Taxation - DT Ch 09: Deductions - Test 2: answer key

Question 1 · 2 marks · Taxation - DT Ch 09: Deductions · hard

Scenario. Smt. Anuradha Sen, a resident individual employed as a finance director with Vikramaditya Tech Labs Pvt. Ltd., has exercised the option to shift out of the default tax regime for Tax Year 2026-27. Her annual basic salary is ₹12,00,000 and her dearness allowance is ₹4,80,000. The terms of employment provide that only 50% of the DA forms part of salary for retirement benefits. She also receives HRA of ₹3,00,000 and taxable perquisites of ₹1,20,000. During the year, she contributed ₹1,85,000 to her own Tier I NPS account. Her other payments and investments were as follows: ₹35,000 deposited in her own PPF account; ₹32,000 paid as premium for a policy on the life of her major daughter, issued on 1 May 2019, with an actual capital sum assured of ₹2,40,000; ₹30,000 invested in units of a notified ELSS mutual fund; ₹36,000 paid as tuition fees for the full-time education of her two children in schools situated in India; ₹25,000 repaid towards the principal of a housing loan taken from a scheduled bank for purchase of her residential house; and ₹40,000 invested in a notified five-year tax-saving term deposit with a scheduled bank. The house was completed and possession was obtained on 15 May 2024 and has not been transferred. The tuition amounts do not include development charges or transport fees. All investments were made during the tax year, and the contributions are supported by the relevant account statements and receipts. Anuradha wants to claim every eligible payment and determine the combined effect of sections 80C, 80CCD(1), 80CCD(1B) and 80CCE. She has sufficient gross total income to absorb the permissible deductions.

Anuradha paid ₹32,000 towards the life insurance policy issued on 1 May 2019. The actual capital sum assured under the policy is ₹2,40,000. Determine the amount qualifying for deduction under section 80C, before considering the overall monetary ceiling. Assume that no special higher percentage applies to the life assured.

1. ₹24,000 (correct answer)
2. ₹30,000
3. ₹32,000
4. ₹48,000

Answer: A — ₹24,000

Explanation. For a policy issued after 1 April 2013, the qualifying premium is restricted to 10% of the actual capital sum assured, except for specified disability and disease cases. The maximum eligible premium is ₹2,40,000 × 10% = ₹24,000. The actual premium paid is ₹32,000. Therefore, the eligible amount is the lower of ₹32,000 and ₹24,000, namely ₹24,000. This calculation is made before applying the overall section 80C ceiling.

Where it goes wrong. Claiming the entire premium paid without applying the percentage restriction linked to the actual capital sum assured.

Authority. Section 80C(3), Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 2 · 2 marks · Taxation - DT Ch 09: Deductions · medium

Considering Anuradha's PPF deposit, eligible LIC premium, ELSS investment, tuition fees, housing loan principal repayment and notified five-year bank deposit, determine the deduction allowable under section 80C after applying the statutory monetary ceiling. Exclude the portion of LIC premium exceeding its permitted percentage of the capital sum assured.

1. ₹1,90,000
2. ₹1,50,000 (correct answer)
3. ₹1,44,000
4. ₹1,35,000

Answer: B — ₹1,50,000

Explanation. Eligible payments are PPF ₹35,000, LIC premium ₹24,000, ELSS ₹30,000, tuition fees ₹36,000, principal repayment ₹25,000 and five-year deposit ₹40,000. Aggregate = ₹35,000 + ₹24,000 + ₹30,000 + ₹36,000 + ₹25,000 + ₹40,000 = ₹1,90,000. Section 80C read with section 80CCE restricts the deduction to ₹1,50,000. Hence the allowable deduction is ₹1,50,000.

Where it goes wrong. Applying the ₹1,50,000 ceiling separately to each investment instead of aggregating all qualifying payments.

Authority. Sections 80C and 80CCE, Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 3 · 2 marks · Taxation - DT Ch 09: Deductions · hard

Anuradha's personal NPS contribution is ₹1,85,000. For determining the limit under section 80CCD(1), her salary consists of basic salary and only that portion of DA which forms part of salary for retirement benefits under the terms of employment. Calculate the maximum deduction under section 80CCD(1) before applying the combined ceiling under section 80CCE.

1. ₹1,20,000
2. ₹1,35,000
3. ₹1,44,000 (correct answer)
4. ₹1,50,000

Answer: C — ₹1,44,000

Explanation. Salary for this purpose includes basic salary and DA only to the extent that the employment terms include it for retirement benefits. Salary = ₹12,00,000 + (₹4,80,000 × 50%) = ₹14,40,000. Under the employee contribution provision, the ceiling is 10% of salary for this private-sector employee. Maximum section 80CCD(1) amount = ₹14,40,000 × 10% = ₹1,44,000. The actual contribution of ₹1,85,000 is higher, so ₹1,44,000 is the preliminary ceiling.

Where it goes wrong. Including the full DA, HRA and perquisites in the salary base, or applying the combined section 80CCE limit before finding the individual section 80CCD(1) ceiling.

Authority. Section 80CCD(1), Income-tax Act, 1961; section 123 read with Schedule XV, paragraph 1(y), Income-tax Act, 2025.

Question 4 · 2 marks · Taxation - DT Ch 09: Deductions · medium

Determine Anuradha's maximum aggregate deduction for the payments and contributions falling under sections 80C, 80CCD(1) and 80CCD(1B). Her qualifying section 80C payments exceed ₹1,50,000 and her own NPS contribution is sufficient to claim the additional deduction. Ignore employer NPS contributions, which are not part of this computation.

1. ₹1,50,000
2. ₹1,85,000
3. ₹1,94,000
4. ₹2,00,000 (correct answer)

Answer: D — ₹2,00,000

Explanation. The combined deduction for sections 80C and 80CCD(1) cannot exceed ₹1,50,000 under section 80CCE. Anuradha's qualifying section 80C investments alone exceed that ceiling, so no additional amount is available under section 80CCD(1) after applying the aggregate limit. Section 80CCD(1B), however, permits a separate additional deduction of up to ₹50,000. Total deduction = ₹1,50,000 + ₹50,000 = ₹2,00,000.

Where it goes wrong. Including the additional section 80CCD(1B) deduction within the ₹1,50,000 combined ceiling.

Authority. Sections 80C, 80CCD(1), 80CCD(1B) and 80CCE, Income-tax Act, 1961; sections 123 and 124(3), Income-tax Act, 2025.

Question 5 · 2 marks · Taxation - DT Ch 09: Deductions · medium

Scenario. Smt. Charulata Rao, a resident individual who has opted for the optional tax regime, made several investments and payments during Tax Year 2026-27. She deposited ₹50,000 in her own PPF account and invested ₹35,000 in units of a notified ELSS scheme. She paid ₹30,000 as premium on a life insurance policy covering her spouse. The policy was issued on 1 July 2020 and has an actual capital sum assured of ₹2,50,000. She also invested ₹40,000 in a notified five-year tax-saving deposit scheme with a scheduled bank. Her two children are pursuing full-time education in institutions situated in India. She paid tuition fees of ₹22,000 and ₹24,000 respectively for them. In addition, she paid development charges of ₹6,000 and school transport fees of ₹4,000. She deposited ₹30,000 in a Sukanya Samriddhi Account opened in the name of her granddaughter. Charulata is neither the girl's parent nor her legal guardian. During the year, she repaid ₹60,000 towards the principal of a housing loan taken from a scheduled bank. However, she transferred the residential property on 10 February 2027. Possession of the property had originally been obtained on 20 June 2024. She had claimed deductions for principal repayments of ₹30,000 in Tax Year 2024-25 and ₹45,000 in Tax Year 2025-26. Charulata wishes to identify the eligible payments for section 80C, determine the effect of the transfer of her house and understand whether a deposit in a granddaughter's Sukanya Samriddhi Account qualifies merely because she funded it.

Charulata paid ₹30,000 as premium on a policy covering her spouse. The policy was issued on 1 July 2020 and has an actual capital sum assured of ₹2,50,000. Assuming the policy satisfies the other conditions of section 80C, determine the qualifying premium before applying the overall section 80C ceiling.

1. ₹25,000 (correct answer)
2. ₹30,000
3. ₹20,000
4. ₹15,000

Answer: A — ₹25,000

Explanation. The policy was issued after 1 April 2013 and does not relate to a specified disability or disease case. The premium eligible for deduction is therefore restricted to 10% of the actual capital sum assured. Computation: ₹2,50,000 × 10% = ₹25,000. Charulata paid ₹30,000. Accordingly, ₹25,000 qualifies before applying the overall section 80C and section 80CCE limit.

Where it goes wrong. Taking the premium paid as the eligible amount without applying the 10% capital sum assured restriction.

Authority. Section 80C(3), Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 6 · 2 marks · Taxation - DT Ch 09: Deductions · hard

After excluding the Sukanya Samriddhi deposit made for her granddaughter, the housing loan principal repayment affected by the premature property transfer, and the ineligible tuition-related charges, determine Charulata's qualifying section 80C payments before applying the overall ceiling. Include the permissible portion of LIC premium and the notified five-year bank deposit.

1. ₹1,96,000
2. ₹1,50,000 (correct answer)
3. ₹1,46,000
4. ₹1,35,000

Answer: B — ₹1,50,000

Explanation. Qualifying payments are PPF ₹50,000, LIC premium restricted to ₹25,000, ELSS ₹35,000, tuition fees for two children ₹46,000 and the notified five-year bank deposit ₹40,000. Total = ₹50,000 + ₹25,000 + ₹35,000 + ₹46,000 + ₹40,000 = ₹1,96,000. The section 80C deduction is restricted by section 80CCE to ₹1,50,000. The housing repayment is not included because of the transfer condition.

Where it goes wrong. Including the payment made into the granddaughter's account or treating the current housing loan repayment as eligible despite the premature transfer.

Authority. Sections 80C and 80CCE, Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 7 · 2 marks · Taxation - DT Ch 09: Deductions · medium

Charulata deposited ₹30,000 in a Sukanya Samriddhi Account opened in her granddaughter's name. She is neither the granddaughter's parent nor her legal guardian. Can she claim deduction for this deposit under section 80C merely because she funded the account during the tax year?

1. ₹30,000
2. ₹15,000
3. Nil (correct answer)
4. ₹10,000

Answer: C — Nil

Explanation. The Sukanya Samriddhi deposit qualifies when made by an individual in the name of the individual's girl child or a girl child for whom the individual is the legal guardian. Charulata's granddaughter is not her child, and Charulata is not the legal guardian. The qualifying amount is therefore nil, even though she funded the deposit. No deduction can be claimed merely on the basis of the source of funds.

Where it goes wrong. Assuming that a grandparent is automatically treated as an eligible parent or guardian for this deduction.

Authority. Section 80C, Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 8 · 2 marks · Taxation - DT Ch 09: Deductions · hard

Charulata obtained possession of her residential house on 20 June 2024 and transferred it on 10 February 2027. She had earlier claimed housing loan principal deductions of ₹30,000 and ₹45,000 in the two preceding tax years and repaid another ₹60,000 during Tax Year 2026-27. What is the tax consequence of the transfer under the housing loan repayment provisions?

1. ₹60,000 becomes taxable; earlier deductions remain intact
2. ₹1,35,000 becomes taxable; current deduction also remains intact
3. ₹60,000 remains deductible; earlier deductions are withdrawn
4. ₹75,000 becomes taxable; current repayment is not deductible (correct answer)

Answer: D — ₹75,000 becomes taxable; current repayment is not deductible

Explanation. Possession was obtained during FY 2024-25, ending on 31 March 2025. The relevant five-year period expires on 31 March 2030. Transfer on 10 February 2027 occurs before that expiry. Consequently, the current-year housing loan principal repayment of ₹60,000 is not allowable. Earlier deductions of ₹30,000 + ₹45,000 = ₹75,000 are deemed income in the year of transfer. Thus, ₹75,000 is taxable and ₹60,000 is disallowed.

Where it goes wrong. Taxing the current-year repayment instead of bringing the earlier deductions into income, or overlooking the five-year period calculated from the end of the possession year.

Authority. Section 80C(5), Income-tax Act, 1961; section 123 read with Schedule XV, paragraph 2, Income-tax Act, 2025.

Question 9 · 2 marks · Taxation - DT Ch 09: Deductions · hard

Scenario. Smt. Meera Iyer, a resident individual carrying on an independent architectural consultancy, has opted out of the default tax regime for Tax Year 2026-27. Her gross total income, computed before deductions under Chapter VI-A, is ₹12,00,000. During the year, she contributed ₹2,60,000 to her own Tier I NPS account. She also paid ₹90,000 from income chargeable to tax towards an approved LIC annuity plan intended to provide pension after retirement. In an earlier tax year, she had claimed a deduction for contributions to a separate approved annuity plan. That plan was surrendered in December 2026, and Meera received ₹1,20,000, including accrued bonus of ₹12,000. Meera is also the parent and guardian of a minor daughter who has an NPS Vatsalya account. During the tax year, she deposited ₹35,000 in that minor's account. The portion of her own NPS contribution which exceeds the amount considered for the deduction under section 80CCD(1) is available for consideration under the additional NPS deduction, subject to its statutory ceiling. She also deposited ₹40,000 in her own PPF account. The LIC annuity contribution is made under a notified pension arrangement and the PPF payment was made during the tax year. Meera wants to determine the deduction available for her own NPS contribution, her minor daughter's NPS Vatsalya account and the LIC pension contribution. She also wants to know the tax consequences of surrendering the earlier annuity plan. Assume that the stated gross total income is available for claiming the permissible deductions and that there are no other relevant investments.

Meera is self-employed and has gross total income of ₹12,00,000 before Chapter VI-A deductions. Her own contribution to the notified Tier I NPS account is ₹2,60,000. For the purpose of section 80CCD(1), determine the maximum deduction based on her gross total income, before applying the combined section 80CCE ceiling.

1. ₹2,40,000 (correct answer)
2. ₹2,60,000
3. ₹1,50,000
4. ₹2,00,000

Answer: A — ₹2,40,000

Explanation. For an individual who is not an employee, section 80CCD(1) restricts the deduction to 20% of gross total income. Meera's limit is ₹12,00,000 × 20% = ₹2,40,000. Her actual contribution of ₹2,60,000 exceeds this amount. Therefore, the maximum deduction before applying section 80CCE is ₹2,40,000. The overall combined ceiling may further restrict the final deduction.

Where it goes wrong. Applying the employee salary percentage to a self-employed individual instead of the 20% gross total income limit.

Authority. Section 80CCD(1), Income-tax Act, 1961; section 123 read with Schedule XV, paragraph 1(y), Income-tax Act, 2025.

Question 10 · 2 marks · Taxation - DT Ch 09: Deductions · hard

Meera received ₹1,20,000 upon surrendering an approved annuity plan in December 2026. This amount includes ₹12,000 of accrued bonus. A deduction had been allowed in an earlier tax year for the contribution to this annuity plan. Determine the amount chargeable to tax in Tax Year 2026-27 under the provisions governing approved pension annuity plans.

1. ₹1,08,000
2. ₹1,20,000 (correct answer)
3. ₹90,000
4. ₹75,000

Answer: B — ₹1,20,000

Explanation. Where an amount standing to the credit of an approved annuity pension plan, for which deduction was allowed, is received on surrender or as pension, the amount received is chargeable to tax. The taxable amount includes accrued interest or bonus. Meera received ₹1,20,000, comprising the original amount and ₹12,000 accrued bonus. Therefore, the entire ₹1,20,000 is taxable in Tax Year 2026-27. The accrued bonus cannot be excluded.

Where it goes wrong. Excluding accrued bonus or interest from the taxable surrender receipt because it was not separately contributed by the assessee.

Authority. Section 80CCC(2), Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 11 · 2 marks · Taxation - DT Ch 09: Deductions · medium

Meera has contributed ₹2,60,000 to her own NPS account and ₹35,000 to her minor daughter's NPS Vatsalya account. Her own contribution eligible under section 80CCD(1) is determined separately, subject to the applicable percentage of gross total income. Determine the maximum additional deduction available for the combined contributions to her own account and the minor's account under section 80CCD(1B).

1. ₹35,000
2. ₹40,000
3. ₹50,000 (correct answer)
4. ₹55,000

Answer: C — ₹50,000

Explanation. Meera's section 80CCD(1) ceiling is ₹2,40,000, calculated as 20% of ₹12,00,000. Therefore, ₹20,000 of her own contribution remains outside the amount considered under section 80CCD(1). Adding the minor's NPS Vatsalya deposit of ₹35,000 gives ₹55,000. However, the aggregate additional deduction under section 80CCD(1B), including the eligible minor-account contribution, cannot exceed ₹50,000. Hence the deduction is ₹50,000.

Where it goes wrong. Applying a separate ₹50,000 ceiling to the minor's NPS Vatsalya deposit instead of sharing the limit with the assessee's own contribution.

Authority. Section 80CCD(1B), Income-tax Act, 1961, as amended by Finance Act, 2025; sections 124(3) and 124(4), Income-tax Act, 2025.

Question 12 · 2 marks · Taxation - DT Ch 09: Deductions · medium

Meera's qualifying PPF deposit is ₹40,000, her approved LIC annuity contribution is ₹90,000 and the maximum amount otherwise available under section 80CCD(1) is ₹2,40,000. She is also eligible for the maximum additional NPS deduction under section 80CCD(1B). What is the maximum aggregate deduction available under these provisions after applying the combined limit?

1. ₹1,50,000
2. ₹1,90,000
3. ₹2,40,000
4. ₹2,00,000 (correct answer)

Answer: D — ₹2,00,000

Explanation. The amounts under sections 80C, 80CCC and 80CCD(1) are subject to the combined ₹1,50,000 ceiling under section 80CCE. Their aggregate before restriction is ₹40,000 + ₹90,000 + ₹2,40,000 = ₹3,70,000. The allowable amount under these provisions is therefore ₹1,50,000. The additional section 80CCD(1B) deduction is separately available up to ₹50,000. Total = ₹1,50,000 + ₹50,000 = ₹2,00,000.

Where it goes wrong. Applying the combined ₹1,50,000 ceiling to the additional section 80CCD(1B) deduction also.

Authority. Sections 80C, 80CCC, 80CCD(1), 80CCD(1B) and 80CCE, Income-tax Act, 1961; sections 123 and 124(3), Income-tax Act, 2025.

Question 13 · 2 marks · Taxation - DT Ch 09: Deductions · 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. Dev purchased a single-premium life insurance policy on 1 May 2025 and paid a premium of ₹1,20,000. The actual capital sum assured is ₹10,00,000. He claimed the permissible deduction for the premium in Tax Year 2025-26. On 30 April 2027, he terminated the policy by notice, before completing two years from its commencement. What amount of the earlier deduction is deemed to be income in Tax Year 2026-27?

1. ₹1,00,000 (correct answer)
2. ₹1,20,000
3. ₹80,000
4. Nil

Answer: A — ₹1,00,000

Explanation. The policy was issued after 1 April 2013, so the premium eligible for deduction is limited to 10% of the actual capital sum assured. Eligible premium = ₹10,00,000 × 10% = ₹1,00,000. The single-premium policy was terminated before completing two years from commencement. Consequently, the earlier deduction allowed becomes deemed income in the year of termination. The amount chargeable in Tax Year 2026-27 is ₹1,00,000.

Where it goes wrong. Bringing the full premium paid of ₹1,20,000 to tax instead of the deduction actually allowed, or overlooking the special two-year condition for single-premium policies.

Authority. Section 80C(5), Income-tax Act, 1961; section 123 read with Schedule XV, paragraph 2, Income-tax Act, 2025.

Question 14 · 2 marks · Taxation - DT Ch 09: Deductions · 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.

Smt. Anjali deposited ₹60,000 in her own PPF account and ₹45,000 in the PPF account of her major daughter during Tax Year 2026-27. She also deposited ₹25,000 in the PPF account of her adult brother. Anjali has opted for the optional tax regime and has sufficient gross total income. Determine the aggregate qualifying PPF contribution for deduction under section 80C before applying the overall monetary ceiling.

1. ₹85,000
2. ₹1,05,000 (correct answer)
3. ₹1,30,000
4. ₹25,000

Answer: B — ₹1,05,000

Explanation. An individual may claim deduction for PPF contributions made in the individual's own account or in the account of the spouse or any child. The daughter's account qualifies even though she is a major. The brother's account does not qualify under the individual-specific rule. Eligible amount = ₹60,000 + ₹45,000 = ₹1,05,000. This is below the overall ₹1,50,000 limit, so the whole ₹1,05,000 is eligible before considering other section 80C investments.

Where it goes wrong. Treating every relative's PPF account as an eligible account merely because the assessee made the deposit.

Authority. Section 80C, Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 15 · 2 marks · Taxation - DT Ch 09: Deductions · 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.

Ms. Ritu purchased a residential house and made the following payments during Tax Year 2026-27: ₹1,30,000 towards principal repayment of a housing loan from a scheduled bank, ₹40,000 towards principal repayment of a loan from her closely held private employer which does not fall within the specified employer categories, ₹35,000 towards renovation after the completion certificate, and ₹15,000 towards stamp duty and registration expenses for transfer of the house into her name. What amount qualifies under section 80C before its overall ceiling?

1. ₹1,30,000
2. ₹1,55,000
3. ₹1,45,000 (correct answer)
4. ₹1,70,000

Answer: C — ₹1,45,000

Explanation. Principal repayment to a scheduled bank qualifies under section 80C. Stamp duty and registration expenses incurred for transfer of the house to the assessee also qualify. The loan from the closely held employer is not from a specified eligible lender, and renovation after the completion certificate is excluded. Computation: ₹1,30,000 + ₹15,000 = ₹1,45,000. Therefore, ₹1,45,000 qualifies before applying the combined deduction ceiling.

Where it goes wrong. Including renovation expenditure or assuming that every employer qualifies as an eligible housing loan lender.

Authority. Section 80C(2)(xviii), Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 16 · 2 marks · Taxation - DT Ch 09: Deductions · 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. Prakash paid tuition fees of ₹42,000 for his first child and ₹38,000 for his second child, both studying full-time in institutions situated in India. He also paid ₹27,000 as tuition fees for his third child, ₹8,000 as development charges and ₹12,000 as school transport fees. He has opted out of the default tax regime. Determine the qualifying amount under section 80C before considering the overall ceiling.

1. ₹1,07,000
2. ₹92,000
3. ₹86,000
4. ₹80,000 (correct answer)

Answer: D — ₹80,000

Explanation. Tuition fees qualify only for full-time education of a maximum of two children at an educational institution situated in India. Development charges and transport fees are not tuition fees. The third child's fees are outside the two-child limit. Eligible deduction = ₹42,000 + ₹38,000 = ₹80,000. The remaining payments of ₹27,000 + ₹8,000 + ₹12,000 = ₹47,000 cannot be included in this computation.

Where it goes wrong. Including the third child's tuition fees or adding development and transport charges to qualifying tuition fees.

Authority. Section 80C(2)(xvii), Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 17 · 2 marks · Taxation - DT Ch 09: Deductions · 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. Sameer invested ₹75,000 in a deposit with a scheduled bank having a fixed maturity period of four years and eleven months. He also invested ₹60,000 in a notified tax-saving term deposit scheme with another scheduled bank for a fixed period of five years. Both deposits were made during Tax Year 2026-27. Assuming he exercises the option to shift out of the default regime, what amount qualifies under section 80C?

1. ₹60,000 (correct answer)
2. ₹75,000
3. ₹1,35,000
4. Nil

Answer: A — ₹60,000

Explanation. A qualifying bank term deposit must be for a fixed period of not less than five years and must fall under the notified scheme. Sameer's ₹75,000 deposit has a maturity period of four years and eleven months, so it fails the minimum period condition. The second deposit meets the five-year requirement and is under the notified scheme. Therefore, the qualifying amount is ₹60,000.

Where it goes wrong. Rounding a term deposit of four years and eleven months up to five years for the purpose of claiming deduction.

Authority. Section 80C(2)(xxi), Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 18 · 2 marks · Taxation - DT Ch 09: Deductions · 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. Mahesh, an individual, had contributed ₹1,10,000 from income chargeable to tax to an approved annuity plan of LIC. A deduction had been allowed for the contribution in an earlier tax year. In Tax Year 2026-27, he surrendered the annuity plan and received ₹1,48,000, comprising the original amount and ₹28,000 of accrued bonus and interest. What is the amount chargeable to tax in the year of receipt?

1. ₹1,10,000
2. ₹1,48,000 (correct answer)
3. ₹1,20,000
4. ₹28,000

Answer: B — ₹1,48,000

Explanation. Section 80CCC provides deduction to an individual for qualifying payments made from income chargeable to tax towards an approved annuity pension plan. Where an amount for which deduction has been allowed is received on surrender, the entire amount, including accrued bonus or interest, is taxable in the year of receipt. Mahesh received ₹1,48,000, of which ₹28,000 represents accretions. Taxable amount = ₹1,48,000, not merely the original ₹1,10,000.

Where it goes wrong. Restricting the taxable receipt to the original contribution and excluding bonus or interest accrued in the pension plan.

Authority. Sections 80CCC(1) and 80CCC(2), Income-tax Act, 1961; section 123 read with Schedule XV, Income-tax Act, 2025.

Question 19 · 2 marks · Taxation - DT Ch 09: Deductions · 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. Nikhil is employed by a private company and has opted for the optional regime. His annual basic salary is ₹9,60,000 and his DA is ₹2,40,000, of which 50% forms part of salary for retirement benefits under his employment terms. He contributes ₹1,25,000 to his own notified NPS account during Tax Year 2026-27. Determine the maximum amount under section 80CCD(1) before applying the overall section 80CCE limit.

1. ₹96,000
2. ₹1,20,000
3. ₹1,08,000 (correct answer)
4. ₹1,25,000

Answer: C — ₹1,08,000

Explanation. For an employee, the salary base includes basic salary and DA only to the extent it forms part of salary under the employment terms. Salary = ₹9,60,000 + (₹2,40,000 × 50%) = ₹10,80,000. The section 80CCD(1) limit for this private-sector employee is 10% of salary. Therefore, ₹10,80,000 × 10% = ₹1,08,000. Since the actual contribution is ₹1,25,000, the permissible amount before section 80CCE is ₹1,08,000.

Where it goes wrong. Calculating the percentage on basic salary alone, on full DA or on total remuneration including allowances.

Authority. Section 80CCD(1), Income-tax Act, 1961; section 123 read with Schedule XV, paragraph 1(y), Income-tax Act, 2025.

Question 20 · 2 marks · Taxation - DT Ch 09: Deductions · 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.

A private-sector employee has qualifying section 80C payments of ₹65,000 and has contributed ₹45,000 to an approved annuity pension plan. His annual salary for section 80CCD(1) is ₹12,00,000 and his own NPS contribution is ₹1,80,000. He has enough NPS contribution to claim the additional deduction under section 80CCD(1B). Determine the aggregate deduction under sections 80C, 80CCC, 80CCD(1) and 80CCD(1B), after applying all relevant ceilings.

1. ₹1,50,000
2. ₹1,70,000
3. ₹1,95,000
4. ₹2,00,000 (correct answer)

Answer: D — ₹2,00,000

Explanation. The employee's NPS salary ceiling is 10% × ₹12,00,000 = ₹1,20,000. The aggregate under sections 80C, 80CCC and 80CCD(1), before restriction, is ₹65,000 + ₹45,000 + ₹1,20,000 = ₹2,30,000, restricted to ₹1,50,000 under section 80CCE. Since the NPS contribution supports the separate section 80CCD(1B) claim, another ₹50,000 is allowable. Total = ₹1,50,000 + ₹50,000 = ₹2,00,000.

Where it goes wrong. Applying 80CCE to the additional ₹50,000 deduction or assuming the section 80CCD(1) salary ceiling is itself the combined deduction ceiling.

Authority. Sections 80C, 80CCC, 80CCD(1), 80CCD(1B) and 80CCE, Income-tax Act, 1961; sections 123 and 124(3), Income-tax Act, 2025.

Question 21 · 2 marks · Taxation - DT Ch 09: Deductions · 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. Harsh deposited ₹40,000 in his own Tier I NPS account and ₹35,000 in the NPS account of his adult daughter, aged 22 years. He wishes to claim the additional deduction under section 80CCD(1B) and has not claimed either payment under another deduction provision. Considering the extension relating to contributions to a minor's NPS account, what amount can Harsh claim under section 80CCD(1B)?

1. ₹40,000 (correct answer)
2. ₹50,000
3. ₹35,000
4. ₹75,000

Answer: A — ₹40,000

Explanation. The additional NPS deduction is available for eligible contributions to the assessee's own notified pension account and, under the amended provision, to the account of a minor maintained under the relevant pension scheme. Harsh's own payment of ₹40,000 qualifies. The payment to his 22-year-old daughter's account does not qualify under the minor-account extension. Thus, qualifying contribution = ₹40,000, which is below the ₹50,000 ceiling.

Where it goes wrong. Treating an adult child's NPS account as a minor's account merely because the contribution is funded by the parent.

Authority. Section 80CCD(1B), Income-tax Act, 1961, as amended by Finance Act, 2025; sections 124(3) and 124(4), Income-tax Act, 2025.

Question 22 · 2 marks · Taxation - DT Ch 09: Deductions · 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.

An individual has qualifying payments of ₹70,000 under section 80C and ₹40,000 towards an approved annuity plan under section 80CCC. The individual also contributes ₹1,20,000 to his own NPS account under section 80CCD(1) and ₹45,000 as an additional contribution under section 80CCD(1B). The salary-based ceiling under section 80CCD(1) is at least ₹1,20,000. Compute the total deduction after applying the combined and separate ceilings.

1. ₹1,50,000
2. ₹1,95,000 (correct answer)
3. ₹2,00,000
4. ₹2,30,000

Answer: B — ₹1,95,000

Explanation. The aggregate under sections 80C, 80CCC and 80CCD(1) is ₹70,000 + ₹40,000 + ₹1,20,000 = ₹2,30,000. Section 80CCE restricts this aggregate to ₹1,50,000. The additional section 80CCD(1B) contribution of ₹45,000 is outside that combined limit and is fully allowable because it is below ₹50,000. Total deduction = ₹1,50,000 + ₹45,000 = ₹1,95,000.

Where it goes wrong. Allowing the full ₹2,30,000 within section 80CCE, or applying the ₹50,000 additional limit without regard to the actual contribution.

Authority. Sections 80C, 80CCC, 80CCD(1), 80CCD(1B) and 80CCE, Income-tax Act, 1961.

Question 23 · 2 marks · Taxation - DT Ch 09: Deductions · 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.

Ms. Kavita took a regular-premium life insurance policy on 1 June 2025 and paid the first annual premium of ₹50,000. She claimed the permissible deduction in Tax Year 2025-26. The next premium fell due on 1 June 2026 but was not paid, and the policy ceased to be in force on 15 February 2027 without revival. What is the amount of deduction previously allowed that is deemed to be income in Tax Year 2026-27?

1. Nil
2. ₹25,000
3. ₹50,000 (correct answer)
4. ₹1,00,000

Answer: C — ₹50,000

Explanation. For a regular-premium life policy, the earlier deduction is withdrawn where the policy ceases to be in force due to non-payment and is not revived before premiums have been paid for two years. Kavita paid only one annual premium of ₹50,000 before the policy ceased on 15 February 2027. Since the two-year premium condition was not met, the deduction allowed in Tax Year 2025-26 becomes deemed income in Tax Year 2026-27. Amount taxable = ₹50,000.

Where it goes wrong. Applying the single-premium policy's two-year commencement rule without considering the separate premium-payment condition for regular-premium policies.

Authority. Section 80C(5), Income-tax Act, 1961; section 123 read with Schedule XV, paragraph 2, Income-tax Act, 2025.

Question 24 · 2 marks · Taxation - DT Ch 09: Deductions · 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.

A parent has contributed ₹38,000 to his own notified NPS account and ₹29,000 to the NPS Vatsalya account of his minor child during Tax Year 2026-27. Both deposits are otherwise eligible for consideration under the additional NPS deduction. Neither payment has been claimed under section 80CCD(1). What is the aggregate deduction available under section 80CCD(1B) for the year?

1. ₹38,000
2. ₹29,000
3. ₹67,000
4. ₹50,000 (correct answer)

Answer: D — ₹50,000

Explanation. The additional deduction covers qualifying contributions to the assessee's own NPS account and the eligible NPS account of a minor child. The aggregate contribution is ₹38,000 + ₹29,000 = ₹67,000. However, the combined deduction under section 80CCD(1B), including the minor's account contribution, is limited to ₹50,000. Therefore, the allowable deduction is ₹50,000 and the excess contribution of ₹17,000 does not qualify under this sub-section.

Where it goes wrong. Claiming ₹50,000 separately for the parent's account and another ₹50,000 for the minor's account.

Authority. Section 80CCD(1B), Income-tax Act, 1961, as amended by Finance Act, 2025; sections 124(3) and 124(4), Income-tax Act, 2025.

Question 25 · 2 marks · Taxation - DT Ch 09: Deductions · 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. Suresh obtained possession of his residential house on 30 September 2021 and claimed deductions for housing loan principal repayments of ₹35,000 and ₹60,000 in earlier tax years. He repaid a further ₹40,000 during Tax Year 2026-27 and transferred the house on 1 April 2027. Determine whether the transfer triggers withdrawal of the earlier deductions under section 80C, having regard to the five-year period calculated from the end of the tax year in which possession was obtained.

1. Nil (correct answer)
2. ₹95,000
3. ₹40,000
4. ₹1,35,000

Answer: A — Nil

Explanation. Possession was obtained in FY 2021-22, which ended on 31 March 2022. The five-year period from the end of that financial year expires on 31 March 2027. The property was transferred on 1 April 2027, after expiry of the specified period. Therefore, the transfer does not trigger withdrawal of the earlier deductions of ₹35,000 + ₹60,000 = ₹95,000 under this provision. The current-year repayment is also not reversed on account of this transfer.

Where it goes wrong. Calculating five years from the possession date itself instead of from the end of the financial year in which possession was obtained.

Authority. Section 80C(5), Income-tax Act, 1961; section 123 read with Schedule XV, paragraph 2, Income-tax Act, 2025.