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

The correct answer is 'A, B, C, and D'

Key Points

• Taxation and Assessees under the Income Tax Act, 1961:
  • The Income Tax Act, 1961 is the primary legislation governing taxation in India. It defines the term "assessee" to include any person who is liable to pay taxes or who has any obligation under the Act.
  • Under Section 2(31) of the Act, the term "person" includes several entities that can qualify as assessees:
  • Individual: Any single human being is considered an individual assessee. They are taxed based on their income from various sources such as salary, business, profession, or investments.
  • Company: A company, whether private or public, is a separate legal entity and is subject to corporate taxation under the Act.
  • Firm: Partnerships, including LLPs (Limited Liability Partnerships), are assessed as firms under the Income Tax Act.
  • Local Authority: Municipalities, Panchayats, or other local governing bodies are also considered assessees under the Act when they generate taxable income.
  • These entities are assessed based on specific provisions of the Act that apply to their respective categories.

Additional Information

• A and B:
  • This option is incorrect as it only includes 'Individual' and 'Company' while excluding other categories such as 'Firm' and 'Local Authority' that are also assessed under the Income Tax Act, 1961.
• A:
  • This option is incorrect because it only mentions 'Individual' and ignores other categories like 'Company,' 'Firm,' and 'Local Authority,' which are equally considered assessees under the Act.
• A, B, and C:
  • This option is partially correct but incomplete as it excludes 'Local Authority,' which is also covered under the definition of assessee in the Act.

The correct answer is Option 3.

Key Points

• Taxes are an obligatory expense enforced on the individual by the state and central government. They are one of the government’s most significant income sources, helping them build our country’s economy and infrastructure. 
• The tax structure in India is a three-tier structure: local municipal bodies, state, and central government. Taxation in India is broadly classified into direct and indirect tax.
  • ​Direct tax is levied on people's income or profits. For example, a taxpayer pays the government for different purposes, including income tax, personal property tax, FBT, Gift Tax etc. 
  • Conversely, indirect tax is levied by the government on goods and services. Therefore, it can be shifted from one tax-paying individual to another. For example, Goods and Service Tax- (GST), Excise duty, Sales Tax, Customs Duty, Central Excise Duty, Service Tax. 

The correct answer is Option 4.

Key Points Appeal to High Court, Sec. 260A of Income Tax Act. 

• An appeal shall lie to the High court from every order passed in appeal by the Appellate tribunal, if High court is satisfied that the case involves a substantial question of Law.
• The word ‘substantial question of Law’ has not been defined. But the expression has acquired connotation through a catena of judicial pronouncements. Usually five tests are used to determine whether a substantial question of Law involved.
  • Whether, directly or indirectly it effects substantial rights of the parties
  • The question is of general public importance
  • Whether it is an open question in the sense that issue has not been settled by pronouncement of the supreme court or the Privy Council or by the Federal court
  • The issue is not free from the difficulty, and
  • It calls for a discussion for alternate view.
• CIT or assessee aggrieved by any order of ITAT may file appeal to High Court within 120 days from the date of order received, along with a memorandum of appeal precisely stating therein the substantial question of law involved.
• When High court is satisfied that a substantial question of law is involved shall admit the case and it shall formulate the question.
• The appeal shall be heard only on the question so formulated.
• It shall be heard by a bench of two judges

The correct answer is Option 4.

Key Points

• Section 2(19) of the Income-tax Act a co-operative society means a co-operative society registered under the Co-operative Societies Act, 1912, or under any other law for the time being in force in any state for the registration of co-operative societies.
• In case of co-operative societies, the maximum amount which is not chargeable to income-tax is nil. It means that even if there income of Rs.100, the society is required to file its return.

correct answer is (3)

Key Points

As per S.2(14) of the Income Tax Act, 1961, unless the context otherwise requires, the term ‘capital asset’ means: 

(a)property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992)

(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof,

but does not include-(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him.

Additional Information Agricultural land in rural areas is also excluded from the definition of capital assets, as it is an essential source of livelihood for many people. However, agricultural land located in urban areas is not exempted, and gains arising from the transfer of such land are taxable as capital gains.

The correct answer is 1961.

Key Points

• The Income Tax Act of 1961 serves as the cornerstone of India's income tax system. It outlines a comprehensive framework for levying income tax on individuals and entities.

Objectives are: 

• Revenue Generation: The Income Tax Act is a crucial source of revenue for the Indian government. The collected taxes are utilized to finance various public services, including infrastructure development, education, and healthcare.

• Economic Development: The Income Tax Act plays a pivotal role in fostering economic growth by providing incentives for investment and savings. It offers tax deductions for investments in specific industries and contributions to retirement plans.

• Inequality Reduction: The Income Tax Act promotes equity by implementing progressive taxation, where higher-income earners contribute a larger proportion of their income towards taxes. This mechanism helps narrow the income gap.

• Tax Compliance: The Income Tax Act aims to encourage adherence to tax regulations through various measures, such as penalties for non-compliance and regular tax audits.

• Tax Avoidance Prevention: The Income Tax Act strives to curb tax avoidance practices by tightening loopholes and imposing penalties for tax avoidance schemes.

• Social Welfare Promotion: The Income Tax Act supports social welfare initiatives by offering tax deductions for charitable donations.

The correct answer is 'A, B, C, and D'

Key Points

• Taxation and Assessees under the Income Tax Act, 1961:
  • The Income Tax Act, 1961 is the primary legislation governing taxation in India. It defines the term "assessee" to include any person who is liable to pay taxes or who has any obligation under the Act.
  • Under Section 2(31) of the Act, the term "person" includes several entities that can qualify as assessees:
  • Individual: Any single human being is considered an individual assessee. They are taxed based on their income from various sources such as salary, business, profession, or investments.
  • Company: A company, whether private or public, is a separate legal entity and is subject to corporate taxation under the Act.
  • Firm: Partnerships, including LLPs (Limited Liability Partnerships), are assessed as firms under the Income Tax Act.
  • Local Authority: Municipalities, Panchayats, or other local governing bodies are also considered assessees under the Act when they generate taxable income.
  • These entities are assessed based on specific provisions of the Act that apply to their respective categories.

Additional Information

• A and B:
  • This option is incorrect as it only includes 'Individual' and 'Company' while excluding other categories such as 'Firm' and 'Local Authority' that are also assessed under the Income Tax Act, 1961.
• A:
  • This option is incorrect because it only mentions 'Individual' and ignores other categories like 'Company,' 'Firm,' and 'Local Authority,' which are equally considered assessees under the Act.
• A, B, and C:
  • This option is partially correct but incomplete as it excludes 'Local Authority,' which is also covered under the definition of assessee in the Act.

The correct answer is Option 3.

Key Points

• Taxes are an obligatory expense enforced on the individual by the state and central government. They are one of the government’s most significant income sources, helping them build our country’s economy and infrastructure. 
• The tax structure in India is a three-tier structure: local municipal bodies, state, and central government. Taxation in India is broadly classified into direct and indirect tax.
  • ​Direct tax is levied on people's income or profits. For example, a taxpayer pays the government for different purposes, including income tax, personal property tax, FBT, Gift Tax etc. 
  • Conversely, indirect tax is levied by the government on goods and services. Therefore, it can be shifted from one tax-paying individual to another. For example, Goods and Service Tax- (GST), Excise duty, Sales Tax, Customs Duty, Central Excise Duty, Service Tax. 

The correct answer is Option 4.

Key Points Appeal to High Court, Sec. 260A of Income Tax Act. 

• An appeal shall lie to the High court from every order passed in appeal by the Appellate tribunal, if High court is satisfied that the case involves a substantial question of Law.
• The word ‘substantial question of Law’ has not been defined. But the expression has acquired connotation through a catena of judicial pronouncements. Usually five tests are used to determine whether a substantial question of Law involved.
  • Whether, directly or indirectly it effects substantial rights of the parties
  • The question is of general public importance
  • Whether it is an open question in the sense that issue has not been settled by pronouncement of the supreme court or the Privy Council or by the Federal court
  • The issue is not free from the difficulty, and
  • It calls for a discussion for alternate view.
• CIT or assessee aggrieved by any order of ITAT may file appeal to High Court within 120 days from the date of order received, along with a memorandum of appeal precisely stating therein the substantial question of law involved.
• When High court is satisfied that a substantial question of law is involved shall admit the case and it shall formulate the question.
• The appeal shall be heard only on the question so formulated.
• It shall be heard by a bench of two judges

The correct answer is Option 4.

Key Points

• Section 2(19) of the Income-tax Act a co-operative society means a co-operative society registered under the Co-operative Societies Act, 1912, or under any other law for the time being in force in any state for the registration of co-operative societies.
• In case of co-operative societies, the maximum amount which is not chargeable to income-tax is nil. It means that even if there income of Rs.100, the society is required to file its return.

correct answer is (3)

Key Points

As per S.2(14) of the Income Tax Act, 1961, unless the context otherwise requires, the term ‘capital asset’ means: 

(a)property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992)

(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof,

but does not include-(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him.

Additional Information Agricultural land in rural areas is also excluded from the definition of capital assets, as it is an essential source of livelihood for many people. However, agricultural land located in urban areas is not exempted, and gains arising from the transfer of such land are taxable as capital gains.

correct answer is (3)

Key PointsSection 154 of the IT Act deals with the rectification of the mistake. With a view to rectifying any mistake apparent from the record, an income-tax authority may, - a) Amend any order passed under any provisions of the Income-tax Act. b) Amend any intimation or deemed intimation sent under section 143(1).c) Amend any intimation sent under section 200A(1) [section 200A deals with processing of statements of tax deducted at source i.e. TDS return].d) amend any intimation under section 206CB.

Additional InformationIf an order is the subject-matter of any appeal or revision, any matter which is decided in such an appeal or revision cannot be rectified by the Assessing Officer. In other words, if an order is subject matter of any appeal, then the Assessing Officer can rectify only those matters which are not decided in such appeal.
 

The correct answer is Income Tax Act 1961.

Key Points

• A Permanent Account Number (PAN) is a unique alphanumeric identifier issued by the Income Tax Department of India to individuals, companies, and other entities. PAN is essential for various financial transactions and serves as a universal identification key for the identification of taxpayers in the country.
• PAN is defined under Section 139A of the Income Tax Act, 1961. This section provides for the allotment of PAN to taxpayers and prescribes the application process, usage, and requirements for obtaining PAN.
• Purpose:
  • To facilitate the identification of taxpayers.
  • To track financial transactions that might have a taxable component.
  • To prevent tax evasion by linking various financial activities of individuals and entities.

The correct answer is All of the above.

Key Points

According to section 2(24) of the Income Tax Act, ‘Income’ includes -  

• Salaries and wages: This includes any payment received by an individual for their services, regardless of whether the payment is made in cash, goods, or services.
• Profits and gains of business or profession: This includes any income earned from carrying on a business or profession. This can include income from sales, fees, commissions, and other sources.
• Income from house property: This includes any income earned from renting out property. This can include rent, late fees, and other charges.
• Rental income: This includes any income earned from renting out assets, such as equipment, vehicles, or machinery.
• Income from other sources: This includes any income that is not specifically mentioned in the other heads of income. This can include income from dividends, interest, capital gains, and other sources.

The correct option is Income from capital gains.

Key Points

• Section 54:- Basic conditions for claiming exemption.
  • A person wanted to sell his old property in which he lived and from the sale proceeds, he purchased another house.
  • In this circumstance, the objective of the seller was not to earn income by the sale of the old property but to acquire another house for living.
  • If in this circumstance the seller was liable to pay income tax on capital gains arising on the sale of old property.
  • Section 54 gives relief to a taxpayer who sells his residential property and from the sale proceeds he acquires another residential house.
• Conditions should be satisfied to claim the benefit of section 54:-
  • The benefit of this section is available only to an individual.
  • The asset transferred should be a long-term capital asset, being a residential property.
  • Within one year before or two years after the date of transfer of the old property, the taxpayer should acquire another residential house within three years from the date of transfer of the old property.
  • In case of compulsory acquisition, the period of acquisition or construction will be established from the date of receipt of compensation.
• Exemption:-
  • It can be claimed only in respect of one residential house property purchased and constructed in India.
  • If more than one house is purchased or constructed, then exemption under section 54 will be available in one house only.
  • No exemption can be claimed in houses purchased outside India.
• Illustration:- Mrs Ponam purchased a residential house in April 2015 for Rs. 6,00,000 and sold the same in April 2022 for Rs. 7,40,000. Capital gain arising on the sale of the house amounted to Rs. 1,40,000. Can he claim the benefit of section 54 by purchasing/constructing another residential house from the capital gain of Rs. 1,40,000?
  • Explanation-
    • Exemption under section 54 can be claimed in capital gains arising on the transfer of a capital asset, ‘being long-term residential house property.
    • This benefit is available only to an individual. In this given condition as provided in section 54 are satisfied.
    • Hence, Mrs. Ponam can claim the benefit of section 54 by purchasing or constructing a residential house within the time-limit as provided under section 54 of the act.