Taxation - DT Ch 01: Basic Concepts - Test 2: answer key

Question 1 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

Scenario. Smt. Radhika Sharma, a resident individual aged 50 years, furnishes the following particulars of her income for the previous year 2026-27. She is a senior consultant with a software firm and also owns agricultural land in a rural area where she grows vegetables. Her salary income (computed) is ₹12,00,000. She earned interest on fixed deposits with scheduled banks amounting to ₹1,50,000. She derived net agricultural income of ₹6,00,000 from the sale of vegetables after deducting all cultivation expenses. She has no other income under any other head and no brought-forward losses. She has not opted out of the default tax regime under Section 115BAC. For the purposes of partial integration, assume the basic exemption limit under the default tax regime for AY 2027-28 is ₹4,00,000. She is not eligible for any deduction under Chapter VI-A except the standard deduction already considered in salary income. You are required to answer the following questions relating to her tax liability for AY 2027-28.

What is the income-tax on the aggregate income of Smt. Radhika Sharma (comprising non-agricultural income and net agricultural income) for the purpose of partial integration under the default tax regime?

1. ₹1,90,000 (correct answer)
2. ₹1,80,000
3. ₹2,10,000
4. ₹1,70,000

Answer: A — ₹1,90,000

Explanation. Non-agricultural income = salary ₹12,00,000 + interest ₹1,50,000 = ₹13,50,000. Net agricultural income = ₹6,00,000. Aggregate income = ₹19,50,000. Tax under Section 115BAC slabs: up to ₹4,00,000 nil; ₹4,00,001–₹8,00,000 @5% = ₹20,000; ₹8,00,001–₹12,00,000 @10% = ₹40,000; ₹12,00,001–₹16,00,000 @15% = ₹60,000; ₹16,00,001–₹19,50,000 @20% on ₹3,50,000 = ₹70,000. Total tax = ₹1,90,000.

Where it goes wrong. Computing tax only on non-agricultural income, or applying agricultural income as a deduction instead of aggregating.

Authority. Section 115BAC of the Income-tax Act, 1961; Finance Act 2026

Question 2 · 2 marks · Taxation - DT Ch 01: Basic Concepts · medium

What is the income-tax on the net agricultural income increased by the basic exemption limit, for the purpose of partial integration in the case of Smt. Radhika Sharma?

1. ₹30,000
2. ₹40,000 (correct answer)
3. ₹50,000
4. ₹60,000

Answer: B — ₹40,000

Explanation. Net agricultural income = ₹6,00,000. Basic exemption limit under default regime = ₹4,00,000. Amount for computing tax under partial integration = ₹6,00,000 + ₹4,00,000 = ₹10,00,000. Tax under Section 115BAC slabs: up to ₹4,00,000 nil; ₹4,00,001–₹8,00,000 @5% = ₹20,000; ₹8,00,001–₹10,00,000 @10% on ₹2,00,000 = ₹20,000. Total = ₹40,000.

Where it goes wrong. Computing tax on net agricultural income alone (₹6,00,000) without adding the basic exemption limit, or using the wrong exemption limit.

Authority. Section 115BAC of the Income-tax Act, 1961; Finance Act 2026

Question 3 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

What is the tax payable by Smt. Radhika Sharma after partial integration but before health and education cess?

1. ₹1,40,000
2. ₹1,60,000
3. ₹1,50,000 (correct answer)
4. ₹1,30,000

Answer: C — ₹1,50,000

Explanation. Tax on aggregate income = ₹1,90,000. Tax on (net agricultural income + basic exemption limit) = ₹40,000. Tax after partial integration = ₹1,90,000 − ₹40,000 = ₹1,50,000. No surcharge is applicable as total income (non-agricultural) is ₹13,50,000, which is below ₹50,00,000. Rebate under Section 87A is not available as total income exceeds ₹12,00,000.

Where it goes wrong. Adding surcharge or applying rebate under Section 87A without checking the threshold limits.

Authority. Section 115BAC of the Income-tax Act, 1961; Finance Act 2026

Question 4 · 2 marks · Taxation - DT Ch 01: Basic Concepts · medium

What is the final tax liability of Smt. Radhika Sharma for AY 2027-28 after including health and education cess?

1. ₹1,50,000
2. ₹1,60,000
3. ₹1,45,000
4. ₹1,56,000 (correct answer)

Answer: D — ₹1,56,000

Explanation. Tax after partial integration = ₹1,50,000. Health and education cess @4% = ₹6,000. Final tax liability = ₹1,50,000 + ₹6,000 = ₹1,56,000. No surcharge is applicable.

Where it goes wrong. Computing cess on the aggregate income tax of ₹1,90,000 instead of on the tax after partial integration.

Authority. Finance Act 2026; Section 115BAC of the Income-tax Act, 1961

Question 5 · 2 marks · Taxation - DT Ch 01: Basic Concepts · medium

Scenario. M/s Vikramaditya Tech Labs Pvt Ltd is a domestic company engaged in software development. Its turnover for the financial year 2024-25 was ₹350 crore. For the previous year 2026-27, the company's total income computed under the Income-tax Act, 1961 is ₹2,50,00,000. This includes a dividend of ₹5,00,000 received from another domestic company and interest on bank deposits of ₹3,00,000. The company has not opted for the concessional tax regime under Section 115BAA or 115BAB. It has no brought-forward losses or unabsorbed depreciation. M/s Nandini Associates is a partnership firm with total income of ₹1,20,00,000 for the previous year 2026-27. The firm has not opted for the presumptive taxation scheme under Section 44AD or 44ADA. Both the company and the firm are resident entities. You are required to answer the following questions regarding their tax liability for AY 2027-28 under the provisions of the Income-tax Act, 1961 as amended by the Finance Act 2026.

What is the rate of income-tax applicable to M/s Vikramaditya Tech Labs Pvt Ltd for AY 2027-28, assuming it has not opted for Section 115BAA or 115BAB?

1. 25% (correct answer)
2. 30%
3. 22%
4. 15%

Answer: A — 25%

Explanation. For a domestic company with turnover or gross receipts in the previous year 2024-25 not exceeding ₹400 crore, the income-tax rate is 25% of total income. Since the turnover is ₹350 crore, the 25% rate applies. The 30% rate applies only if turnover exceeds ₹400 crore. The 22% rate under Section 115BAA and 15% under Section 115BAB require exercising specific options, which the company has not done.

Where it goes wrong. Applying 30% by ignoring the turnover threshold, or applying 22% without the company opting for Section 115BAA.

Authority. Finance Act 2026; Section 115BA of the Income-tax Act, 1961

Question 6 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

What is the amount of surcharge payable by M/s Vikramaditya Tech Labs Pvt Ltd on its income-tax for AY 2027-28?

1. ₹6,25,000
2. ₹4,37,500 (correct answer)
3. ₹5,25,000
4. ₹3,75,000

Answer: B — ₹4,37,500

Explanation. Total income = ₹2,50,00,000. Income-tax @25% = ₹62,50,000. Since total income exceeds ₹1 crore but does not exceed ₹10 crore, surcharge is 7% of income-tax. Surcharge = 7% of ₹62,50,000 = ₹4,37,500. Marginal relief may apply, but the question asks for surcharge before marginal relief.

Where it goes wrong. Applying 12% surcharge by treating income as exceeding ₹10 crore, or applying 10% surcharge applicable to individuals.

Authority. Finance Act 2026

Question 7 · 2 marks · Taxation - DT Ch 01: Basic Concepts · medium

What is the income-tax rate applicable to M/s Nandini Associates, a partnership firm, for AY 2027-28?

1. 25%
2. 22%
3. 30% (correct answer)
4. 35%

Answer: C — 30%

Explanation. A partnership firm is taxed at a flat rate of 30% of its total income under the normal provisions of the Income-tax Act, 1961. There is no slab system for firms. The 25% rate applies to domestic companies with turnover up to ₹400 crore, and 22% applies to companies opting for Section 115BAA. The 35% rate applies to foreign companies on certain income.

Where it goes wrong. Applying the corporate tax rate of 25% or the individual slab rates to the firm's income.

Authority. Finance Act 2026; Section 4 of the Income-tax Act, 1961

Question 8 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

What is the final tax liability of M/s Nandini Associates for AY 2027-28 after surcharge, marginal relief, and health and education cess?

1. ₹40,32,000
2. ₹37,44,000
3. ₹36,00,000
4. ₹41,93,280 (correct answer)

Answer: D — ₹41,93,280

Explanation. Total income = ₹1,20,00,000. Income-tax @30% = ₹36,00,000. Surcharge @12% = ₹4,32,000; tax with surcharge = ₹40,32,000. Tax on ₹1,00,00,000 @30% = ₹30,00,000. Excess income = ₹20,00,000; threshold = ₹50,00,000. Since ₹40,32,000 < ₹50,00,000, marginal relief is not applicable. Cess @4% on ₹40,32,000 = ₹1,61,280. Final tax = ₹41,93,280.

Where it goes wrong. Ignoring surcharge or applying marginal relief incorrectly without comparing the tax with the threshold.

Authority. Finance Act 2026

Question 9 · 2 marks · Taxation - DT Ch 01: Basic Concepts · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following is not a 'person' under Section 2(31) of the Income-tax Act, 1961?

1. A public charitable trust (correct answer)
2. A Hindu Undivided Family
3. A company registered under the Companies Act, 2013
4. A partnership firm

Answer: A — A public charitable trust

Explanation. Section 2(31) defines 'person' to include an individual, a Hindu Undivided Family, a company, a firm, an association of persons or body of individuals, a local authority, and an artificial juridical person. A public charitable trust is not specifically listed as a person; it is generally assessed as an association of persons or an artificial juridical person. Therefore, it is not a separate category of person under the definition.

Where it goes wrong. Assuming that a trust is explicitly included as a person, when it is assessed as an AOP or artificial juridical person.

Authority. Section 2(31) of the Income-tax Act, 1961

Question 10 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Kunal received ₹8,00,000 as winnings from a horse race on 15th December 2026. He also has salary income of ₹6,00,000 for the previous year 2026-27. He opts for the default tax regime under Section 115BAC. What is the tax payable on the winnings from horse race including health and education cess?

1. ₹2,40,000
2. ₹2,49,600 (correct answer)
3. ₹2,00,000
4. ₹2,08,000

Answer: B — ₹2,49,600

Explanation. Winnings from horse races are casual income taxable at a flat rate of 30% under Section 115BB. Tax = 30% of ₹8,00,000 = ₹2,40,000. Health and education cess @4% = ₹9,600. Total tax = ₹2,49,600. The salary income is taxed separately under slab rates, but the question asks for tax on winnings.

Where it goes wrong. Applying normal slab rates to casual income, or forgetting cess.

Authority. Section 115BB of the Income-tax Act, 1961; Finance Act 2026

Question 11 · 2 marks · Taxation - DT Ch 01: Basic Concepts · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Ms. Priya, a resident individual, received dividend of ₹1,50,000 from a domestic company during the previous year 2026-27. She has no other income and opts for the default tax regime under Section 115BAC. What is the tax payable on the dividend income?

1. ₹7,500
2. ₹15,000
3. Nil (correct answer)
4. ₹6,000

Answer: C — Nil

Explanation. Dividend income from a domestic company is taxable in the hands of the recipient. However, under the default tax regime, the basic exemption limit is ₹4,00,000. Ms. Priya's total income is ₹1,50,000, which is below the basic exemption limit. Therefore, no tax is payable. The dividend is not exempt, but it is below the taxable threshold. So tax payable is Nil.

Where it goes wrong. Assuming dividend is exempt under Section 10(34), which was withdrawn, or ignoring the basic exemption limit.

Authority. Section 10(34) of the Income-tax Act, 1961; Finance Act 2026

Question 12 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following is not a 'capital asset' under Section 2(14) of the Income-tax Act, 1961?

1. Agricultural land in an urban area
2. Gold jewellery held for personal use
3. A residential house property
4. Shares held as stock-in-trade (correct answer)

Answer: D — Shares held as stock-in-trade

Explanation. Section 2(14) defines 'capital asset' to include property of any kind held by an assessee, whether or not connected with his business or profession, but excludes stock-in-trade, consumable stores, and raw materials held for business. Shares held as stock-in-trade are not capital assets. Agricultural land in an urban area is a capital asset. Gold jewellery is specifically included as a capital asset. A residential house property is a capital asset.

Where it goes wrong. Confusing 'agricultural land in an urban area' as not a capital asset, or assuming jewellery is not a capital asset.

Authority. Section 2(14) of the Income-tax Act, 1961

Question 13 · 2 marks · Taxation - DT Ch 01: Basic Concepts · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Ankit started a new business on 1st October 2026. What is the previous year for the assessment year 2027-28 in respect of this business?

1. 1st October 2026 to 31st March 2027 (correct answer)
2. 1st April 2026 to 31st March 2027
3. 1st April 2026 to 30th September 2026
4. 1st October 2026 to 31st December 2026

Answer: A — 1st October 2026 to 31st March 2027

Explanation. Section 3 defines previous year as the financial year immediately preceding the assessment year. However, for a newly set up business, the previous year begins on the date of setting up and ends on 31st March. Therefore, for a business started on 1st October 2026, the previous year for AY 2027-28 is 1st October 2026 to 31st March 2027.

Where it goes wrong. Assuming previous year is always 1st April to 31st March, even for a new business.

Authority. Section 3 of the Income-tax Act, 1961

Question 14 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following is not an 'assessee' under Section 2(7) of the Income-tax Act, 1961?

1. A person by whom any tax is payable
2. A person who has filed a return of income but has no tax liability (correct answer)
3. A person who is deemed to be an assessee in default
4. A person in respect of whom assessment proceedings have been taken

Answer: B — A person who has filed a return of income but has no tax liability

Explanation. Section 2(7) defines assessee to include a person by whom tax or any other sum of money is payable, a person in respect of whom any proceeding under the Act has been taken for assessment of his income or loss, and a person who is deemed to be an assessee in default. A person who has merely filed a return with no tax liability is not necessarily an assessee unless proceedings are initiated.

Where it goes wrong. Assuming that anyone who files a return is an assessee, even without any tax liability or assessment proceeding.

Authority. Section 2(7) of the Income-tax Act, 1961

Question 15 · 2 marks · Taxation - DT Ch 01: Basic Concepts · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

M/s Bharat Steel Ltd, a domestic company, had turnover of ₹450 crore in FY 2024-25. For AY 2027-28, its total income is ₹5,00,00,000. What is the income-tax rate applicable?

1. 25%
2. 22%
3. 15%
4. 30% (correct answer)

Answer: D — 30%

Explanation. Since the turnover of the domestic company for FY 2024-25 exceeds ₹400 crore, the applicable income-tax rate is 30% under the normal provisions. The 25% rate applies only if turnover does not exceed ₹400 crore. The 22% and 15% rates require opting for Sections 115BAA and 115BAB respectively.

Where it goes wrong. Applying 25% by ignoring the turnover threshold, or applying 22% without the company opting for Section 115BAA.

Authority. Finance Act 2026; Section 115BA of the Income-tax Act, 1961