1. Which of the following is the correct classification of tax structure in India?
A. Federal tax only
B. State tax only
C. Direct tax and Indirect tax
D. Corporate tax and Personal tax
India classifies taxes into Direct taxes (like Income Tax) and Indirect taxes (like GST), based on who bears the tax burden.
2. The Financial Year (FY) in India starts from:
A. 1st January
B. 1st April
C. 1st March
D. 1st July
In India, the Financial Year starts on 1st April and ends on 31st March of the next calendar year.
3. Assessment Year (AY) is defined as:
A. The year following the financial year in which income is assessed
B. The year in which income is earned
C. Calendar year for taxation purposes
D. The year preceding the financial year
Assessment Year is the year immediately after the Financial Year, in which income earned during the FY is assessed for tax.
4. Previous Year (PY) is:
A. The calendar year preceding the assessment year
B. The year following the assessment year
C. The year in which tax return is filed
D. The financial year in which income is earned
Previous Year refers to the Financial Year during which an individual earns income, which will be assessed in the next Assessment Year.
5. Which statement correctly links Financial Year and Assessment Year?
A. Assessment Year comes before the Financial Year
B. Assessment Year comes immediately after the Financial Year
C. Financial Year and Assessment Year are the same
D. Financial Year is always two years before Assessment Year
The Financial Year is the year in which income is earned, and the Assessment Year immediately follows it, during which income is assessed.
6. If income is earned from 1st April 2024 to 31st March 2025, the corresponding Assessment Year is:
A. 2023-24
B. 2025-26
C. 2025-26
D. 2024-25
Income earned in Financial Year 2024-25 will be assessed in Assessment Year 2025-26.
7. An individual is considered a resident in India for tax purposes if they stay in India for:
A. 100 days or more in a financial year
B. 182 days or more in a financial year
C. 120 days or more in a financial year
D. 150 days or more in a financial year
An individual is resident if they stay in India for 182 days or more during the financial year or meet other specified conditions under the Income Tax Act.
8. Which of the following terms is used to describe the total income minus eligible deductions under Income Tax?
A. Gross Total Income
B. Net Taxable Income
C. Total Taxable Income
D. Assessable Income
Total taxable income is calculated after adding income under all heads and subtracting eligible deductions under sections like 80C, 80D, etc.
9. Which of the following is NOT a head of income for computation under Income Tax?
A. Income from Salary
B. Income from House Property
C. Income from Business/Profession
D. Capital Expenditure
Capital expenditure is not a head of income; only incomes under Salary, House Property, Business/Profession, Capital Gains, and Other Sources are considered.
10. Which of the following is considered Income from Other Sources?
A. Dividend received from a company
B. Salary from employer
C. Rental income from property
D. Profit from business
Dividend, interest on savings, and winnings from lotteries are included under "Income from Other Sources."
11. For FY 2025-26 (AY 2026-27), what is the highest slab rate for individual taxpayers below 60 years under the old tax regime?
A. 20%
B. 25%
C. 30%
D. 35%
Under the old tax regime, individuals below 60 years are taxed at 30% for income exceeding ₹10 lakh, along with applicable cess and surcharge.
12. Which of the following is a deduction allowed under section 80C?
A. Interest on savings account
B. Contribution to PPF or LIC premium
C. Standard deduction on salary
D. House rent paid
Investments in instruments like PPF, ELSS, and LIC premiums are eligible for deduction under section 80C.
13. Which of the following conditions must be satisfied to opt for the New Tax Regime?
A. Must be a senior citizen above 60 years
B. Must have income only from salary
C. Must file tax return within 6 months of FY
D. Must forego most exemptions and deductions under the Income Tax Act
To opt for the New Tax Regime, the taxpayer has to give up most exemptions and deductions available under the old regime, although lower slab rates are available.
14. Under the Old Tax Regime, a taxpayer can claim which of the following that is NOT allowed in the New Tax Regime?
A. Deductions under section 80C (PPF, LIC, ELSS)
B. Lower slab rates for income above ₹15 lakh
C. Standard deduction for salaried individuals
D. Surcharge on high income
Old Tax Regime allows taxpayers to claim exemptions and deductions like 80C, 80D, HRA, etc., which are largely not available under the New Tax Regime.
15. A taxpayer has a salary of ₹12 lakh. He invests ₹2 lakh in eligible deductions. Which regime results in lower tax?
A. New Tax Regime
B. Old Tax Regime
C. Both are the same
D. Cannot be determined without PAN details
Since the taxpayer can claim ₹2 lakh in deductions under the old regime, total taxable income reduces, making the old regime tax liability lower compared to the new regime with standard slab rates but no deductions.
16. Which of the following is an advantage of the New Tax Regime?
A. Allows all deductions under 80C, 80D, HRA, etc.
B. Higher exemption limit for senior citizens
C. Lower tax slab rates without claiming deductions
D. Automatically better for all taxpayers
The New Tax Regime offers lower tax slab rates but requires giving up most exemptions and deductions, simplifying tax computation.
17. Who should generally prefer the Old Tax Regime?
A. Taxpayers claiming high deductions and exemptions
B. Taxpayers with very low income
C. Taxpayers who want simple calculation
D. Non-resident taxpayers only
Old Tax Regime benefits taxpayers who can claim multiple deductions and exemptions, reducing taxable income significantly compared to New Regime.
18. Which of the following is true regarding income tax for companies in India?
A. All companies are taxed at the same slab as individuals
B. Domestic companies have a separate corporate tax rate
C. Only foreign companies pay tax
D. Companies are exempt from income tax
Domestic companies in India have a separate corporate tax rate, different from individual tax slabs, as per Income Tax Act provisions.
19. What is the current basic corporate tax rate for domestic companies not availing special incentives for FY 2025-26?
A. 25%
B. 20%
C. 30%
D. 35%
Domestic companies not opting for special concessional rates are generally taxed at 30% on income, plus applicable surcharge and cess.
20. Which of the following investment products is eligible for tax deduction under Section 80C?
A. Mutual Fund – Arbitrage Fund
B. Corporate Fixed Deposit (Non-5 year)
C. Bank Savings Account interest
D. Public Provident Fund (PPF)
Investments in PPF, Life Insurance, ELSS, and certain fixed deposits of 5 years are eligible for deduction under Section 80C.
21. Which investment product provides tax benefit under Section 80D for health insurance premium?
A. Employee Provident Fund (EPF)
B. Health insurance policy for self and family
C. Sukanya Samriddhi Yojana
D. National Savings Certificate
Premiums paid for health insurance for self, spouse, children, and parents are eligible for deduction under Section 80D.
22. Which investment product qualifies for both tax-saving and wealth creation under equity-linked savings scheme?
A. Public Provident Fund (PPF)
B. Senior Citizen Savings Scheme (SCSS)
C. Equity Linked Saving Scheme (ELSS)
D. Fixed Deposit (1 year)
ELSS funds offer both wealth creation potential through equity investments and tax benefit under Section 80C, with a lock-in of 3 years.
23. Senior citizens can claim additional tax deduction for which of the following investments?
A. Health insurance premium under Section 80D
B. ELSS investments
C. Fixed Deposit of less than 5 years
D. Savings account interest
Senior citizens are eligible for an additional deduction of ₹50,000 for health insurance premium under Section 80D, over the normal limit.
24. Which of the following is a key advantage of estate planning through a will or trust?
A. Avoiding income tax on salary
B. Smooth transfer of assets to heirs with minimal legal complications
C. Reducing corporate tax liability
D. Claiming exemptions on house property income
Wills and trusts help in estate planning by enabling smooth transfer of assets to beneficiaries, reducing legal disputes and planning tax liabilities on inheritance.
25. Which of the following statements is true regarding a trust in India for tax planning?
A. Trusts cannot invest in financial instruments
B. Trusts are exempt from all types of taxes
C. Income of the trust may be taxed differently depending on type of trust and beneficiaries
D. Trusts can only hold movable assets
Trusts can be revocable or irrevocable; tax liability depends on the type of trust, and income distributed to beneficiaries may be taxed in their hands.
26. Long-term capital gains (LTCG) on listed equity shares exceeding ₹1 lakh in a financial year are taxed at:
A. 10% without indexation
B. 15% with indexation
C. 20% with indexation
D. 10% on gains exceeding ₹1 lakh (equity shares/ELSS)
Long-term capital gains from listed equity shares and equity-oriented mutual funds exceeding ₹1 lakh are taxed at 10% without indexation.
27. Which of the following is considered a short-term capital asset?
A. Equity shares held for 6 months
B. Equity shares held for 1 year
C. House property held for 3 years
D. Bonds held for 36 months
Equity shares held for less than 12 months are treated as short-term capital assets; other assets have different holding period requirements.
28. Which of the following exemptions is available for capital gains on sale of a residential property?
A. Exemption under Section 80C
B. Exemption under Section 54 for reinvestment in residential property
C. Standard deduction on capital gains
D. Deduction under Section 10(14)
Section 54 allows exemption from capital gains tax if the gain from sale of a residential property is reinvested in another residential property within the prescribed period.
29. Mr. Sharma sells his residential property for ₹50 lakh. The cost of acquisition was ₹30 lakh. He reinvests ₹15 lakh in a new residential property within the prescribed period. What is the taxable long-term capital gain?
A. ₹20 lakh
B. ₹15 lakh
C. ₹35 lakh
D. ₹50 lakh
LTCG = Sale price – Cost of acquisition = 50 – 30 = ₹20 lakh. Exemption under Section 54 applies only to the reinvested amount of 15 lakh. Taxable LTCG = 20 – 15 = ₹5 lakh.
30. A taxpayer creates a revocable trust and transfers ₹10 lakh to it. Which of the following statements is correct regarding tax treatment?
A. The trust is exempt from all tax
B. Income from the trust is included in the settlor’s total income
C. The trust pays tax at a flat 10% rate
D. The trust cannot hold income-generating assets
In revocable trusts, the income is taxed in the hands of the settlor since they retain control and benefit from the trust assets.
31. Mr. Rao invests ₹1.5 lakh in PPF, ₹50,000 in ELSS, and pays ₹30,000 as health insurance premium. Which sections of the Income Tax Act do these investments qualify for deduction?
A. Section 80D only
B. Section 80C only
C. Sections 80C and 80D
D. Sections 10 and 54
PPF and ELSS qualify under Section 80C; health insurance premium qualifies under Section 80D. Total eligible deduction = ₹2 lakh.
32. A non-resident sells a property in India for ₹1 crore. The cost of acquisition was ₹60 lakh. How is the capital gain taxed?
A. Taxable in country of residence only
B. Exempt under Double Taxation Avoidance Agreement automatically
C. Only short-term capital gain is taxable
D. Taxable in India as per capital gains rules
Capital gains on property located in India are taxable in India even if the seller is a non-resident, subject to applicable DTAA provisions.
33. Which of the following investment products has both capital appreciation and tax-saving benefits under Section 80C?
A. Senior Citizen Savings Scheme
B. Equity Linked Savings Scheme (ELSS)
C. Fixed Deposit (1 year)
D. Public Provident Fund (PPF) only
ELSS funds offer tax deduction under Section 80C and potential wealth creation through equity investments.
