This chapter-wise practice test covers Taxation - DT Ch 09: Deductions - Test 5 for CA Intermediate Group 1 students preparing for the May 2027 examination attempt. It carries 50 marks across 25 questions in case scenarios and standalone practical MCQs with a time limit of 60 minutes and no negative marking.
25 questions across 1 chapter, 50 marks and 60 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: Income-tax Act, 2025 (as incorporated in ICAI Study Material for May 2027); Income-tax Act, 1961 as amended by Finance Act applicable for May 2027; ICAI CA Intermediate Study Material (May 2027 Examination).
Questions
25
Marks
50
Time limit
60 minutes
Attempt
May 2027
Group
Group 1
Law basis
Income-tax Act, 2025 (as incorporated in ICAI Study Material for May 2027); Income-tax Act, 1961 as amended by Finance Act applicable for May 2027; ICAI CA Intermediate Study Material (May 2027 Examination)
Content as of
2026-10-31
Chapters covered
Taxation - DT Ch 09: Deductions (25 Q)
Questions, answers and explanations
Question 1 · 2 marks · Taxation - DT Ch 09: Deductions · medium
Scenario. Smt. Anuradha Sen, a resident individual aged 46 years, is employed as a finance director at Vikramaditya Tech Labs Pvt. Ltd. She exercises the option to shift out of the default tax regime for Tax Year 2026-27. Her gross total income before deductions under Chapter VIII is ₹9,80,000. This includes short-term capital gains of ₹40,000 taxable under section 111A and long-term capital gains of ₹60,000 taxable under section 112A. It also includes ₹20,000 of income on which income-tax is not payable. She has already claimed eligible deductions of ₹1,20,000 under other provisions of Chapter VIII, excluding section 80G.
During the year, Anuradha made the following donations. She contributed ₹15,000 through NEFT to the Prime Minister's National Relief Fund and ₹10,000 through a banking application to PM CARES Fund. She paid ₹20,000 by cheque to the Prime Minister's Drought Relief Fund. She also donated ₹60,000 through NEFT to an approved institution working for the promotion of family planning and ₹70,000 by account-payee cheque to a registered charitable institution approved for section 80G. Both institutions provided the prescribed donation particulars. In addition, she handed over ₹2,500 in cash to another eligible charitable institution.
Anuradha wishes to compute her deduction under section 80G. She seeks clarification on the distinction between donations with and without a qualifying limit, whether donations falling under different categories have to be adjusted in a prescribed order, and how the amount of adjusted total income is arrived at. She also wants to know whether her cash contribution can be included merely because the recipient institution is eligible. Assume all the stated donations are otherwise genuine qualifying donations and no amount has been claimed twice.
Considering Anuradha's donations to the Prime Minister's National Relief Fund, PM CARES Fund and Prime Minister's Drought Relief Fund, determine the aggregate deduction allowable under section 80G. Apply the deduction percentages and qualifying-limit treatment prescribed for these respective funds in the attached ICAI study material.
₹25,000
₹35,000 (correct answer)
₹20,000
₹45,000
Answer: B — ₹35,000
Explanation. The Prime Minister's National Relief Fund and PM CARES Fund fall under Category I in the attached chapter, so their entire donations qualify without a qualifying limit: ₹15,000 + ₹10,000 = ₹25,000. The Prime Minister's Drought Relief Fund falls under Category III, for which half the donation qualifies without a qualifying limit: ₹20,000 × 50% = ₹10,000. Aggregate deduction = ₹25,000 + ₹10,000 = ₹35,000. These amounts are not restricted by the 10% adjusted total income limit.
Where it goes wrong. Treating PM CARES Fund as a half-rate donation subject to a qualifying limit instead of following its Category I classification in the attached chapter.
Question 2 · 2 marks · Taxation - DT Ch 09: Deductions · hard
Compute Anuradha's adjusted total income for determining the qualifying limit under section 80G. Her gross total income is ₹9,80,000, including short-term capital gains of ₹40,000, long-term capital gains of ₹60,000 and income not liable to income-tax of ₹20,000. She has also claimed other Chapter VIII deductions of ₹1,20,000, excluding the deduction under section 80G.
₹8,00,000
₹7,80,000
₹7,40,000 (correct answer)
₹6,80,000
Answer: C — ₹7,40,000
Explanation. Adjusted total income is gross total income reduced by Chapter VIII deductions other than section 80G deductions, short-term capital gains taxable under section 111A, long-term capital gains taxable under sections 112 and 112A, and income not liable to income-tax. Calculation: ₹9,80,000 − ₹1,20,000 − ₹40,000 − ₹60,000 − ₹20,000 = ₹7,40,000. The qualifying limit is 10% × ₹7,40,000 = ₹74,000. This limit is subsequently applied to Category II and IV donations.
Where it goes wrong. Leaving capital gains or non-taxable income in adjusted total income, or reducing gross total income by the section 80G donation itself.
Question 3 · 2 marks · Taxation - DT Ch 09: Deductions · hard
Determine Anuradha's total deduction under section 80G for all qualifying donations. The donations without a qualifying limit comprise ₹35,000 in aggregate after applying the relevant percentages. The donations subject to the qualifying limit comprise ₹60,000 to an approved family planning institution and ₹70,000 to an eligible charitable institution. Her adjusted total income is ₹7,40,000. Ignore the cash donation exceeding ₹2,000.
₹1,02,000 (correct answer)
₹1,09,000
₹95,000
₹1,15,000
Answer: A — ₹1,02,000
Explanation. Adjusted total income is ₹7,40,000; 10% qualifying limit = ₹74,000. Category II donation for family planning is ₹60,000 and is adjusted first against this limit. Balance qualifying donation capacity = ₹74,000 − ₹60,000 = ₹14,000. The Category IV charitable donation therefore gives a deduction of ₹14,000 × 50% = ₹7,000. Donations without limits provide ₹35,000. Total deduction = ₹35,000 + ₹60,000 + ₹7,000 = ₹1,02,000.
Where it goes wrong. Applying the 50% deduction to the entire ₹70,000 charitable donation without first adjusting the Category II donation against the qualifying limit.
Question 4 · 2 marks · Taxation - DT Ch 09: Deductions · medium
Anuradha made a cash donation of ₹2,500 to an otherwise eligible charitable institution. She also made an electronic donation of ₹60,000 to an approved institution for promotion of family planning. Both institutions satisfy the applicable approval conditions. What amount qualifies from these two donations for deduction under section 80G before applying the qualifying limit?
₹2,500
₹1,250
₹60,000
₹62,500 (correct answer)
Answer: D — ₹62,500
Explanation. A cash donation exceeding ₹2,000 is ineligible under section 80G. Therefore, the ₹2,500 cash donation gives no deduction. The electronic payment of ₹60,000 to an approved family planning institution qualifies for the full amount, subject to the aggregate qualifying limit. Before applying that limit, eligible donation = ₹60,000 + nil = ₹60,000. The qualifying-limit calculation is separate and does not convert the cash donation into an eligible payment.
Where it goes wrong. Allowing the cash donation because the recipient is eligible, without considering the statutory payment-mode restriction.
Question 5 · 2 marks · Taxation - DT Ch 09: Deductions · hard
Scenario. Aryan Steels Ltd., an Indian company carrying on manufacturing activities, has chosen the normal corporate tax provisions for Tax Year 2026-27 and has not exercised an option under the special provisions of sections 115BAA or 115BAB. During the year, it contributed ₹4,50,000 through NEFT to a political party registered under section 29A of the Representation of the People Act, 1951. It also transferred ₹1,50,000 through an account-payee cheque to an electoral trust. Both payments were made from the company's bank account.
In addition, the company paid ₹75,000 in cash to the same political party. Its marketing department incurred ₹80,000 on an advertisement published in a brochure issued by a registered political party. The advertisement was placed to support the political party's public campaign. The payment to the publisher was made by bank transfer. The company recorded the advertisement expenditure as a business expense while preparing its accounts. Its tax team is examining the separate deduction available for political contributions.
During the same tax year, Mr. Arjun Mehta, a resident individual who has opted out of the default tax regime, made a contribution of ₹45,000 through UPI to another political party registered under section 29A. He also transferred ₹12,000 through NEFT to an electoral trust and contributed ₹3,000 in cash to the political party. All payments relate to the financial year ended 31 March 2027.
The finance department of Aryan Steels Ltd. and Arjun independently seek advice on the eligibility of contributions to political parties and electoral trusts, the effect of payment mode, the treatment of political-party brochure advertisements and the distinction between deductions available to companies and individuals.
Compute Aryan Steels Ltd.'s deduction under section 80GGB for its political contributions. It paid ₹4,50,000 electronically to a registered political party, ₹1,50,000 by crossed cheque to an electoral trust, ₹75,000 in cash to the political party and ₹80,000 through bank transfer for an advertisement in a political-party brochure. The company has chosen normal corporate tax provisions.
₹6,00,000
₹6,05,000
₹6,80,000 (correct answer)
₹7,55,000
Answer: C — ₹6,80,000
Explanation. The eligible political contributions are ₹4,50,000 to the registered political party and ₹1,50,000 to the electoral trust. The ₹80,000 expenditure on the political-party brochure is also treated as a political contribution under section 182 of the Companies Act, 2013. The cash contribution of ₹75,000 is excluded. Therefore, deduction = ₹4,50,000 + ₹1,50,000 + ₹80,000 = ₹6,80,000. The company satisfies the normal-tax-regime condition.
Where it goes wrong. Excluding political brochure expenditure or including the cash contribution in the deductible amount.
Question 6 · 2 marks · Taxation - DT Ch 09: Deductions · medium
The finance controller of Aryan Steels Ltd. argues that the company's ₹80,000 expenditure on a political-party brochure cannot qualify under section 80GGB because it was incurred as advertising expenditure rather than as a direct payment to the political party. The advertisement was published in a brochure by or on behalf of a political party, and payment was made through banking channels. Which treatment is correct?
No deduction, because advertisement is not a contribution
₹80,000 qualifies as a deemed political contribution (correct answer)
₹40,000 qualifies as a partial political contribution
No deduction, because only electoral trusts qualify
Answer: B — ₹80,000 qualifies as a deemed political contribution
Explanation. The meaning of contribution under section 182 of the Companies Act, 2013 includes expenditure incurred directly or indirectly on advertisements in publications such as brochures, souvenirs and pamphlets by or on behalf of a political party or for its advantage. The payment of ₹80,000 was made through banking channels. Hence, the full ₹80,000 qualifies under section 80GGB, subject to the company's normal-regime eligibility.
Where it goes wrong. Restricting political contributions to direct transfers or cheque donations and overlooking the statutory inclusion of brochure advertisements.
Question 7 · 2 marks · Taxation - DT Ch 09: Deductions · hard
Arjun Mehta, a resident individual taxed under the optional regime, contributed ₹45,000 through UPI to a political party registered under section 29A of the Representation of the People Act, 1951. He also paid ₹12,000 through NEFT to an electoral trust and ₹3,000 in cash to the political party. Determine his eligible deduction under section 80GGC for the tax year.
₹45,000
₹48,000
₹60,000
₹57,000 (correct answer)
Answer: D — ₹57,000
Explanation. Section 80GGC permits an eligible individual to deduct contributions made by non-cash modes to a political party registered under section 29A or an electoral trust. The UPI contribution of ₹45,000 and NEFT contribution of ₹12,000 qualify. The ₹3,000 cash payment is not deductible. Total eligible deduction = ₹45,000 + ₹12,000 = ₹57,000. The assessee has opted out of the default tax regime, satisfying the regime condition.
Where it goes wrong. Excluding an electoral trust contribution or treating a cash contribution as eligible because the recipient is a registered political party.
Question 8 · 2 marks · Taxation - DT Ch 09: Deductions · medium
A municipal corporation makes a contribution of ₹1,00,000 through NEFT to an electoral trust during Tax Year 2026-27. The trust is otherwise eligible under the political-contribution provisions. The corporation claims that section 80GGC uses the expression 'any person' and therefore allows its deduction. Which conclusion is correct under the statutory exclusions?
Nil, because a local authority is excluded (correct answer)
₹1,00,000, because payment is non-cash
₹50,000, because only half the payment qualifies
₹75,000, subject to an income-based limit
Answer: A — Nil, because a local authority is excluded
Explanation. Section 80GGC excludes local authorities and artificial juridical persons wholly or partly funded by the Government from its eligible assessee category. A municipal corporation is a local authority. Although the payment of ₹1,00,000 was made through NEFT to an electoral trust, the assessee itself is specifically excluded. Consequently, its allowable deduction is nil. The non-cash payment condition cannot override the exclusion of the donor.
Where it goes wrong. Interpreting 'any person' without reading the specific exclusions governing the eligible donor.
Question 9 · 2 marks · Taxation - DT Ch 09: Deductions · hard
Scenario. Mr. Dinesh Chaturvedi, a resident individual aged 64 years, retired from employment in June 2026. He has exercised the option to shift out of the default tax regime for Tax Year 2026-27. During the year, he earned interest of ₹18,000 on savings deposits maintained directly with a scheduled commercial bank. He also earned ₹29,000 as interest on fixed deposits with the same bank, ₹8,000 on a term deposit with a co-operative bank engaged in banking business and ₹12,000 on a five-year Post Office time deposit. All these deposits are held directly in his own name.
His spouse, Mrs. Rupa Chaturvedi, aged 57 years, has independent sources of income. During the year, she earned ₹8,000 interest on a savings account with a scheduled bank and ₹4,500 on a Post Office savings account. She also received ₹19,000 interest on a bank fixed deposit. She has separately exercised the option to shift out of the default tax regime. Both spouses have included all their interest receipts in their respective gross total income computations.
Dinesh is also a partner in Arora Consultants, a partnership firm. The firm earned ₹36,000 as interest on a fixed deposit maintained in the firm's own name. Dinesh's share of the firm's profits includes the relevant amount attributable to this interest. He proposes to include that amount in his personal claim under section 80TTB, since he is himself a senior citizen. Both spouses have maintained their bank and post-office interest statements. They want to understand the difference between deductions for savings deposits and deductions available to senior citizens for different forms of deposits, the applicable limits and whether interest earned through a firm's bank account can be claimed by an individual partner.
Determine Dinesh's deduction under section 80TTB for interest received from his directly held deposits. He received ₹18,000 savings interest, ₹29,000 bank fixed deposit interest, ₹8,000 interest from a co-operative bank term deposit and ₹12,000 from a Post Office time deposit. He is a resident senior citizen and has opted for the optional tax regime.
₹18,000
₹29,000
₹47,000
₹50,000 (correct answer)
Answer: D — ₹50,000
Explanation. Section 80TTB allows a resident senior citizen deduction for interest on deposits with banks, co-operative banks engaged in banking and post offices, including time deposits. Dinesh's eligible interest = ₹18,000 + ₹29,000 + ₹8,000 + ₹12,000 = ₹67,000. The statutory maximum is ₹50,000. Hence deduction = lower of ₹67,000 and ₹50,000 = ₹50,000. The savings-account-only restriction under section 80TTA does not apply to him.
Where it goes wrong. Restricting a senior citizen's deduction to savings-account interest or applying separate limits for each deposit institution.
Question 10 · 2 marks · Taxation - DT Ch 09: Deductions · medium
Rupa, aged 57 years, earns ₹8,000 as bank savings interest, ₹4,500 as Post Office savings interest and ₹19,000 as bank fixed deposit interest during Tax Year 2026-27. She exercises the option to shift out of the default tax regime. Determine the deduction available under section 80TTA, assuming that the deposits are held directly in her own name.
₹8,000
₹10,000 (correct answer)
₹12,500
₹31,500
Answer: B — ₹10,000
Explanation. Rupa is below 60 years and is therefore eligible under section 80TTA rather than section 80TTB. Interest from savings accounts with a scheduled bank and post office qualifies: ₹8,000 + ₹4,500 = ₹12,500. Interest on the fixed deposit is excluded because section 80TTA covers savings deposits and not time deposits. The maximum deduction is ₹10,000. Therefore, the allowable deduction is ₹10,000.
Where it goes wrong. Including fixed deposit interest or assuming that all savings interest qualifies without applying the ₹10,000 ceiling.
Question 11 · 2 marks · Taxation - DT Ch 09: Deductions · hard
Dinesh's share of the interest income earned by Arora Consultants on a fixed deposit maintained in the firm's own name is ₹9,000. He proposes to claim this amount under section 80TTB, in addition to the interest on his personal deposits. The partnership firm has included the interest in its income computations, and Dinesh is a resident senior citizen. What is the treatment of the ₹9,000?
Nil, because the deposit belongs to the firm (correct answer)
₹9,000, because Dinesh is a senior citizen
₹4,500, because half the interest qualifies
₹9,000, subject to the ₹10,000 savings limit
Answer: A — Nil, because the deposit belongs to the firm
Explanation. The deduction under section 153 is restricted to interest arising from deposits made directly by the individual or HUF. Where interest is derived from a deposit in a bank account held by or on behalf of a firm, an AOP or BOI, deduction is not available in computing the total income of its partners or members. The ₹9,000 arises from a deposit held by Arora Consultants. Thus, no deduction is available to Dinesh for this amount.
Where it goes wrong. Treating the partner's share of firm interest as personal bank-deposit interest merely because it forms part of the partner's taxable income.
Question 12 · 2 marks · Taxation - DT Ch 09: Deductions · medium
Assume that Dinesh instead chooses the default tax regime under section 115BAC for Tax Year 2026-27. His directly held deposits continue to earn interest of ₹67,000, comprising savings interest, bank fixed deposit interest, co-operative bank deposit interest and Post Office time deposit interest. Which amount can he deduct under the interest deduction provisions considered in this test?
₹10,000
₹25,000
Nil (correct answer)
₹50,000
Answer: C — Nil
Explanation. The deductions under sections 80TTA and 80TTB are available only under the optional tax regime in the chapter. Dinesh has chosen the default regime under section 115BAC. Consequently, despite earning ₹67,000 of eligible deposit interest and being a senior citizen, he cannot claim either deduction. Allowable deduction under these provisions = nil. The character of the interest income does not override the regime-based restriction.
Where it goes wrong. Applying the senior citizen ₹50,000 ceiling without first checking whether the assessee has shifted out of the default tax regime.
Question 13 · 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. Vikram, an individual under the optional tax regime, contributes ₹28,000 through a bank transfer to the Prime Minister's National Relief Fund and ₹16,000 through NEFT to PM CARES Fund during Tax Year 2026-27. Both donations are eligible under the attached ICAI chapter and there are no other section 80G claims. Determine his deduction in respect of these two contributions, before considering other Chapter VIII deductions.
₹22,000
₹28,000
₹36,000
₹44,000 (correct answer)
Answer: D — ₹44,000
Explanation. Both the Prime Minister's National Relief Fund and PM CARES Fund appear in Category I of the attached chapter. The entire qualifying donation to each fund is deductible without application of the 10% qualifying limit. Calculation: ₹28,000 + ₹16,000 = ₹44,000. Therefore, total deduction is ₹44,000, provided the donations satisfy the relevant documentation and payment conditions.
Where it goes wrong. Applying a half-rate deduction or a qualifying limit to PM CARES Fund despite its Category I classification in the study material.
Question 14 · 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.
Smt. Nandini has gross total income of ₹14,00,000. It includes short-term capital gains taxable under section 111A of ₹1,00,000, long-term capital gains of ₹2,00,000 and income on which tax is not payable of ₹50,000. She has already claimed other Chapter VIII deductions of ₹3,00,000, excluding section 80G. She donated ₹50,000 to an approved family planning institution and ₹80,000 to a qualifying registered charitable institution. She also donated ₹20,000 to PM CARES Fund. Compute her total deduction under section 80G.
₹75,000
₹67,500
₹79,500 (correct answer)
₹90,000
Answer: C — ₹79,500
Explanation. Adjusted total income = ₹14,00,000 − ₹3,00,000 − ₹1,00,000 − ₹2,00,000 − ₹50,000 = ₹7,50,000. Qualifying limit = 10% = ₹75,000. Family planning donation of ₹50,000 is adjusted first. Balance limit = ₹25,000; eligible charitable donation deduction = ₹25,000 × 50% = ₹12,500. PM CARES deduction = ₹20,000 without limit. Total = ₹50,000 + ₹12,500 + ₹20,000 = ₹82,500.
Where it goes wrong. Confusing the maximum qualifying donation amount with the resulting deduction or omitting the unrestricted PM CARES donation.
Question 15 · 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. Rohan made two donations during Tax Year 2026-27. He paid ₹2,000 in cash to a qualifying registered charitable institution entitled to a half-rate deduction subject to the qualifying limit. He paid another ₹2,001 in cash to the Prime Minister's National Relief Fund. Assume that sufficient qualifying-limit capacity is available for the first donation and that both recipients satisfy the eligibility requirements. What aggregate deduction can Rohan claim under section 80G in respect of these payments?
₹1,000 (correct answer)
₹2,000
₹2,001
Nil
Answer: A — ₹1,000
Explanation. A donation exceeding ₹2,000 paid in cash is not eligible for section 80G deduction. Therefore, the ₹2,001 cash payment to the Prime Minister's National Relief Fund gives nil deduction. The ₹2,000 cash donation does not exceed the threshold and qualifies for half-rate deduction. Calculation = ₹2,000 × 50% = ₹1,000. Aggregate deduction = ₹1,000 + nil = ₹1,000.
Where it goes wrong. Reading the cash restriction as applying to every cash donation, instead of applying it to donations exceeding ₹2,000.
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. Dev contributes ₹20,000 through account-payee cheque to an eligible registered charitable institution and separately supplies food materials worth ₹15,000 to the same institution during Tax Year 2026-27. The institution satisfies the statutory approval requirements for a deduction at the half rate subject to the qualifying limit. Assume sufficient qualifying-limit capacity is available. Determine his section 80G deduction.
₹17,500
₹10,000 (correct answer)
₹20,000
₹27,500
Answer: B — ₹10,000
Explanation. Section 80G allows deduction for a qualifying donation made as a sum of money. The cheque payment of ₹20,000 qualifies, subject to the half-rate provision and qualifying limit. Deduction = ₹20,000 × 50% = ₹10,000. The food materials worth ₹15,000 constitute an in-kind contribution and are not a qualifying monetary donation. Thus total deduction = ₹10,000.
Where it goes wrong. Including the value of goods supplied to the institution as a monetary donation for section 80G.
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.
Ms. Pooja, a resident individual, contributes ₹50,000 through NEFT to the Prime Minister's National Relief Fund during Tax Year 2026-27. She also makes a donation of ₹30,000 to an approved institution for charitable purposes. She has not exercised the option to shift out of the default tax regime under section 115BAC. Both payments satisfy the ordinary donation requirements. What is the amount deductible under section 80G?
₹50,000
₹15,000
Nil (correct answer)
₹65,000
Answer: C — Nil
Explanation. Section 80G deductions for an individual are available only when the individual exercises the option to shift out of the default tax regime. Pooja has not exercised this option and is taxed under section 115BAC. Although her donations are otherwise eligible, the regime condition is not fulfilled. Therefore, the deduction under section 80G is nil for both donations. The donation percentages and qualifying limits become relevant only after satisfying the regime condition.
Where it goes wrong. Calculating the deduction percentages without first checking whether the assessee is eligible to claim Chapter VI-A deductions under the selected tax regime.
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.
Nandini Real Estates Pvt. Ltd. is an Indian company that has elected to be taxed under the special corporate provisions of section 115BAA. During Tax Year 2026-27, it transfers ₹2,00,000 through banking channels to a political party registered under section 29A of the Representation of the People Act, 1951. The company contends that its payment is non-cash and the recipient is a registered political party. Determine the deduction available under section 80GGB.
₹2,00,000
₹1,50,000
₹1,00,000
Nil (correct answer)
Answer: D — Nil
Explanation. The attached ICAI chapter provides that deduction under section 136, corresponding to section 80GGB, is available to an Indian company only where it does not opt for the specified special corporate provisions under sections 200/201. Nandini Real Estates has opted for section 115BAA. Accordingly, it fails the applicable regime condition. The non-cash nature of the ₹2,00,000 payment and the recipient's registration do not override this restriction. Allowable deduction = nil.
Where it goes wrong. Assuming that the non-cash payment condition alone establishes eligibility, without considering the company's chosen corporate tax regime.
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. Sameer exercises the optional tax regime and contributes ₹65,000 through NEFT to a political party registered under section 29A. He also pays ₹25,000 in cash to the same party and contributes ₹15,000 electronically to an unregistered political association that is not an electoral trust. All contributions are made during Tax Year 2026-27. Determine the deduction available under section 80GGC.
₹65,000 (correct answer)
₹80,000
₹90,000
₹1,05,000
Answer: A — ₹65,000
Explanation. Section 80GGC permits deduction for non-cash contributions to a political party registered under section 29A or an eligible electoral trust. Sameer's ₹65,000 NEFT payment to the registered political party qualifies. The ₹25,000 cash payment is excluded because cash contributions are not eligible. The ₹15,000 contribution to an unregistered political association is also outside the specified recipient category. Therefore, allowable deduction = ₹65,000.
Where it goes wrong. Including contributions to unregistered associations or cash payments merely because they are made for political purposes.
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 statutory artificial juridical person, which is partly funded by the Government, contributes ₹5,00,000 electronically to a political party registered under section 29A. The amount is transferred during Tax Year 2026-27 and the recipient is otherwise eligible. The assessee claims deduction under section 80GGC because the transfer is non-cash. Which conclusion is correct?
₹5,00,000, because the payment is electronic
Nil, because the donor is an excluded artificial juridical person (correct answer)
₹2,50,000, because the deduction is at half rate
₹1,00,000, subject to a qualifying limit
Answer: B — Nil, because the donor is an excluded artificial juridical person
Explanation. Section 80GGC excludes an artificial juridical person wholly or partly funded by the Government. The donor in this case is partly Government-funded and therefore falls within the exclusion. Although the contribution of ₹5,00,000 was made electronically to an eligible political party, the donor condition is not met. Accordingly, deduction under section 80GGC is nil. The payment mode and recipient's eligibility cannot remove the donor-specific exclusion.
Where it goes wrong. Focusing only on the contribution mode and registered recipient while overlooking the exclusion applicable to Government-funded artificial juridical persons.
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. Karan, aged 52 years, has exercised the option to shift out of the default tax regime. During Tax Year 2026-27, he earns ₹7,200 savings interest from a scheduled bank, ₹3,400 from a co-operative bank savings account and ₹1,800 from a Post Office savings account. He also receives ₹20,000 as interest on a bank fixed deposit. All deposits are held directly in his own name. Determine the deduction available under section 80TTA.
₹7,200
₹8,400
₹10,000 (correct answer)
₹12,400
Answer: C — ₹10,000
Explanation. Section 80TTA permits deduction for savings interest with a banking company, a co-operative society engaged in banking or a post office. Eligible savings interest = ₹7,200 + ₹3,400 + ₹1,800 = ₹12,400. Fixed deposit interest of ₹20,000 is excluded because the assessee is not a senior citizen. The maximum deduction under section 80TTA is ₹10,000. Hence allowable deduction = lower of ₹12,400 and ₹10,000 = ₹10,000.
Where it goes wrong. Including fixed deposit interest under section 80TTA or restricting the calculation to interest from only scheduled commercial banks.
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.
Smt. Leela, aged 66 years, is a resident senior citizen who has shifted out of the default tax regime. Her interest income for Tax Year 2026-27 comprises ₹16,000 from bank savings accounts, ₹27,000 from bank fixed deposits, ₹12,000 from a co-operative bank term deposit and ₹4,000 from a Post Office savings account. All accounts are held directly in her name. Calculate her eligible deduction under section 80TTB.
₹50,000 (correct answer)
₹31,000
₹43,000
₹59,000
Answer: A — ₹50,000
Explanation. A senior citizen may claim deduction for interest on all eligible deposits, including savings and time deposits, with banking companies, co-operative banks engaged in banking and post offices. Eligible interest = ₹16,000 + ₹27,000 + ₹12,000 + ₹4,000 = ₹59,000. Section 80TTB restricts the deduction to ₹50,000. Therefore, deduction allowable = ₹50,000. There is no separate ₹10,000 cap for savings interest when the senior citizen provision applies.
Where it goes wrong. Applying the ₹10,000 savings-account ceiling to a senior citizen or restricting eligible interest to one deposit category.
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.
A Hindu Undivided Family earns ₹4,500 interest from its savings account with a scheduled bank, ₹2,000 interest from a Post Office savings account and ₹15,000 interest from a bank fixed deposit during Tax Year 2026-27. The Karta is aged 67 years, but the deposits belong to the HUF. The HUF exercises the option to shift out of the default regime. Compute the deduction available to the HUF under the interest deduction provisions.
₹10,000
₹21,500
₹50,000
₹6,500 (correct answer)
Answer: D — ₹6,500
Explanation. Section 80TTA permits an HUF to claim deduction for interest on savings deposits, subject to ₹10,000. Eligible interest = ₹4,500 + ₹2,000 = ₹6,500. Fixed deposit interest of ₹15,000 is excluded because section 80TTA does not cover time deposits. Section 80TTB is restricted to a senior citizen individual, not an HUF. The Karta's age does not convert the HUF into a senior citizen assessee. Allowable deduction = ₹6,500.
Where it goes wrong. Applying the Karta's senior citizen status to the HUF and claiming the enhanced section 80TTB deduction.
Question 24 · 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. Rajesh, aged 63 years, is a partner in a partnership firm. The firm holds a fixed deposit in its own name with a banking company and earns ₹42,000 interest during Tax Year 2026-27. Rajesh's share of the firm's taxable profits includes his proportionate share of the interest income. He has no other personal deposit interest. He has opted for the optional tax regime. What deduction can he claim under section 80TTB for his share of the firm's interest?
₹42,000
Nil (correct answer)
₹21,000
₹10,000
Answer: B — Nil
Explanation. Section 153 specifically disallows interest deduction to a partner or member where the interest is derived from a bank account held by or on behalf of a firm, AOP or BOI. The fixed deposit belongs to the partnership firm, and Rajesh receives only his share of the firm's profits. Consequently, the interest does not qualify as his directly held deposit interest for section 80TTB. Deduction allowable = nil, despite his senior citizen status.
Where it goes wrong. Treating a partner's share of interest earned by the firm as interest from a personal fixed deposit.
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. Pradeep, aged 68 years, has opted for the optional tax regime. During Tax Year 2026-27, he earns ₹25,000 interest from a bank fixed deposit, ₹18,000 from a Post Office time deposit, ₹12,000 from a deposit maintained with an NBFC and ₹5,000 from a scheduled bank savings account. All deposits are in his individual name. Determine his eligible deduction under section 80TTB, considering the institutions covered and the applicable monetary limit.
₹48,000 (correct answer)
₹50,000
₹60,000
₹43,000
Answer: A — ₹48,000
Explanation. Section 80TTB covers interest on deposits with banking companies, co-operative societies engaged in banking and post offices. Eligible interest = ₹25,000 bank fixed deposit + ₹18,000 Post Office time deposit + ₹5,000 savings deposit = ₹48,000. Interest of ₹12,000 from the NBFC is excluded because the institution does not fall within the specified categories. The eligible amount is below the ₹50,000 ceiling. Therefore, deduction allowable = ₹48,000.
Where it goes wrong. Including deposits with an NBFC merely because senior citizens receive the enhanced deduction for various types of deposits.
