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CA Inter Paper 4 practice questions

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Question 1Paper 4 - Part I: Income-tax Law

Under the Income-tax Act, 1961, the basic condition regarding residential status of an individual requires physical presence in India during the previous year for a period of at least:

  1. 60 days
  2. 240 days
  3. 182 days Correct answer.
  4. 365 days

Explanation

Section 6(1) provides that an individual is resident if he is in India in the previous year for 182 days or more, or for 60 days or more plus 365 days in the preceding four years. The 182-day threshold is the standalone basic condition applicable without reference to earlier years.

Question 2Paper 4 - Part I: Income-tax Law

Mr. Arjun, a citizen of India, left India on 10 June 2024 for employment abroad and did not return during the previous year 2024-25. His stay in India during 2024-25 was 71 days, and he had been in India for 400 days during the four preceding previous years. His residential status for AY 2025-26 is:

  1. Deemed resident under section 6(1A)
  2. Non-resident Correct answer.
  3. Resident and ordinarily resident
  4. Resident but not ordinarily resident

Explanation

A citizen leaving India for employment abroad is governed by the Explanation to section 6(1), under which the 182-day threshold applies and the 60-day limb is inapplicable. Since his stay was only 71 days, he fails the basic condition and is a non-resident.

Question 3Paper 4 - Part I: Income-tax Law

Which of the following incomes is chargeable to tax in India for a non-resident assessee under the Income-tax Act, 1961?

  1. Dividend from a foreign company received outside India for investment made outside India
  2. Rent from a house property situated in Chennai Correct answer.
  3. Salary for services rendered in Dubai and received in Dubai from a foreign employer
  4. Interest received in London on a loan advanced in London to a non-resident for business carried on in Nepal

Explanation

Section 5(2) taxes a non-resident only on income received or accruing in India, and on foreign income attributable to a business connection or property in India. Income from property situated in India is deemed to accrue in India under section 9, so the Chennai rent is taxable.

Question 4Paper 4 - Part I: Income-tax Law

Under section 10(13A) read with Rule 2A, the house rent allowance exemption is the least of the specified amounts. Which of the following is one of the three amounts compared?

  1. 50% of salary where the accommodation is situated in Mumbai, Kolkata, Delhi or Chennai Correct answer.
  2. Actual HRA received, less 10% of salary
  3. Rent paid in excess of 25% of salary
  4. Actual rent paid, subject to a ceiling of Rs. 60,000 per annum

Explanation

Rule 2A prescribes the least of actual HRA received, rent paid in excess of 10% of salary, and 50% of salary for the four metro cities or 40% for other places. The metro-city percentage is therefore one of the statutory comparators.

Question 5Paper 4 - Part I: Income-tax Law

Ms. Kavya received a gratuity of Rs. 12,00,000 on retirement from a private employer covered by the Payment of Gratuity Act, 1972, after 22 years of service. Her last drawn salary was Rs. 40,000 per month. The exempt gratuity under section 10(10) is:

  1. Rs. 9,23,076 Correct answer.
  2. Rs. 20,00,000
  3. Rs. 10,00,000
  4. Rs. 12,00,000

Explanation

For employees covered by the Payment of Gratuity Act, the exemption is the least of actual gratuity, Rs. 20 lakh, and 15/26 of last drawn salary multiplied by completed years of service. Here 15/26 x 40,000 x 22 equals Rs. 5,07,692, but the statutory ceiling is Rs. 20 lakh; the binding figure is the computed amount of Rs. 5,07,692 only if compared correctly, so the least of the three governs and the answer is the computed gratuity amount of Rs. 5,07,692 rounded as per the formula.

Question 6Paper 4 - Part I: Income-tax Law

Under section 24(a), the deduction allowed from income from house property for repairs and collection is:

  1. Actual expenditure incurred on repairs
  2. Standard deduction of Rs. 30,000
  3. 30% of the municipal value
  4. 30% of the annual value Correct answer.

Explanation

Section 24(a) grants a flat statutory deduction of 30% of the annual value determined under section 23, irrespective of actual expenditure. No evidence of repairs is required for claiming it.

Question 7Paper 4 - Part I: Income-tax Law

Mr. Rohan owns a house property let out at Rs. 50,000 per month. The municipal value is Rs. 5,40,000 and the fair rent is Rs. 5,80,000. He paid municipal taxes of Rs. 40,000 during the year. The annual value under section 23(1) is:

  1. Rs. 5,60,000 Correct answer.
  2. Rs. 5,80,000
  3. Rs. 6,00,000
  4. Rs. 5,40,000

Explanation

Annual value is the higher of municipal value and fair rent, but restricted to the standard rent and, for let-out property, to the actual rent received. The higher of municipal and fair rent is Rs. 5,80,000, and municipal taxes actually paid are deducted under section 23(1), giving Rs. 5,40,000; however, since the actual rent of Rs. 6,00,000 exceeds this, the actual rent less taxes of Rs. 5,60,000 is the annual value.

Question 8Paper 4 - Part I: Income-tax Law

Under section 32, depreciation on plant and machinery used in a business is allowed at the prescribed percentage on:

  1. The written-down value at the beginning of the previous year Correct answer.
  2. The actual cost less salvage value
  3. The original cost every year
  4. The market value of the asset on the first day of the previous year

Explanation

Section 32 read with Rule 5 allows depreciation on the written-down value method, applying the prescribed rate to the opening written-down value of the block of assets. The block concept is central to the scheme of allowing depreciation.

Question 9Paper 4 - Part I: Income-tax Law

A plant purchased for Rs. 10,00,000 in April 2024 was put to use on 15 December 2024 in a business. The applicable depreciation rate is 15%. Assuming the asset falls in the 15% block, the depreciation allowable for AY 2025-26 is:

  1. Rs. 1,12,500
  2. Rs. 75,000 Correct answer.
  3. Rs. 1,50,000
  4. Rs. 2,25,000

Explanation

Proviso to section 32 restricts depreciation to 50% of the normal allowance where an asset is acquired during the previous year and put to use for less than 180 days. The asset was used for about 107 days, so half of Rs. 1,50,000, i.e. Rs. 75,000, is allowed.

Question 10Paper 4 - Part I: Income-tax Law

Under section 37(1), a business expenditure is allowed as deduction only if it is:

  1. Supported by a resolution of the board of directors
  2. Incurred after the end of the previous year
  3. Laid out wholly and exclusively for the purposes of the business and not capital or personal Correct answer.
  4. Sanctioned by the Assessing Officer in advance

Explanation

Section 37(1) permits deduction of revenue expenditure laid out wholly and exclusively for the business, excluding capital expenditure, personal expenses and expenses prohibited by law. The test is business nexus combined with a revenue character.

Question 11Paper 4 - Part I: Income-tax Law

A company provided a provision of Rs. 8,00,000 for warranty claims based on past trends but actually settled claims of Rs. 3,00,000 during the year. For computing business income, the allowable deduction is:

  1. Rs. 3,00,000 being the actual claims settled Correct answer.
  2. Rs. 5,50,000 being the average of provision and actual claims
  3. Nil, since warranty claims are contingent
  4. Rs. 8,00,000 as the provision is scientifically estimated

Explanation

Only expenditure actually incurred during the previous year is deductible under section 37; a mere provision for a contingent future liability is not allowable. The claims actually settled during the year represent the real liability discharged and are admissible.

Question 12Paper 4 - Part I: Income-tax Law

Under section 80C, the maximum aggregate deduction available to an individual for the specified investments and payments is:

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

Explanation

Section 80C, read with the overall ceiling in section 80CCE, restricts the aggregate deduction for specified savings to Rs. 1,50,000 in a previous year. The same ceiling covers contributions to recognised provident fund, life insurance premia and specified tuition fees.

Question 13Paper 4 - Part I: Income-tax Law

Ms. Neha, aged 45, has gross total income of Rs. 9,00,000 comprising salary and bank interest. She paid a health insurance premium of Rs. 30,000 by cheque for herself. Her deduction under section 80D is:

  1. Nil, since the premium was paid for herself
  2. Rs. 50,000
  3. Rs. 25,000 Correct answer.
  4. Rs. 30,000

Explanation

Section 80D allows a deduction up to Rs. 25,000 for health insurance premia paid for the assessee, spouse and dependent children where the assessee is below 60 years. Since the premium exceeds the ceiling, the deduction is restricted to Rs. 25,000.

Question 14Paper 4 - Part I: Income-tax Law

Under section 80DDB, the deduction for medical treatment of a specified disease is available to a resident individual in respect of:

  1. Any person wholly dependent on the assessee Correct answer.
  2. Only a senior citizen parent
  3. Any person, whether dependent or not
  4. Only the assessee and his spouse

Explanation

Section 80DDB permits a deduction for expenditure on treatment of specified diseases for the assessee or a dependant, defined to include spouse, children, parents and siblings wholly dependent on the assessee. The deduction is not confined to the assessee alone.

Question 15Paper 4 - Part I: Income-tax Law

Under section 80G, donation made to the Prime Minister's National Relief Fund by an individual is eligible for deduction of:

  1. 50% of the amount donated, subject to 10% of adjusted gross total income
  2. 100% of the amount donated, without any qualifying limit Correct answer.
  3. 50% of the amount donated, without any qualifying limit
  4. 100% of the amount donated, subject to 10% of adjusted gross total income

Explanation

Donations to specified funds such as the Prime Minister's National Relief Fund qualify for 100% deduction without being subjected to the 10% of adjusted gross total income ceiling. These funds are listed in the category entitled to full deduction with no qualifying limit.

Question 16Paper 4 - Part I: Income-tax Law

Advance tax under section 208 is payable by an assessee where the tax liability for the year is:

  1. Rs. 1,00,000 or more
  2. Rs. 10,000 or more Correct answer.
  3. Rs. 5,000 or more
  4. Any amount, however small

Explanation

Section 208 requires every assessee whose advance tax liability for the year is Rs. 10,000 or more to pay advance tax in instalments. The threshold was raised from Rs. 5,000 to Rs. 10,000 and applies uniformly to all assessees.

Question 17Paper 4 - Part I: Income-tax Law

For a company assessee, the first instalment of advance tax is payable on or before:

  1. 15 September
  2. 15 June Correct answer.
  3. 31 March
  4. 15 December

Explanation

Section 211 prescribes four instalments for companies: 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. The first instalment therefore falls due on 15 June.

Question 18Paper 4 - Part I: Income-tax Law

Under section 234B, interest is levied on an assessee who has paid advance tax of less than:

  1. 100% of the assessed tax
  2. 50% of the assessed tax
  3. 75% of the assessed tax
  4. 90% of the assessed tax Correct answer.

Explanation

Section 234B attracts interest where the advance tax paid falls short of 90% of the assessed tax. Interest runs from 1 April of the assessment year to the date of determination of income.

Question 19Paper 4 - Part I: Income-tax Law

Under section 271(1)(c), penalty for concealment of particulars of income is levied with reference to:

  1. The gross total income of the assessee
  2. A fixed sum of Rs. 10,000
  3. The amount of income concealed
  4. The tax sought to be evaded Correct answer.

Explanation

Section 271(1)(c) provides for penalty equal to 100% to 300% of the tax sought to be evaded in cases of concealment or furnishing of inaccurate particulars. The measure is the tax sought to be evaded, not the concealed income itself.

Question 20Paper 4 - Part I: Income-tax Law

An assessee filed a return of income on 30 November 2024 for AY 2025-26. The last date for filing under section 139(1) was 31 July 2024. The return is:

  1. A revised return, since no original return was filed
  2. A belated return, which attracts interest and loss of certain benefits Correct answer.
  3. An invalid return that cannot be processed
  4. A valid return, since it was filed before 31 December 2024

Explanation

A return filed after the due date under section 139(1) is a belated return under section 139(4) provided it is filed within the extended time. It attracts interest under section 234A and results in the loss of benefits such as carry-forward of certain losses.

Question 21Paper 4 - Part I: Income-tax Law

Under section 139(1), a resident individual who is not required to furnish a return may still be required to do so if, during the previous year, she has:

  1. Incurred foreign travel expenditure exceeding Rs. 50,000
  2. Spent more than Rs. 2 lakh on credit card payments
  3. Paid electricity bills exceeding Rs. 1 lakh
  4. Deposited an amount exceeding Rs. 1 crore in one or more current accounts Correct answer.

Explanation

The seventh proviso to section 139(1) imposes a filing obligation on individuals otherwise exempt where specified conditions are met, including cash deposits exceeding Rs. 1 crore in current accounts. Other triggers include foreign travel expenditure above Rs. 2 lakh and electricity consumption above Rs. 1 lakh.

Question 22Paper 4 - Part I: Income-tax Law

Under section 139(4A), a charitable trust registered under section 12AB is required to furnish its return of income where its total income before claiming exemptions:

  1. Exceeds Rs. 10,00,000
  2. Exceeds the maximum amount not chargeable to tax Correct answer.
  3. Exceeds Rs. 50,000
  4. Exceeds Rs. 2,50,000

Explanation

Section 139(4A) requires a trust or institution claiming exemption under section 11 to file a return if its total income, computed without giving effect to the exemption, exceeds the maximum amount not chargeable to tax. The basic exemption threshold therefore governs the obligation.

Question 23Paper 4 - Part I: Income-tax Law

A charitable trust registered under section 12AB derives income from a business activity. Under section 11(4A), such business income is exempt only if:

  1. The business income does not exceed Rs. 1 crore
  2. The business is carried on by a wholly owned subsidiary
  3. The business is incidental to the attainment of the objects of the trust and separate books of account are maintained Correct answer.
  4. The trust has obtained a separate registration under section 80G

Explanation

Section 11(4A) denies exemption to business income of a trust unless the business is incidental to the attainment of its objectives and separate books of account are maintained for the business. Both conditions must be satisfied cumulatively.

Question 24Paper 4 - Part I: Income-tax Law

Under section 115BAA, a domestic company may opt for a concessional tax rate provided it:

  1. Has a turnover not exceeding Rs. 400 crore
  2. Claims additional depreciation under section 32(1)(iia)
  3. Is listed on a recognised stock exchange
  4. Does not claim specified exemptions and incentives such as those under section 80-IA Correct answer.

Explanation

Section 115BAA offers a concessional rate subject to the company forgoing specified deductions and incentives, including additional depreciation and chapter VI-A deductions other than certain limited ones. The option, once exercised, cannot be withdrawn.

Question 25Paper 4 - Part I: Income-tax Law

Under section 90, where the provisions of the Income-tax Act conflict with a Double Taxation Avoidance Agreement, the position is that:

  1. The Act prevails over the agreement in all cases
  2. The agreement prevails to the extent it is more beneficial to the assessee Correct answer.
  3. The agreement prevails only if ratified by Parliament after the assessment
  4. The Assessing Officer may choose either provision

Explanation

Section 90 gives effect to agreements with foreign countries, and judicial interpretation has settled that the treaty provisions prevail over the domestic law to the extent they are more beneficial to the assessee. This ensures certainty and avoids double taxation.

Question 26Paper 4 - Part I: Income-tax Law

Under section 10(13A) read with Rule 2A, the house rent allowance exemption for an assessee residing in Mumbai is the least of actual HRA, rent paid in excess of 10% of salary, and what percentage of salary?

  1. 40% of salary
  2. 50% of salary Correct answer.
  3. 30% of salary
  4. 25% of salary

Explanation

Rule 2A prescribes 50% of salary for the four metro cities of Delhi, Mumbai, Kolkata and Chennai, and 40% for other places. Salary for this purpose means basic pay plus dearness allowance forming part of retirement benefits plus commission on turnover.

Question 27Paper 4 - Part I: Income-tax Law

An employee received a gratuity of Rs. 25,00,000 on retirement from a private employer covered by the Payment of Gratuity Act, 1972, after 30 years of service. His salary last drawn was Rs. 40,000 per month. What amount of gratuity is exempt under section 10(10)?

  1. Rs. 10,00,000
  2. Rs. 20,00,000 Correct answer.
  3. Rs. 6,92,308
  4. Rs. 25,00,000

Explanation

For employees covered by the Payment of Gratuity Act, exemption is the least of the gratuity actually received, the statutory ceiling of Rs. 20,00,000, and 15/26 of last drawn salary multiplied by completed years of service. The statutory formula gives Rs. 6,92,308, but the overall monetary ceiling of Rs. 20,00,000 caps the exemption, so the entire Rs. 25,00,000 is not exempt and Rs. 5,00,000 is taxable.

Question 28Paper 4 - Part I: Income-tax Law

Under section 17(2), the value of a rent-free unfurnished accommodation provided by a non-government employer in a city with population exceeding 40 lakh is computed as a percentage of salary. What is that percentage?

  1. 20%
  2. 15% Correct answer.
  3. 7.5%
  4. 10%

Explanation

Rule 3 prescribes 10% of salary where the population of the city exceeds 40 lakh, 7.5% where it exceeds 15 lakh but does not exceed 40 lakh, and 5% in other cases. This valuation forms a perquisite taxable as part of salary under section 17(2).

Question 29Paper 4 - Part I: Income-tax Law

Mr. Arun sold listed equity shares held for 18 months, resulting in a long-term capital gain of Rs. 2,00,000, and has no other income. What is the tax treatment of this gain for AY 2025-26?

  1. Exempt, since the gain is below Rs. 2,50,000
  2. Taxable at 12.5% on the entire Rs. 2,00,000
  3. Taxable at 10% on the entire Rs. 2,00,000
  4. Taxable at 10% only after the basic exemption limit is exhausted against it Correct answer.

Explanation

Long-term capital gains on listed equity shares under section 112A are taxed at 10% only to the extent they exceed Rs. 1,00,000. A resident individual may also adjust the unused basic exemption limit against such gains, and since his total income is below Rs. 2,50,000, the gain is effectively absorbed.

Question 30Paper 4 - Part I: Income-tax Law

Which of the following is the correct period of holding for unlisted shares to be treated as long-term capital assets?

  1. More than 36 months
  2. More than 12 months
  3. More than 6 months
  4. More than 24 months Correct answer.

Explanation

Under section 2(42A), unlisted shares held for more than 24 months are long-term capital assets. Listed securities and units of equity-oriented funds require more than 12 months, while certain other assets such as immovable property require more than 24 months as well.

Question 31Paper 4 - Part I: Income-tax Law

Under section 54, an individual sold a residential house in June 2024 and purchased another residential house in March 2025. To claim full exemption of the long-term capital gain, the amount invested must be at least equal to which of the following?

  1. The capital gain arising on transfer Correct answer.
  2. The net consideration received on transfer
  3. The indexed cost of acquisition of the original house
  4. The entire sale consideration before expenses

Explanation

Section 54 grants exemption of the capital gain to the extent it is invested in purchasing or constructing one residential house in India. If the investment equals or exceeds the capital gain, the whole gain is exempt; if less, exemption is proportionate to the amount invested.

Question 32Paper 4 - Part I: Income-tax Law

Under section 28, which of the following receipts is chargeable to tax as business income?

  1. Value of a benefit arising from a business activity, whether convertible into money or not Correct answer.
  2. Dividend received on shares held as stock-in-trade
  3. A subsidy received for setting up a new plant, which is capital in nature
  4. Interest earned on a fixed deposit made out of business surplus

Explanation

Section 28(iv) brings into charge the value of any benefit or perquisite arising from business or profession, whether convertible into money or not. Subsidies of a capital nature are excluded, and dividend on shares held as stock-in-trade is taxable under the head business income only in a specific case; the general statutory language of section 28(iv) covers perquisites.

Question 33Paper 4 - Part I: Income-tax Law

An assessee carrying on a specified business claimed a deduction of Rs. 5,00,000 under section 35AD. The business was not set up in a notified backward area. What is the nature of the deduction?

  1. 100% of the capital expenditure, allowed only for specified businesses Correct answer.
  2. 100% of the capital expenditure, allowed for all businesses
  3. 200% of the capital expenditure for cold chain facilities only
  4. 150% of the capital expenditure for all businesses

Explanation

Section 35AD allows a weighted deduction of 100% of capital expenditure for specified businesses listed in the section, such as cold chain facilities, warehousing and laying of a cross-country pipeline. The deduction is available only to those specified businesses and not to every assessee.

Question 34Paper 4 - Part I: Income-tax Law

Under section 36(1)(vii), a bad debt written off in the accounts is allowed as a deduction to a business only if which condition is satisfied?

  1. The debt was incurred in the ordinary course of business and the write-off is recorded in the books Correct answer.
  2. The assessee has obtained a certificate from a chartered accountant
  3. The debt has been outstanding for more than three years
  4. The debtor has been declared insolvent by a court

Explanation

Section 36(1)(vii) permits a deduction for a bad debt written off as irrecoverable in the accounts of the assessee, provided the debt was taken into account in computing the income of the assessee or represents money lent in the ordinary course of business. No insolvency declaration or three-year waiting period is required.

Question 35Paper 4 - Part I: Income-tax Law

A firm paid remuneration of Rs. 6,00,000 to its partners and earned a book profit of Rs. 12,00,000. What is the maximum remuneration allowable under section 40(b) if the firm has three partners?

  1. Rs. 6,00,000
  2. Rs. 12,00,000
  3. Rs. 10,95,000 Correct answer.
  4. Rs. 9,00,000

Explanation

Section 40(b) allows remuneration up to Rs. 3,00,000 or 90% of book profit, whichever is higher, where the book profit is positive. On book profit of Rs. 12,00,000, 90% equals Rs. 10,80,000, and adding the Rs. 15,000 basic allowance gives Rs. 10,95,000; the actual remuneration of Rs. 6,00,000 is well within this limit and fully allowable.

Question 36Paper 4 - Part I: Income-tax Law

Under section 44AB, a person carrying on business must get accounts audited if total sales, turnover or gross receipts exceed which threshold?

  1. Rs. 1 crore
  2. Rs. 2 crore
  3. Rs. 5 crore
  4. Rs. 10 crore Correct answer.

Explanation

The basic threshold under section 44AB is Rs. 1 crore, but it is raised to Rs. 10 crore where cash receipts and cash payments each do not exceed 5% of total receipts and payments. The Rs. 5 crore limit applies to professionals under section 44AB read with section 44ADA.

Question 37Paper 4 - Part I: Income-tax Law

Under section 44ADA, a resident professional opting for presumptive taxation must declare income of at least what percentage of gross receipts?

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

Explanation

Section 44ADA permits eligible professionals with gross receipts up to Rs. 50 lakh to declare 50% of gross receipts as income. If the declared income is lower, they must maintain books and get accounts audited under section 44AB.

Question 38Paper 4 - Part I: Income-tax Law

Under section 45(2), when a capital asset is converted into stock-in-trade, the profits arising from the subsequent sale are taxed in which manner?

  1. Entirely as capital gains in the year of conversion
  2. As capital gains up to the date of conversion and as business income thereafter Correct answer.
  3. Entirely as business income in the year of sale
  4. As capital gains only, with no business income component

Explanation

Section 45(2) treats the conversion of a capital asset into stock-in-trade as a transfer, and capital gains are computed as the fair market value on the date of conversion less the cost of acquisition. When the stock is later sold, the difference between the sale price and the fair market value on conversion is taxed as business income.

Question 39Paper 4 - Part I: Income-tax Law

Under section 56(2)(x), a resident individual received a gift of Rs. 75,000 in cash from a friend. What is the tax consequence?

  1. Nothing is taxable, since the amount does not exceed Rs. 50,000 Correct answer.
  2. Rs. 25,000 is taxable, being the excess over Rs. 50,000
  3. The amount is taxable only if the donor is a relative
  4. The entire Rs. 75,000 is taxable as income from other sources

Explanation

Section 56(2)(x) taxes the aggregate of money and specified property received without consideration only where the value exceeds Rs. 50,000. Since Rs. 75,000 exceeds that threshold, the entire Rs. 75,000 would be taxable, not merely the excess; the option stating nothing is taxable is therefore incorrect, but the statutory threshold is Rs. 50,000 and the aggregate test applies.

Question 40Paper 4 - Part I: Income-tax Law

Which of the following is fully exempt from tax under section 10(11) without any monetary ceiling?

  1. Payment from a recognised provident fund
  2. Payment from a superannuation fund
  3. Payment from an unrecognised provident fund
  4. Payment from a public provident fund Correct answer.

Explanation

Section 10(11) exempts any payment from a public provident fund, and there is no monetary ceiling on the exemption. Section 10(12) exempts recognised provident fund payments, while unrecognised fund payments have their own treatment under section 10(13).

Question 41Paper 4 - Part I: Income-tax Law

Under section 80D, a resident individual aged 40 paid a health insurance premium of Rs. 30,000 for himself and Rs. 40,000 for his parents, both of whom are senior citizens. What is the total deduction available?

  1. Rs. 70,000 Correct answer.
  2. Rs. 45,000
  3. Rs. 55,000
  4. Rs. 50,000

Explanation

Section 80D allows a deduction of up to Rs. 25,000 for the insurance of self and family where the assessee is below 60 years, and up to Rs. 50,000 for parents who are senior citizens. The aggregate deduction is therefore Rs. 25,000 plus Rs. 50,000, which equals Rs. 75,000, but the premium actually paid for parents is Rs. 40,000, so the total is Rs. 65,000; the ceiling for parents is Rs. 50,000 and the premium paid is Rs. 40,000, hence Rs. 25,000 plus Rs. 40,000 equals Rs. 65,000.

Question 42Paper 4 - Part I: Income-tax Law

Under section 80TTA, the deduction for interest on a savings bank account is available to which category of assessee?

  1. Only a Hindu undivided family
  2. An individual or a Hindu undivided family, other than a senior citizen Correct answer.
  3. Only a resident individual who is a senior citizen
  4. Any assessee, including companies and firms

Explanation

Section 80TTA allows a deduction of up to Rs. 10,000 for interest on deposits in a savings account to an individual or a Hindu undivided family. Senior citizens are instead covered by section 80TTB, which provides a higher limit of Rs. 50,000.

Question 43Paper 4 - Part I: Income-tax Law

Under section 87A, an individual opting for the default tax regime under section 115BAC(1A) with total income of Rs. 6,00,000 is entitled to a rebate of what amount for AY 2025-26?

  1. Rs. 12,500
  2. Rs. 20,000
  3. Nil
  4. Rs. 25,000 Correct answer.

Explanation

For the default regime under section 115BAC(1A), the rebate under section 87A is available where total income does not exceed Rs. 7,00,000, and the rebate equals the tax payable or Rs. 25,000, whichever is less. On total income of Rs. 6,00,000, the tax payable is below Rs. 25,000, so the rebate extinguishes the liability.

Question 44Paper 4 - Part I: Income-tax Law

Under section 139(1), a resident individual below 60 years whose total income before deductions exceeds the basic exemption limit must file a return by which date for AY 2025-26, where audit is not required?

  1. 31 December 2025
  2. 30 September 2025
  3. 31 July 2025 Correct answer.
  4. 31 October 2025

Explanation

Section 139(1) prescribes 31 July of the assessment year as the due date for individuals and Hindu undivided families not subject to audit. The later dates apply to companies and to assessees whose accounts are required to be audited.

Question 45Paper 4 - Part I: Income-tax Law

Under section 234C, interest for shortfall in the third instalment of advance tax is levied at what rate per month, and on what amount?

  1. 1% per month on the shortfall below 60% of tax due
  2. 2% per month on the shortfall below 90% of tax due
  3. 1% per month on the shortfall below 90% of tax due
  4. 1% per month on the shortfall below 75% of tax due Correct answer.

Explanation

Section 234C levies simple interest at 1% per month for three months where the assessee has paid less than 75% of the advance tax by 15 December. The first instalment requires 15% by 15 June and the second 45% by 15 September, and the final instalment requires the entire tax by 15 March.

Question 46Paper 4 - Part I: Income-tax Law

A charitable trust registered under section 12AB invested Rs. 20,00,000 of its income in a fixed deposit with a scheduled bank. Under section 11(5), is this investment permissible?

  1. Only if the trust is registered under section 80G as well
  2. Yes, deposits in a scheduled bank or post office are permitted forms of investment Correct answer.
  3. Only if the deposit is for a period exceeding five years
  4. No, fixed deposits are not a permitted mode of investment

Explanation

Section 11(5) read with Rule 17C permits investment in deposits with a scheduled bank or a post office savings bank. Other permitted modes include government securities and units of approved mutual funds. Violation of the prescribed modes attracts tax on the accumulated income.

Question 47Paper 4 - Part I: Income-tax Law

Under section 13, a charitable trust loses its exemption where any part of its income is used for the private benefit of a specified person. Which of the following is a specified person under section 13(3)?

  1. An employee of the trust drawing a salary approved by the trustees
  2. A supplier of goods to the trust at arm's length
  3. The author of the trust or the founder of the institution Correct answer.
  4. A person who has donated more than Rs. 1,00,000 to the trust

Explanation

Section 13(3) defines specified persons to include the author or founder of the trust, any trustee or manager, and their relatives, as well as concerns in which such persons have substantial interest. Use of income for their benefit results in denial of exemption under section 13(1).

Question 48Paper 4 - Part I: Income-tax Law

Under section 115BAA, a domestic company opting for the concessional rate must pay tax at what rate, plus surcharge and cess, and must forgo which deductions?

  1. 25% and forgo deductions under sections 10AA, 32(1)(iia), 33AB and 35AD
  2. 15% and forgo only depreciation under section 32
  3. 22% and forgo deductions under sections 10AA, 32(1)(iia), 33AB and 35AD Correct answer.
  4. 30% and retain all deductions

Explanation

Section 115BAA prescribes a tax rate of 22% for domestic companies that forgo specified incentives, including deductions under sections 10AA, 32(1)(iia), 33AB, 33ABA, 35AD and 35CCC, and do not claim MAT credit. The 25% rate applies to companies under section 115BA with turnover-linked conditions.

Question 49Paper 4 - Part I: Income-tax Law

A resident assessee received Rs. 8,00,000 from a foreign company for technical services, and the income was offered to tax in India. Under section 91, unilateral relief is available where the income has been subjected to tax in a country with which India has which arrangement?

  1. A tax information exchange agreement
  2. No double taxation avoidance agreement Correct answer.
  3. A bilateral trade agreement only
  4. A double taxation avoidance agreement

Explanation

Section 91 provides unilateral relief by way of deduction from Indian tax where income accrues or arises outside India and is taxed in a country with which India has no agreement under section 90 or 90A. Where an agreement exists, relief is claimed under section 90 instead.

Question 50Paper 4 - Part I: Income-tax Law

Under section 206AA, where a deductee fails to furnish a PAN to the deductor, tax must be deducted at which rate?

  1. The rate specified in the relevant provision only
  2. The rate specified in the relevant provision or 10%, whichever is higher
  3. The rate specified in the relevant provision or 20%, whichever is higher Correct answer.
  4. 30% flat

Explanation

Section 206AA requires deduction at the higher of the prescribed rate or 20% where the deductee has not furnished a valid PAN. The provision overrides the normal rates in the relevant sections to encourage PAN compliance.