Income-tax MCQ Quiz - Objective Question with Answer for Income-tax - Download Free PDF

The correct answer is Section 80 G.

Key Points

• Section 80 G of the Income Tax Act, 1961, allows deductions for donations made to certain relief funds and charitable institutions.
• Donations specified under this section can be claimed as a deduction while computing the total income of an assessee.
• The deduction amount can range from 50% to 100% of the donated amount, depending on the type of institution or fund.
• The donation must be made to approved institutions and funds to qualify for deductions under Section 80 G.
• To claim this deduction, the taxpayer must provide a receipt containing the name, address, PAN of the trust, the amount donated, and the registration number of the trust under Section 80 G.

 Additional Information

• Section 80 E
  • Section 80 E provides deductions on interest paid on education loans taken for higher education.
  • This deduction is available for a maximum of 8 years starting from the year in which the taxpayer starts repaying the loan.
• Section 80 D
  • Section 80 D allows deductions for premium paid on health insurance policies for self, spouse, children, and parents.
  • The deduction limit varies based on the age of the insured and other factors.
• Section 80 C
  • Section 80 C provides deductions for various investments and expenses such as Life Insurance Premiums, PPF, NSC, and tuition fees.
  • The maximum deduction allowed under this section is ₹1.5 lakh per financial year.

The correct answer is - 0.15

Key Points

• Surcharge Rate
  • The surcharge rate applicable to individuals with total income exceeding Rs. 1 crore is 15% as per the current tax regulations.
  • This rate is part of the progressive taxation system aimed at higher-income groups.
  • The surcharge is an additional charge on the income tax and is calculated on the total income tax payable.
  • This surcharge applies uniformly irrespective of the source of income.

Additional Information

• Taxation Structure
  • India follows a progressive taxation structure where the tax rate increases as the total income increases.
  • Individuals with higher incomes are subject to higher tax rates and surcharges to ensure equitable distribution of tax burdens.
• Income Slabs
  • The income tax slabs are defined by the government and are subject to change based on the annual budget announcements.
  • For example, as of the latest tax year, individuals earning between Rs. 50 lakh to Rs. 1 crore have a surcharge rate of 10%, while those earning above Rs. 1 crore have a surcharge rate of 15%.
• Impact of Surcharge
  • The surcharge significantly impacts the net tax liability of high-income individuals, making tax planning essential.
  • Taxpayers need to consider the surcharge while calculating their estimated tax liabilities and planning their investments.

The correct answer is A - I, B - II, C - III, D - IV.

Key Points

•  Personal income is the total income received by households, including wages, salaries, rents, interest, and dividends. It is calculated as private income minus undistributed corporate profits and profit taxes.
• Disposable income is the amount of income that households have available to spend after taxes have been paid. It is calculated as personal income minus direct taxes.
• NNP at factor cost is the total income earned by factors of production, such as labor and capital, before indirect taxes and subsidies are taken into account. It is calculated as NNP at market price minus indirect taxes plus subsidies.
• NNP is the total income earned by factors of production in an economy, after depreciation has been deducted. It is calculated as GNP minus depreciation.

Hence, the correct answer is A - I, B - II, C - III, D - IV.

The correct answer is 7,50,000.

Key Points

• Section 10AA of the Income Tax Act:
  • Section 10AA provides a deduction for units established in Special Economic Zones (SEZ).
  • The deduction is available for the first 5 consecutive years of 100% of profits and gains derived from the export of articles or things or services.
  • For the next 5 years, the deduction is 50% of such profits and gains.
  • For the subsequent 5 years, the deduction is 50% of such profits and gains, subject to a condition that the amount equal to 50% of such profits and gains is transferred to a Special Economic Zone Re-investment Allowance Reserve Account.
• Calculation of Deduction:
  • Total Sales = Export Sales + Local Sales
    = ₹30,00,000 + ₹10,00,000
    = ₹40,00,000
  • Export Sales = ₹30,00,000
  • Profit = ₹20,00,000
  • Eligible Profit for Deduction = Export Sales / Total Sales * Profit
    = ₹30,00,000 / ₹40,00,000 * ₹20,00,000
    = ₹15,00,000
  • 50% of Eligible Profit = 50% of ₹15,00,000
    = ₹7,50,000
  • Hence, ₹7,50,000 needs to be transferred to SEZ Re-investment Allowance Reserve Account.

Additional Information

• Special Economic Zones (SEZ):
  • SEZs are designated areas in countries that possess special economic regulations that differ from other areas in the same country.
  • These regulations tend to be conducive to foreign direct investment and typically include tax incentives and the opportunity to pay lower tariffs.
• Re-investment Allowance Reserve Account:
  • This reserve is created to ensure that a part of the profits earned by SEZ units is reinvested into the business to encourage growth and development.
• Importance of Compliance:
  • Maintaining the reserve is crucial for availing tax benefits under Section 10AA, and non-compliance can lead to disallowance of deductions.

The correct answer is Rs. 10 lakhs

Key Points

• Section 206C(1F) of the Income Tax Act, 1961, mandates the collection of tax at source (TCS) by the seller of a motor vehicle when the value of the motor vehicle exceeds INR 10 lakhs.
•  This provision applies to any person who is responsible for selling a motor vehicle. It is important to note that the obligation to collect tax at source falls on the seller.
• The requirement to collect tax at source is triggered when the value of the motor vehicle being sold exceeds INR 10 lakhs. If the sale consideration is INR 10 lakhs or less, there is no requirement to collect tax at source under this provision.
• The tax rate applicable for the purpose of TCS under Section 206C(1F) is 1% of the sale consideration. This means that the seller is required to collect 1% of the total sale consideration from the buyer as tax.
• The tax shall be collected at the time of receipt of the sale consideration from the buyer. This implies that the seller must ensure that the tax is collected from the buyer when the payment for the motor vehicle is received.

Additional Information

• It is the responsibility of the seller to collect the tax at source and remit it to the government within the stipulated time frame.
• The seller should ensure compliance with the provisions of Section 206C(1F) to avoid any penalties or consequences for non-compliance.

The correct answer is Up to ₹2,50,000

Key Points

Rates of Income Tax under the old regime:

Additional InformationThe tax rates under the New Tax Regime as per section 115BAC are as under:

The correct answer is the Income-tax.

• A progressive tax is directly related to the taxpayer's ability to pay.
• Every year, we have to pay a fixed portion of our income to the central government in the form of income tax.

Key Points

• As per the rule of the central government for Income tax, a certain tax is applicable on the income of all people as per slab.
• Every business and person is supposed to pay the tax and the return is to be submitted every year.
• Total funds collected through tax are used by the government for services as well as to fulfill the requirements for the country's development. 

Additional Information

• The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963.
• The officials of the Board in their ex-officio capacity also function as a Division of the Ministry dealing with matters relating to levy and collection of direct taxes. 

The correct answer is 'GST, custom duty'

Key PointsLet's have a look at all options:

From the above table, we can see that only option 4 is correct.

Thus, the correct answer is GST, custom duty.Additional Information

•  Indirect Tax:
  • ​Indirect tax is an indirect tax collected by a single entity in the supply chain (usually a producer or retailer) and paid to the government but passed on to consumers as part of the purchase price of the goods or services.
  • Ultimately, it is the consumer who pays the tax by way of overpaying for the product.
• Direct Tax:
  • ​Direct tax is a tax that a person or organization pays directly to the entity that has levied it.
  • A particular taxpayer pays direct tax to the government for various purposes.
  • There are also types of indirect tax such as sales tax, where the tax is levied on the seller but is paid by the buyer.

Hint

• Trick to remember Direct Taxes:

Wepro.co.in

• We  - Wealth Tax
• pro - Property Tax
• co - Corporate Tax
• in - Income Tax

• Trick to remember Indirect Taxes

EXCUSE ME

• EX - Excise Duty
• CU - Custom Duty
• SE - Service Tax
• M - Market Tax/ VAT
• E - Entertainment Tax

The correct answer is the Income-tax.

• A progressive tax is directly related to the taxpayer's ability to pay.
• Every year, we have to pay a fixed portion of our income to the central government in the form of income tax.

Key Points

• As per the rule of the central government for Income tax, a certain tax is applicable on the income of all people as per slab.
• Every business and person is supposed to pay the tax and the return is to be submitted every year.
• Total funds collected through tax are used by the government for services as well as to fulfill the requirements for the country's development. 

Additional Information

• The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963.
• The officials of the Board in their ex-officio capacity also function as a Division of the Ministry dealing with matters relating to levy and collection of direct taxes. 

The correct answer is Training by employer.Key Points

• Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees or refresher courses attended by the employees shall be tax-free.
• The amount given by the employer to employees’ children as a scholarship is a tax-free perquisite.
• Tax paid by the employer on non-monetary perquisites of the employee shall be exempt in the hands of the employee.

Additional Information 

• What are Perquisites?
  • In addition to the cash component of salary, the employees are also given non-cash benefits by the employer. These non-cash benefits are generally known as ‘Perquisites’.
  • Perquisites provided by the employer to an employee are subject to tax under the head “Income under head Salary”. 
  • But not all the perquisites are taxable, some perquisites are specifically exempted from income tax.

The Correct Answer is Fixed Deposit (FD).

 Key Points

• Interest income from Fixed Deposits is fully taxable.
• This Tax is Deducted at source by the bank at the time they credit the interest to the account, and not when the FD matures.
• Suppose a person has an FD for 3 years – banks shall deduct TDS at the end of each year. 

Additional Information

Home loan principal repayment:

• Under Section 80C of the Indian Income Tax Act, the principal component of a home loan repaid during a financial year is eligible for tax deduction.
• This deduction can be claimed up to a limit of ₹1.5 lakh. However, other conditions like possession and completion of property need to be met.

Public Provident Fund (PPF)

• The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968.
• A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account.
• It is a savings-cum-tax-saving instrument in India.
• The maximum amount that can be deposited in a financial year is Rs.1.5 lakh.
•  It is a 15-year scheme, which can be extended indefinitely in block of 5 years.  

Insurance Premium:

• An insurance premium is the amount of money an individual or business pays for an insurance policy. Insurance premiums are paid for policies that cover healthcare, auto, home, and life insurance.
• The life insurance premium should be classified as unearned revenue because against this amount still the company has to render service.  
• Actually, the insurance company will treat each year pro-rata amount of premium received as income.  

The correct answer is Form 16. 

Key Points

In the Income Tax Act, From 16 is a certificate which an employer gives to his employees. It certifies the amount of tax deducted by the employer from the salary of the employee.

Important Points

What is form 16?

• Form 16 is the salary TDS certificate.
• If your income from salary for the financial year is more than the basic exemption limit of Rs 2,50,000 your employer is required, by the Income Tax Act, to deduct TDS on your salary and deposit it with the government.

The correct answer is Deduction in respect of contribution given by any person to political parties

Key Points Section 80GGC:

• The section 80GGC of the Income Tax Act allows the deductions from the total income of an individual taxpayer for his/her contributions made towards electoral trust or political party
• Any individual taxpayer can claim deduction under section 80GGC. 
• The artificial judicial person or local authority is not eligible to claim the deductions under this section.
• Contributions that qualify for the deductions, u/s 80GGC should be from the bank through cheque, internet banking, demand draft, debit/credit card, wire transfer.
•  The contributions that an individual makes towards any political party or electoral commission in cash are not eligible for the deductions of Section 80GGC.
• Individuals who make donations to any political party can claim deductions of up to 100 per cent of their contribution to said party. 

The correct answer is Taxpayer Identification Number(TIN).

Key Points

• Taxpayer Identification Number is a number issued to individuals and organizations to track tax obligations and payments they make to the Internal Revenue Service (IRS). 
• TIN is issued by the federal government.
• TAN is to be obtained by all persons who are responsible for deducting tax at source (TDS) or who are required to collect tax at source (TCS).
• Leave Travel Allowance (LTA) is an exemption for allowance/assistance received by the employee from his employer for travelling on leave.
• Dearness Allowance is paid by the government to its employees as well as a pensioner to offset the impact of inflation.

Additional Information

• Generally, Dearness Allowance is revised by the Government twice a year.
• The TIN number is generally used in the Stock Market.
• TAN number is a 10 digit number.
• PAN stands for Permanent Account Number.
• PAN number is also a 10 digit unique number.

The correct answer is Excise tax.

Important Points

• Tax which carry their significance only on paper and have no significance in terms of revenue yield are called paper taxes.
• Taxes like Gift tax, Estate duty, Wealth tax are paper taxes.
• Excise duty is a form of tax imposed on goods for their production, licensing, and sale.
  • It is an indirect tax.
• Wealth tax:
  • Levied on accumulated wealth or property of every individual.
  • The tax was abolished in the 2016 budget.
• Estate duty:
  • It was imposed on the estate of a person which was inherited by him.
  • The rate ranged from 4 to 40% of the value of the estate.
  • It was imposed and collected by the central government but proceeds were passed on to states.
  • It was abolished in March 1985 as the yield was too low.
• Gift tax:
  • Imposed in April 1958.
  • Charged and collected every financial year on gifts received during the previous year.
  • Again abolished in 1998 due to low yield.
• Hence, Excise tax is the correct answer.