1. To qualify as a "Long Term Capital Asset", unlisted shares must be held for a minimum period of:
12 Months
5 Years
24 Months
36 Months
Explanation:
For listed shares, the holding period is >12 months for LTCG. For unlisted shares and real estate (immovable property), the period was reduced to >24 months. For debt mutual funds, it is >36 months.
2. Which of the following investments does NOT qualify for deduction under Section 80C of the Income Tax Act?
Public Provident Fund (PPF)
National Savings Certificate (NSC)
Recurring Deposit (RD) for 1 year
Equity Linked Savings Scheme (ELSS)
Explanation:
Only 5-year Tax Saver Fixed Deposits are eligible under 80C. Standard RDs or FDs less than 5 years do not qualify.
3. The benefit of "Indexation" reduces the tax liability on:
Long Term Capital Gains (LTCG) from Debt Funds/Real Estate.
Short Term Capital Gains.
Salary Income.
Bank Fixed Deposit Interest.
Explanation:
Indexation adjusts the purchase price of an asset for inflation using the Cost Inflation Index (CII), effectively reducing the taxable capital gain. (Note: Recent changes removed indexation for certain debt funds, but conceptually it applies to LTCG on eligible assets).
4. Section 80D of the Income Tax Act allows deduction for:
Health Insurance Premium paid.
Donations to charity.
House Rent paid.
Interest on Education Loan.
Explanation:
Section 80D provides deduction for medical insurance premiums paid for self, family, and parents. The limit is higher for senior citizens.
5. Under Section 194-IA, a buyer of immovable property (other than agricultural land) valued at ?50 Lakh or more must deduct TDS at what rate?
Explanation:
The buyer is required to deduct TDS @ 1% of the sale consideration (or stamp duty value, whichever is higher) if the value exceeds ?50 Lakh.
6. Under Section 56(2), gifts received from which of the following are FULLY EXEMPT from tax, regardless of value?
Relatives (as defined in the Act)
Friends
Colleagues
Business Associates
Explanation:
Gifts from "Relatives" (Spouse, Parents, Siblings, Lineal ascendants/descendants) are tax-free. Gifts from non-relatives > ?50,000 in a year are taxable.
7. Any taxpayer whose tax liability for the year is _____ or more is liable to pay Advance Tax.
?1 Lakh
?5,000
?50,000
?10,000
Explanation:
As per Income Tax Act, if tax payable (after TDS) is ?10,000 or more, advance tax must be paid in installments (15%, 45%, 75%, 100%).
8. The deduction for "Interest on Home Loan" for a self-occupied property is available under Section 24(b) up to:
Unlimited
?2 Lakh
?1.5 Lakh
?5 Lakh
Explanation:
For a self-occupied property, the maximum deduction for interest on housing loan is ?2 Lakh per financial year. For let-out property, it is restricted to ?2 Lakh set-off against other income.
9. Section 54F of the Income Tax Act provides exemption on Capital Gains arising from the transfer of:
Agricultural Land only.
Any Long Term Capital Asset other than a Residential House Property.
Gold only.
A Residential House Property only.
Explanation:
Section 54 is for selling a house and buying a house. Section 54F applies when you sell ANY long-term asset (like Gold, Shares, Land) OTHER than a house, and invest the net consideration in a Residential House.
10. Income arising from assets transferred to a spouse without adequate consideration is:
Taxable only when the spouse sells the asset.
Taxable in the hands of the spouse (transferee).
Clubbed with the income of the transferor spouse.
Tax-free.
Explanation:
Under Section 64, if an individual transfers assets to their spouse for inadequate consideration, any income from such assets is clubbed with the transferor's income to prevent tax avoidance.
11. What is the maximum deduction available under Section 80TTA for interest on savings accounts (for non-senior citizens)?
Full interest amount
?10,000
?5,000
?50,000
Explanation:
Section 80TTA allows a deduction of up to ?10,000 on interest earned from Savings Accounts (Bank/Post Office). It does not apply to FD interest.
12. What is the lock-in period for Equity Linked Savings Scheme (ELSS) Mutual Funds?
5 Years
1 Year
15 Years
3 Years
Explanation:
ELSS has the shortest lock-in period (3 years) among all Section 80C tax-saving instruments. (PPF is 15 years, Tax Saver FD is 5 years).
13. When deducting TDS under Section 194-IA (Sale of Property), is the buyer required to obtain a TAN (Tax Deduction Account Number)?
Yes, if the property value is > ?1 Crore.
No, TDS can be paid using PAN of buyer and seller.
No, TDS is deducted by the bank.
Yes, mandatory.
Explanation:
This is a special exemption. For Sec 194-IA, the buyer does not need a TAN. They can file the TDS return (Form 26QB) using their PAN.
14. Which of the following is NOT treated as a "Capital Asset" under Section 2(14) of the IT Act?
Painting and Art.
Stock-in-trade (Inventory) of a business.
Jewellery.
Residential House.
Explanation:
Stock-in-trade is meant for sale in the ordinary course of business. Profits from it are "Business Income", not "Capital Gains".
15. Is the lump sum or monthly installment received under a Reverse Mortgage Loan taxable in the hands of the borrower?
Partially taxable.
Yes, as Capital Gains.
No, it is a capital receipt (Loan) and exempt under Sec 10(43).
Yes, as Income from Other Sources.
Explanation:
The payments are essentially loan disbursements, not income. Hence, they are tax-exempt for the senior citizen.
16. Withdrawal from NPS Tier I account on maturity (at age 60) is tax-exempt up to:
60% of the total corpus.
It is fully taxable.
100% of the total corpus.
40% of the total corpus.
Explanation:
The lump sum withdrawal (up to 60%) is tax-free. The remaining 40% must be used to buy an annuity (which is taxable as income when received).
17. Donations made to the "Prime Minister's National Relief Fund" are eligible for deduction under Section 80G at:
50% without qualifying limit.
50% subject to qualifying limit (10% of Gross Total Income).
100% subject to qualifying limit.
100% without qualifying limit.
Explanation:
Donations to certain funds like PMNRF or PM CARES Fund are eligible for 100% deduction without any qualifying limit (ceiling) on the donation amount.
18. Long Term Capital Gains (LTCG) on listed equity shares exceeding ?1 Lakh in a financial year are taxed at:
Exempt.
10% without indexation.
15% flat.
20% with indexation.
Explanation:
Under Section 112A, LTCG on listed equity (held > 1 year) is taxed at 10% on gains exceeding ?1 Lakh, without the benefit of indexation.
19. House Rent Allowance (HRA) exemption under Section 10(13A) is the LEAST of: 1. Actual HRA received. 2. Rent paid minus 10% of Salary. 3. _____?
40% of Salary (Non-Metro) / 50% of Salary (Metro).
30% of Salary.
60% of Salary.
Flat ?50,000.
Explanation:
The third condition for HRA exemption calculation depends on the location of the accommodation: 50% of salary for Metro cities (Delhi, Mumbai, Kolkata, Chennai) and 40% for other places.
20. Short Term Capital Loss (STCL) can be set off against:
Only Short Term Capital Gains.
Salary Income.
Any Income.
Both Short Term and Long Term Capital Gains.
Explanation:
STCL can be adjusted against both STCG and LTCG. However, Long Term Capital Loss (LTCL) can be adjusted ONLY against LTCG.
21. Under Section 194IB, an individual/HUF (not liable to audit) paying monthly rent exceeding _____ must deduct TDS @ 5%.
?1 Lakh
?10,000
?20,000
?50,000
Explanation:
Individuals/HUFs paying rent > ?50,000 per month must deduct 5% TDS, even if they are not subject to tax audit.
22. Senior Citizens (aged 60+) are exempted from paying Advance Tax provided they:
Are retired government servants.
Have no income.
Pay full tax in March.
Have no income from "Profits and Gains of Business or Profession".
Explanation:
Resident Senior Citizens without business income are not liable to pay advance tax installments; they can pay Self-Assessment Tax before filing returns.
23. To claim exemption under Section 54 for Capital Gains arising from the sale of a residential house, the new house must be purchased within:
Any time before filing the return.
Only 1 year after the sale date.
3 years after the sale date.
1 year before or 2 years after the sale date.
Explanation:
For purchase, the window is 1 year before or 2 years after sale. For construction of a new house, the time limit is 3 years after the sale date.
24. Mr. X gifts ?10 Lakhs to his wife. She invests it in a Fixed Deposit earning ?70,000 interest. Who is liable to pay tax on this interest income?
No one, gifts are tax-free.
Mrs. X
Mr. X (Clubbing provisions apply)
Both equally
Explanation:
Under Section 64(1)(iv), income arising from assets transferred to a spouse without adequate consideration is clubbed with the income of the transferor (Mr. X). However, if Mrs. X reinvests the interest, income on that reinvestment belongs to her.
25. Under Section 80TTB, Senior Citizens can claim a deduction on interest income from deposits (Savings + Fixed) up to:
?25,000
?1 Lakh
?50,000
?10,000
Explanation:
This higher limit (compared to ?10,000 for non-seniors under 80TTA) includes interest from FDs, RDs, and Savings accounts.
26. Leave Travel Allowance (LTA) exemption is available for:
Travel expenses of the employee and family within India, subject to actuals, twice in a block of 4 years.
Hotel and food expenses during travel.
Travel expenses every year.
Foreign travel twice a year.
Explanation:
LTA exemption applies only to the "travel fare" component (not stay/food) for travel within India, restricted to 2 journeys in a 4-year block.
27. For a person who has NOT filed Income Tax Returns for the past 3 years, TDS on cash withdrawal under Section 194N applies if withdrawals exceed:
?20 Lakh
?10 Lakh
?50 Lakh
?1 Crore
Explanation:
For non-filers, the threshold is tighter. TDS is 2% for withdrawals > ?20 Lakh and 5% for > ?1 Crore. For filers, it applies only above ?1 Crore.
28. Repayment of the "Principal" component of a housing loan is eligible for deduction under:
Section 24(b)
Section 80C
Section 80D
Section 80EE
Explanation:
Principal repayment falls under the overall ?1.5 Lakh limit of Section 80C. Interest repayment falls under Section 24(b) (up to ?2 Lakh).
29. As per Finance Act 2023, gains from Debt Mutual Funds (where equity holding is <= 35%) are taxed as:
Tax-free.
Short Term Capital Gains (taxed at slab rate) regardless of holding period.
10% flat.
Long Term Capital Gains with Indexation after 3 years.
Explanation:
This was a major change. Debt funds are now taxed at the investor's marginal slab rate, and the indexation benefit for LTCG has been removed for funds purchased after April 1, 2023.