CA Inter Taxation - Income-tax Law MCQ Test 11: answer key

Question 1 · 2 marks · Salaries · hard

Scenario. Mr. Kunal Bansal, aged 47, is a resident individual working as finance manager with Sunrise Infotech Pvt. Ltd., Pune. For the year ended 31 March 2026, he received basic salary of Rs. 62,000 per month and dearness allowance of Rs. 18,000 per month; the entire dearness allowance is treated as part of salary for retirement benefits. He also received a fixed commission at one per cent of turnover, and turnover was Rs. 24,00,000. House rent allowance was Rs. 25,000 per month, and he paid rent of Rs. 28,000 per month for his Pune residence. His employer contributed twelve per cent of basic salary to a recognised provident fund; no amount crossed the threshold for a taxable perquisite. He received a Diwali gift voucher of Rs. 4,500. He owns a self-occupied flat in Pune with municipal value Rs. 4,80,000, fair rent Rs. 5,20,000 and standard rent Rs. 5,00,000; municipal taxes paid were Rs. 9,600 and housing loan interest was Rs. 2,35,000. He also owns a let-out house in Nashik with municipal value Rs. 3,60,000, fair rent Rs. 4,00,000 and standard rent Rs. 3,90,000. Rent was Rs. 35,000 per month; the house remained vacant for one month; municipal taxes paid were Rs. 12,000 and loan interest was Rs. 45,000. He exercises the option to shift out of the default regime. Ignore Chapter VI-A deductions.

What is the taxable house rent allowance of Mr. Bansal for AY 2026-27 under the optional regime?

1. Rs. 1,00,800, because forty per cent of salary exceeds the rent paid less ten per cent of salary.
2. Rs. 62,400, because the exempt amount is rent paid less ten per cent of salary, being the least limit. (correct answer)
3. Rs. 60,000, because the annual value of two self-occupied properties can be taken as Nil, and interest is deductible up to Rs. 30,000 for each house.
4. Rs. 3,00,000, because house rent allowance is fully taxable under the optional regime.

Answer: B — Rs. 62,400, because the exempt amount is rent paid less ten per cent of salary, being the least limit.

Working. Basic 62,000 x 12 = 7,44,000; DA 18,000 x 12 = 2,16,000; commission 1 per cent of 24,00,000 = 24,000; salary for HRA = 9,84,000. HRA received = 25,000 x 12 = 3,00,000. Rent paid = 28,000 x 12 = 3,36,000. Rent less ten per cent of salary = 3,36,000 - 98,400 = 2,37,600. Forty per cent of salary = 3,93,600. Least = 2,37,600. Taxable HRA = 3,00,000 - 2,37,600 = 62,400.

Explanation. The exempt HRA is the least of actual HRA Rs. 3,00,000, rent paid less ten per cent of salary Rs. 2,37,600, and forty per cent of salary Rs. 3,93,600. Thus Rs. 2,37,600 is exempt and Rs. 62,400 is taxable. Option c mistakes the exempt figure for the taxable figure.

Where it goes wrong. Using the exempt amount as taxable HRA.

Authority. Section 10(13A)

Question 2 · 2 marks · Income from House Property · medium

What is Mr. Bansal's income from the let-out Nashik house for AY 2026-27 under the optional regime?

1. Rs. 2,25,000, because expected rent is taken as gross annual value despite vacancy.
2. Rs. 2,16,100, because vacancy reduces gross annual value to eleven months' rent and municipal taxes are ignored.
3. Rs. 2,52,000, because actual rent for twelve months is gross annual value.
4. Rs. 2,16,100, because gross annual value is eleven months' rent, municipal taxes are deducted and interest is allowed. (correct answer)

Answer: D — Rs. 2,16,100, because gross annual value is eleven months' rent, municipal taxes are deducted and interest is allowed.

Working. Expected rent = higher of 3,60,000 and 4,00,000, restricted to 3,90,000 = 3,90,000. Actual rent = 35,000 x 11 = 3,85,000. GAV = 3,85,000. NAV = 3,85,000 - 12,000 = 3,73,000. Deduction 30 per cent = 1,11,900; interest = 45,000. Income = 3,73,000 - 1,11,900 - 45,000 = 2,16,100.

Explanation. Expected rent is Rs. 3,90,000. Actual rent for eleven months is Rs. 3,85,000. Since vacancy made actual rent lower than expected rent and full-year rent would have been higher, gross annual value is Rs. 3,85,000. After municipal taxes and deductions, income is Rs. 2,16,100. Option b reaches the figure but ignores municipal taxes.

Where it goes wrong. Ignoring municipal taxes while reaching the same income figure.

Authority. Section 23(1)(c); Section 24

Question 3 · 2 marks · Salaries · hard

What is Mr. Bansal's income under the head Salaries for AY 2026-27 under the optional regime?

1. Rs. 9,96,400, after including taxable HRA and deducting standard deduction of Rs. 50,000. (correct answer)
2. Rs. 10,46,400, after including taxable HRA without standard deduction.
3. Rs. 9,72,400, after deducting standard deduction of Rs. 50,000 and professional tax of Rs. 24,000.
4. Rs. 8,96,400, after excluding commission and deducting standard deduction.

Answer: A — Rs. 9,96,400, after including taxable HRA and deducting standard deduction of Rs. 50,000.

Working. Basic 7,44,000 + DA 2,16,000 + commission 24,000 + taxable HRA 62,400 = 10,46,400. Less standard deduction 50,000 = 9,96,400.

Explanation. Gross salary includes basic, DA, commission and taxable HRA, totaling Rs. 10,46,400. Under the optional regime, standard deduction of Rs. 50,000 is allowed, giving Rs. 9,96,400. No professional tax deduction arises because no such payment is given. Option b omits standard deduction.

Where it goes wrong. Forgetting standard deduction or deducting unclaimed professional tax.

Authority. Section 16(ia); Section 10(13A)

Question 4 · 2 marks · Profits and Gains of Business or Profession · hard

Scenario. Mr. Devansh Arora is a proprietor manufacturing auto components in Faridabad and pays tax under the default regime under section 115BAC. His net profit as per the statement of profit and loss for the year ended 31 March 2026 is Rs. 18,50,000 after debiting or crediting the following. Depreciation as per books is Rs. 2,10,000, while depreciation allowable under the Act is Rs. 3,40,000 and includes no element of additional depreciation. Interest of Rs. 85,000 on a term loan from a scheduled bank was debited; Rs. 35,000 was paid before the due date under section 139(1) and the balance after that date. Cash payment of Rs. 42,000 was made in a single day to a transport operator for plying goods carriages. A payment of Rs. 1,20,000 to a resident contractor was debited without deduction of tax at source, and the contractor has not paid tax on it. Municipal tax of Rs. 9,000 on his self-occupied house was debited. Salary of Rs. 80,000 to his brother was debited, of which Rs. 8,000 is excessive compared with market value. An income-tax refund of Rs. 12,000 and interest on that refund of Rs. 3,000 were credited. Agricultural income of Rs. 25,000 was credited. All other receipts and expenses are business related.

What amount is disallowed under section 43B for AY 2026-27?

1. Rs. 85,000, because the whole interest remains unpaid on the last day of the year.
2. Rs. 35,000, because that is the amount paid before the due date under section 139(1).
3. Rs. 50,000, because only interest unpaid by the due date under section 139(1) is disallowed. (correct answer)
4. Rs. 0, because interest payable to a scheduled bank is outside section 43B.

Answer: C — Rs. 50,000, because only interest unpaid by the due date under section 139(1) is disallowed.

Working. Interest debited 85,000. Paid before due date 35,000. Disallowance = 85,000 - 35,000 = 50,000.

Explanation. Interest to a scheduled bank is covered by section 43B. Deduction is allowed only if paid on or before the due date under section 139(1). Since Rs. 35,000 was paid by that date, the unpaid Rs. 50,000 is disallowed. Option a treats the whole interest as unpaid.

Where it goes wrong. Disallowing the amount paid instead of the unpaid balance.

Authority. Section 43B

Question 5 · 2 marks · Profits and Gains of Business or Profession · medium

What is the aggregate disallowance under sections 40A(3) and 40(a)(ia)?

1. Rs. 36,000, because cash payment to a transporter is allowed up to Rs. 35,000 and the contractor payment alone is disallowed.
2. Rs. 78,000, because cash transport payment is fully disallowed and thirty per cent of contractor payment is disallowed. (correct answer)
3. Rs. 1,56,000, because both the transport payment and the contractor payment are fully disallowed.
4. Rs. 72,000, because only the excess cash over Rs. 35,000 is disallowed and the contractor payment is fully disallowed.

Answer: B — Rs. 78,000, because cash transport payment is fully disallowed and thirty per cent of contractor payment is disallowed.

Working. 40A(3): 42,000. 40(a)(ia): 30 per cent of 1,20,000 = 36,000. Aggregate = 42,000 + 36,000 = 78,000.

Explanation. Cash payment of Rs. 42,000 to a transport operator exceeds the Rs. 35,000 limit, so the entire Rs. 42,000 is disallowed. For the resident contractor payment, thirty per cent of Rs. 1,20,000, i.e. Rs. 36,000, is disallowed. The total is Rs. 78,000. Option a wrongly allows the transport payment.

Where it goes wrong. Disallowing only the cash excess over the transport limit.

Authority. Section 40A(3); Section 40(a)(ia)

Question 6 · 2 marks · Profits and Gains of Business or Profession · hard

What is Mr. Arora's business income for AY 2026-27 under the default regime?

1. Rs. 17,68,000, because tax depreciation replaces book depreciation and the refund is taxed as business income.
2. Rs. 18,07,000, because the excess salary to brother and municipal tax are allowed despite the limits.
3. Rs. 18,53,000, because the cash transport payment is allowed up to Rs. 35,000 only and interest on refund is business income.
4. Rs. 18,25,000, after all adjustments, including removal of agricultural income and interest on refund. (correct answer)

Answer: D — Rs. 18,25,000, after all adjustments, including removal of agricultural income and interest on refund.

Working. 18,50,000 + 2,10,000 book depreciation + 50,000 section 43B + 42,000 section 40A(3) + 36,000 section 40(a)(ia) + 9,000 municipal tax + 8,000 excess salary - 12,000 refund - 3,000 interest on refund - 25,000 agricultural income - 3,40,000 tax depreciation = 18,25,000.

Explanation. Book depreciation is added back and tax depreciation deducted. The unpaid interest, cash transport payment, thirty per cent contractor disallowance, municipal tax and excess salary are added back. Income-tax refund, interest on refund and agricultural income are removed. The resulting business income is Rs. 18,25,000. Option c treats a non-business receipt as business income.

Where it goes wrong. Retaining exempt or other-head receipts in business income.

Authority. Section 29; Section 43B

Question 7 · 2 marks · Deductions from Gross Total Income · medium

Scenario. Mrs. Meera, a resident individual aged 66 years, has gross total income including fixed deposit interest. During 2025-26 she paid, by cheque, mediclaim premium of Rs. 31,000 for her own health and Rs. 2,000 in cash for her preventive health check-up. She paid mediclaim premium of Rs. 48,000 by cheque for her mother, aged 82 years, who is not dependent on her. She also paid Rs. 30,000 by cheque as medical expenditure for her father, aged 85 years, who is not covered by any health insurance. She exercises the option to shift out of the default regime. What deduction is available under section 80D for AY 2026-27?

What amount can Mrs. Meera deduct under section 80D for AY 2026-27 under the optional regime?

1. Rs. 83,000, being Rs. 33,000 for self and Rs. 50,000 for parents. (correct answer)
2. Rs. 1,11,000, being Rs. 33,000 for self and Rs. 78,000 for parents.
3. Rs. 81,000, being Rs. 31,000 for self and Rs. 50,000 for parents.
4. Rs. 50,000, because the overall cap for all senior citizens is Rs. 50,000.

Answer: A — Rs. 83,000, being Rs. 33,000 for self and Rs. 50,000 for parents.

Working. Self: 31,000 + 2,000 = 33,000. Parents: 48,000 + 30,000 = 78,000, restricted to 50,000. Total = 33,000 + 50,000 = 83,000.

Explanation. For self, premium Rs. 31,000 plus preventive check-up Rs. 2,000 is within the Rs. 50,000 senior-citizen limit. For parents, premium Rs. 48,000 and medical expenditure Rs. 30,000 aggregate to Rs. 78,000 but the cap is Rs. 50,000. Total deduction is Rs. 83,000. Option b ignores the parents' cap.

Where it goes wrong. Allowing the parents' premium and medical expenditure without the combined cap.

Authority. Section 80D

Question 8 · 1 marks · Provisions for Filing Return of Income and Self Assessment · hard

Scenario. Mr. Nikhil, a resident individual aged 35 years, has salary income of Rs. 2,20,000 and bank interest of Rs. 18,000 for 2025-26. He pays tax under the optional regime. During the year he deposited Rs. 1,05,00,000 in one current account with a co-operative bank. He has no foreign asset or foreign signing authority. Is he required to furnish a return of income for AY 2026-27?

Is Mr. Nikhil required to furnish a return of income for AY 2026-27?

1. No, because his total income is below the basic exemption limit and current account deposits are irrelevant.
2. Yes, because every resident individual with a current account must file a return.
3. Yes, because deposits exceeding Rs. 1 crore in one or more current accounts are a specified trigger for compulsory filing. (correct answer)
4. No, because the deposit was with a co-operative bank and only deposits with a banking company count.

Answer: C — Yes, because deposits exceeding Rs. 1 crore in one or more current accounts are a specified trigger for compulsory filing.

Working. Total income = 2,20,000 + 18,000 = 2,38,000, below Rs. 2,50,000. But current account deposits = Rs. 1,05,00,000, exceeding Rs. 1 crore. The specified trigger applies, so filing is required.

Explanation. Even where income is below the basic exemption limit, a person who deposits more than Rs. 1 crore in one or more current accounts with a banking company or co-operative bank during the previous year must file a return. Option a ignores this statutory trigger.

Where it goes wrong. Thinking the exemption limit alone decides filing.

Authority. Section 139(1)