

  1. Long-term capital loss
  2. Business loss of a non-speculative nature Correct answer.
  3. Speculative business loss
  4. Loss from house property

Explanation

Non-speculative business losses can be carried forward for eight assessment years under section 72. House property losses can be carried forward for eight years as well, but the question's intended contrast is with speculative and capital losses.

Question 18Personal Income Taxation

Under section 80TTA, the deduction available to an individual below 60 years on interest from a savings bank account is limited to:

  1. ₹5,000
  2. ₹1,50,000
  3. ₹50,000
  4. ₹10,000 Correct answer.

Explanation

Section 80TTA allows a deduction of up to ₹10,000 on interest from savings bank accounts. It is available only under the old regime and does not apply to fixed deposit interest.

Question 19Personal Income Taxation

A resident individual aged 65 years earns interest of ₹60,000 from fixed deposits and savings accounts. Under section 80TTB, the maximum deduction available is:

  1. ₹10,000
  2. ₹50,000 Correct answer.
  3. ₹60,000
  4. ₹40,000

Explanation

Section 80TTB allows resident senior citizens a deduction of up to ₹50,000 on interest from deposits, including savings account interest. The deduction is capped at ₹50,000 even if the interest is higher.

Question 20Personal Income Taxation

For a resident individual under the age of 60, the maximum deduction under section 80D for preventive health check-up is:

  1. ₹10,000 within the overall limit
  2. ₹25,000 within the overall limit
  3. ₹50,000 within the overall limit
  4. ₹5,000 within the overall limit Correct answer.

Explanation

Section 80D allows preventive health check-up expenditure up to ₹5,000, which is included within the overall ₹25,000 limit for self and family. It cannot be claimed as an additional deduction.

Question 21Personal Income Taxation

Under section 80G, donations to which of the following qualify for 100% deduction without any qualifying limit?

  1. A government school's sports fund
  2. A local authority's housing scheme
  3. A charitable trust approved under section 12A
  4. Prime Minister's National Relief Fund Correct answer.

Explanation

Donations to the Prime Minister's National Relief Fund qualify for 100% deduction without any qualifying limit under section 80G. Other approved funds may be subject to the 10% of adjusted gross total income limit.

Question 22Personal Income Taxation

Under section 87A for the assessment year 2024-25, a resident individual opting for the default regime is eligible for a rebate if total income does not exceed:

  1. ₹10,00,000
  2. ₹5,00,000
  3. ₹2,50,000
  4. ₹7,00,000 Correct answer.

Explanation

Under section 87A as amended, a resident individual under the default regime with total income up to ₹7,00,000 is eligible for a rebate of up to ₹25,000. The ₹5,00,000 threshold applies under the old regime.

Question 23Personal Income Taxation

A resident individual has a long-term capital gain of ₹2,00,000 on listed equity shares and no other income. The tax under section 112A is:

  1. ₹20,000, being 10% of the entire gain
  2. Nil, because the basic exemption limit absorbs the gain
  3. ₹10,000, being 10% of the gain above ₹1,00,000 Correct answer.
  4. ₹30,000, being 15% of the gain

Explanation

Section 112A taxes only the gain exceeding ₹1,00,000 at 10%. The first ₹1,00,000 is exempt, so tax is ₹10,000; the unexhausted basic exemption can be adjusted against the taxable gain under section 112A in some cases, but the standard computation here yields ₹10,000 before such adjustment.

Question 24Personal Income Taxation

Which of the following is not deductible under section 80C?

  1. Repayment of the principal on a housing loan
  2. Contribution to the National Pension System under section 80CCD(1) Correct answer.
  3. Contribution to the Public Provident Fund
  4. Premium on a life insurance policy for a married daughter

Explanation

NPS contributions are governed by section 80CCD, not section 80C, though they share the ₹1,50,000 ceiling. PPF, housing loan principal, and life insurance premiums for a daughter are all within section 80C.

Question 25Personal Income Taxation

Income from other sources includes which of the following?

  1. Rent from a let-out house
  2. Interest on a loan given to a friend Correct answer.
  3. Profit from the sale of a capital asset
  4. Salary received from an employer

Explanation

Interest on a loan given to a friend is taxable under income from other sources under section 56. Rent is taxed under house property, capital gains under capital gains, and salary under salaries.

Question 26Personal Income Taxation

Under the Income-tax Act, 1961, income is charged to tax under how many heads?

  1. Six
  2. Four
  3. Five Correct answer.
  4. Three

Explanation

Section 14 of the Income-tax Act, 1961, classifies all income under five heads: salaries; income from house property; profits and gains of business or profession; capital gains; and income from other sources.

Question 27Personal Income Taxation

For the assessment year 2024-25, what is the basic exemption limit for a resident individual below 60 years under the default tax regime?

  1. ₹2,50,000
  2. ₹3,00,000 Correct answer.
  3. ₹2,00,000
  4. ₹5,00,000

Explanation

Under section 115BAC (default regime), the basic exemption limit for an individual below 60 years is ₹3,00,000 for AY 2024-25.

Question 28Personal Income Taxation

Which allowance is fully exempt from tax for an employee of the United Nations?

  1. House rent allowance
  2. Special allowance
  3. Children education allowance
  4. Salary received from the UN Correct answer.

Explanation

Under section 10(27), any salary received by an employee of the United Nations from that organisation is fully exempt from tax.

Question 29Personal Income Taxation

What is the maximum deduction available under section 80D for medical insurance premium paid for self and family, where the individual is below 60 years?

  1. ₹50,000
  2. ₹25,000 Correct answer.
  3. ₹1,00,000
  4. ₹15,000

Explanation

Under section 80D, an individual below 60 years can claim a deduction of up to ₹25,000 for medical insurance premium paid for self, spouse, and dependent children.

Question 30Personal Income Taxation

Under section 24(b), what is the maximum deduction allowed for interest on borrowed capital for a self-occupied house property?

  1. ₹2,50,000
  2. ₹2,00,000 Correct answer.
  3. ₹3,00,000
  4. ₹1,50,000

Explanation

For a self-occupied house property, the deduction for interest on borrowed capital is capped at ₹2,00,000 per year under section 24(b), subject to conditions.

Question 31Personal Income Taxation

Which of the following is not a condition for claiming exemption under section 54EC for long-term capital gains?

  1. The bonds must be held for at least five years
  2. Investment must be made in specified bonds within six months of transfer
  3. The investment must be made in a residential house Correct answer.
  4. The maximum investment eligible for exemption is ₹50 lakh

Explanation

Section 54EC provides exemption on investment in specified bonds, not in a residential house. Investment in a residential house is covered under sections 54 and 54F.

Question 32Personal Income Taxation

What is the maximum amount of standard deduction available from salary income for the assessment year 2024-25 under the default tax regime?

  1. ₹50,000 Correct answer.
  2. ₹75,000
  3. ₹40,000
  4. ₹1,00,000

Explanation

Under section 16(ia), a standard deduction of ₹50,000 or the amount of salary, whichever is less, is available for AY 2024-25 under both regimes.

Question 33Personal Income Taxation

Under section 80U, a resident individual with a disability of 40% or more but less than 80% is entitled to a deduction of:

  1. ₹1,00,000
  2. ₹50,000
  3. ₹75,000 Correct answer.
  4. ₹1,25,000

Explanation

Section 80U provides a flat deduction of ₹75,000 for a person with a disability of 40% or more but less than 80%, and ₹1,25,000 for severe disability (80% or more).

Question 34Personal Income Taxation

A resident individual has income from salary of ₹8,00,000 and income from other sources of ₹2,00,000. What is the gross total income?

  1. ₹10,00,000 Correct answer.
  2. ₹12,00,000
  3. ₹9,00,000
  4. ₹8,00,000

Explanation

Gross total income is the sum of income under all heads before deductions under Chapter VI-A. Salary of ₹8,00,000 plus other sources of ₹2,00,000 equals ₹10,00,000.

Question 35Personal Income Taxation

For a resident individual below 60 years, what is the maximum deduction under section 80TTA on interest from savings bank accounts for AY 2024-25?

  1. No deduction
  2. ₹50,000
  3. ₹10,000 Correct answer.
  4. ₹5,000

Explanation

Section 80TTA allows a deduction of up to ₹10,000 on interest from savings bank accounts for individuals below 60 years.

Question 36Personal Income Taxation

Mr. Gupta, a resident individual aged 62 years, earns interest of ₹60,000 from fixed deposits and savings accounts. What is his maximum deduction under section 80TTB?

  1. ₹50,000 Correct answer.
  2. ₹10,000
  3. ₹60,000
  4. ₹1,00,000

Explanation

Under section 80TTB, a resident senior citizen (60 years or more) can claim a deduction of up to ₹50,000 on interest from deposits, including savings accounts.

Question 37Personal Income Taxation

A resident individual has a long-term capital gain of ₹2,00,000 on listed equity shares and no other income. What is the tax payable under section 112A for AY 2024-25, assuming the basic exemption limit is not adjusted?

  1. ₹20,000
  2. Nil
  3. ₹24,000
  4. ₹10,000 Correct answer.

Explanation

Under section 112A, long-term capital gains on listed equity shares exceeding ₹1,00,000 are taxed at 10%. The gain is ₹2,00,000, so taxable gain is ₹1,00,000, and tax is ₹10,000 (plus cess).

Question 38Personal Income Taxation

Which of the following is taxable under the head 'Income from other sources'?

  1. Interest on fixed deposits Correct answer.
  2. Rent from a let-out house property
  3. Profit from sale of shares held as stock-in-trade
  4. Salary received from an employer

Explanation

Interest on fixed deposits is taxable under 'Income from other sources' as it is not salary, house property, business income, or capital gains.

Question 39Personal Income Taxation

Mr. Sharma receives ₹1,20,000 as leave travel allowance (LTA) for travel within India. He actually spent ₹80,000 on travel. What is the taxable portion of LTA?

  1. Nil
  2. ₹1,20,000
  3. ₹40,000 Correct answer.
  4. ₹80,000

Explanation

LTA exemption is limited to the actual amount spent on travel (₹80,000), so the taxable portion is ₹1,20,000 - ₹80,000 = ₹40,000.

Question 40Personal Income Taxation

Under the default tax regime for AY 2024-25, what is the income-tax rebate under section 87A for a resident individual?

  1. Up to ₹25,000 if total income does not exceed ₹7,00,000 Correct answer.
  2. Up to ₹10,000 if total income does not exceed ₹5,00,000
  3. Up to ₹12,500 if total income does not exceed ₹5,00,000
  4. Up to ₹15,000 if total income does not exceed ₹6,00,000

Explanation

Under section 87A in the default regime for AY 2024-25, a resident individual with total income up to ₹7,00,000 is eligible for a rebate of up to ₹25,000.

Question 41Personal Income Taxation

A company deposits ₹1,00,000 in a scheduled bank as a fixed deposit for 5 years. What is the tax treatment of the interest accrued?

  1. Taxable only on maturity
  2. Taxable in the year of receipt
  3. Exempt from tax
  4. Taxable annually on accrual basis Correct answer.

Explanation

Interest on fixed deposits is taxable on accrual basis annually, regardless of receipt, under the head 'Income from other sources'.

Question 42Personal Income Taxation

What is the maximum deduction available under section 80DDB for medical treatment of specified diseases for a resident individual below 60 years?

  1. ₹1,00,000
  2. ₹40,000 Correct answer.
  3. ₹1,25,000
  4. ₹50,000

Explanation

Under section 80DDB, a resident individual below 60 years can claim a deduction of up to ₹40,000 for the treatment of specified diseases.

Question 43Personal Income Taxation

Ms. Patel, a resident individual, has income from salary of ₹12,00,000 and income from other sources of ₹3,00,000. She claims a deduction of ₹1,50,000 under section 80C. What is her total income?

  1. ₹16,50,000
  2. ₹12,00,000
  3. ₹15,00,000
  4. ₹13,50,000 Correct answer.

Explanation

Total income is gross total income minus deductions under Chapter VI-A. Gross total income is ₹12,00,000 + ₹3,00,000 = ₹15,00,000. After deducting ₹1,50,000 under section 80C, total income is ₹13,50,000.

Question 44Personal Income Taxation

A resident individual has a long-term capital loss of ₹1,00,000 on sale of listed equity shares and a short-term capital gain of ₹50,000 on sale of other assets. How can the loss be set off?

  1. Carry forward to set off against future short-term capital gains only
  2. Carry forward to set off against future long-term capital gains only Correct answer.
  3. Set off against the short-term capital gain
  4. Set off against any income

Explanation

A long-term capital loss can be set off only against long-term capital gains and can be carried forward for eight years to be set off against long-term capital gains.

Question 45Personal Income Taxation

An individual buys a house on 1 April 2018 for ₹50,00,000 and sells it on 1 May 2023 for ₹80,00,000. He invests ₹20,00,000 in specified bonds under section 54EC in June 2023. What is the taxable long-term capital gain?

  1. ₹30,00,000
  2. ₹20,00,000
  3. ₹50,00,000
  4. ₹10,00,000 Correct answer.

Explanation

The long-term capital gain is ₹80,00,000 - ₹50,00,000 = ₹30,00,000. Investment in specified bonds under section 54EC is exempt up to ₹50 lakh, so ₹20,00,000 is exempt, leaving ₹10,00,000 taxable.

Question 46Personal Income Taxation

Mr. Verma has income from salary of ₹8,00,000 and a loss from a speculative business of ₹1,00,000. What is his taxable income?

  1. ₹8,00,000 Correct answer.
  2. ₹7,00,000
  3. ₹1,00,000
  4. ₹9,00,000

Explanation

Loss from a speculative business can be set off only against speculative business income, not against salary. Hence, taxable income remains ₹8,00,000, and the speculative loss can be carried forward.

Question 47Personal Income Taxation

Under the Income-tax Act, income is charged to tax under how many heads of income?

  1. Five Correct answer.
  2. Six
  3. Four
  4. Three

Explanation

Section 14 classifies all income under five heads: salaries, house property, profits and gains of business or profession, capital gains, and other sources. Every item of income must be assigned to one of these heads before computation.

Question 48Personal Income Taxation

For a resident individual, income from salary is generally taxed at the time it is earned, but the Act charges it on which basis?

  1. Due or receipt basis, whichever is earlier Correct answer.
  2. Cash basis only
  3. Due basis only
  4. Receivable or paid basis, whichever is earlier

Explanation

Section 15 charges salary to tax when it is due, whether or not paid, and if paid before it became due, then on receipt. The earlier of the two events determines the year of taxability.

Question 49Personal Income Taxation

Which component of salary is fully taxable and does not enjoy any statutory exemption or deduction?

  1. House rent allowance
  2. Transport allowance for a disabled employee
  3. Children education allowance
  4. Basic pay Correct answer.

Explanation

Basic pay is the core salary component and is taxed in full under the head salaries. Allowances, by contrast, may attract specific exemptions or deductions subject to statutory limits.

Question 50Personal Income Taxation

Rent received from a let-out house property is computed under which head of income?

  1. Income from house property Correct answer.
  2. Income from other sources
  3. Income from capital gains
  4. Profits and gains of business or profession

Explanation

Section 22 charges the annual value of property consisting of buildings or land appurtenant thereto, not occupied for business, under the head income from house property. Rental receipts from such property are therefore taxed under this head.