CA Inter Taxation - Income-tax Law MCQ Test 14: answer key

Question 1 · 2 marks · Deductions from Gross Total Income · medium

Scenario. Mr. Rohan Malhotra, aged 47, is a resident individual. For A.Y. 2026-27 he has salary and interest income aggregating Rs. 18,60,000 before any Chapter VI-A deduction. He has exercised the option of shifting out of the default tax regime under section 115BAC(1A). During P.Y. 2025-26 he paid Rs. 90,000 to PPF; Rs. 72,000 as premium on his own life policy issued on 1.4.2023 with sum assured Rs. 6,00,000; Rs. 35,000 as premium on his spouse's policy issued on 15.3.2012 with sum assured Rs. 2,00,000; and Rs. 1,40,000 as principal repayment of a housing loan. He paid tuition fees of Rs. 25,000 each for two children studying full time in a school in India. He paid Rs. 27,000 by cheque for health insurance of self, spouse and dependent children, and Rs. 48,000 by cheque for health insurance of his mother, aged 66, who is not dependent. His father, aged 69, had no health insurance; he spent Rs. 15,000 on his father's medical treatment and Rs. 6,000 in cash on preventive health check-up of self. He contributed Rs. 1,80,000 to NPS Tier-I. His employer, a private company, contributed Rs. 1,30,000 to the same NPS account. Salary for section 80CCD, being basic pay plus dearness allowance forming part of pay, is Rs. 12,00,000. He also gave Rs. 30,000 in cash to a charitable trust approved under section 80G.

What is the maximum deduction Mr. Rohan can claim under section 80C for A.Y. 2026-27?

1. Rs. 1,50,000, because the eligible payments exceed the statutory ceiling. (correct answer)
2. Rs. 2,10,000, because the entire life insurance premium and tuition fees qualify.
3. Rs. 1,50,000, because the eligible payments are first reduced by the NPS contribution.
4. Rs. 1,22,000, because only PPF and housing loan principal qualify.

Answer: A — Rs. 1,50,000, because the eligible payments exceed the statutory ceiling.

Working. PPF 90,000 + own premium restricted to 10 per cent of 6,00,000 = 60,000 + spouse premium 35,000 + principal 1,40,000 + tuition 50,000 = 3,75,000; ceiling 1,50,000.

Explanation. Section 80C allows a ceiling of Rs. 1,50,000. PPF, eligible life insurance premium, housing loan principal and tuition fees for two children are eligible. The own policy premium is restricted to ten per cent of sum assured, giving Rs. 60,000, and the spouse policy premium is within the twenty per cent limit. The aggregate exceeds the ceiling, so Rs. 1,50,000 is allowable. The NPS contribution does not reduce the section 80C ceiling.

Where it goes wrong. The option with Rs. 1,50,000 for the wrong NPS reason tempts those who mix section 80C and section 80CCD.

Authority. Section 80C; Section 80CCE

Question 2 · 2 marks · Deductions from Gross Total Income · hard

What is the deduction allowable to Mr. Rohan under section 80D for A.Y. 2026-27?

1. Rs. 3,80,000, because qualifying unrealised rent is deducted from the gross annual value before municipal taxes are subtracted under section 23(1) of the Act.
2. Rs. 90,000, because actual health payments are allowed without the senior-citizen cap.
3. Rs. 75,000, because the self-family limit is Rs. 25,000 and the parents' senior-citizen limit is Rs. 50,000. (correct answer)
4. Rs. 63,000, because only the mother's premium and father's treatment are considered.

Answer: C — Rs. 75,000, because the self-family limit is Rs. 25,000 and the parents' senior-citizen limit is Rs. 50,000.

Working. Self-family: premium 27,000 restricted to 25,000; preventive 6,000 within same limit, no extra. Parents: 48,000 + 15,000 = 63,000 restricted to 50,000. Total 25,000 + 50,000 = 75,000.

Explanation. For self, spouse and children the limit is Rs. 25,000; the premium itself is Rs. 27,000, so preventive check-up cannot enlarge it. For parents, both are senior citizens; mother's premium Rs. 48,000 and father's uninsured medical expenditure Rs. 15,000 are together capped at Rs. 50,000. Total is Rs. 75,000. The tempting Rs. 69,000 wrongly adds the preventive check-up to the self-family limit.

Where it goes wrong. Preventive check-up is within the overall limit, not an extra deduction.

Authority. Section 80D

Question 3 · 2 marks · Deductions from Gross Total Income · medium

What is the deduction allowable under section 80CCD(2) for the employer's contribution to Mr. Rohan's NPS account?

1. Rs. 1,30,000, because the entire employer contribution is included in salary.
2. Rs. 1,20,000, because the employer contribution is restricted to ten per cent of salary. (correct answer)
3. Rs. 1,68,000, because the employer contribution is restricted to fourteen per cent of salary.
4. Rs. 50,000, because only the additional NPS deduction is available.

Answer: B — Rs. 1,20,000, because the employer contribution is restricted to ten per cent of salary.

Working. Salary 12,00,000 x 10 per cent = 1,20,000; actual employer contribution 1,30,000; deduction 1,20,000.

Explanation. Under the optional regime, employer contribution to NPS by a private employer is allowed under section 80CCD(2) up to ten per cent of salary. Salary is Rs. 12,00,000, so the cap is Rs. 1,20,000. The actual contribution of Rs. 1,30,000 is included in salary, but the deduction is limited to Rs. 1,20,000. Fourteen per cent applies to a Central or State Government employer, not here.

Where it goes wrong. The actual contribution and the fourteen per cent rate are both distractors.

Authority. Section 80CCD(2)

Question 4 · 2 marks · Income from House Property; Income from Other Sources · hard

Scenario. Mr. Kabir Sethi, a resident individual, owns Unit A and Unit B in Pune. Unit A was let out throughout P.Y. 2025-26 at Rs. 40,000 per month. The tenant did not pay rent for January 2026; Mr. Sethi took reasonable legal steps and all Rule 4 conditions are satisfied. Municipal value of Unit A is Rs. 5,00,000; fair rent Rs. 4,80,000; standard rent Rs. 5,10,000. Municipal taxes paid during the year were Rs. 50,000 and interest on the housing loan for Unit A was Rs. 2,10,000. Unit B is self-occupied; interest on the loan taken to construct it was Rs. 1,80,000. Mr. Sethi has exercised the option of shifting out of the default tax regime under section 115BAC(1A). Separately, he received a cash gift of Rs. 75,000 from a friend on his wedding anniversary, and Rs. 1,20,000 as forfeited advance in September 2025 when negotiations to sell a plot did not result in transfer. In December 2025 he received Rs. 3,00,000 as interest on enhanced compensation for land acquired by the State Government; legal fees for that claim were Rs. 20,000. He also earned Rs. 12,000 interest on a savings bank account and paid Rs. 8,000 for a health check-up of his spouse.

What is the income from house property of Mr. Kabir for Unit A for A.Y. 2026-27?

1. Rs. 63,000, because actual rent after unrealised rent is the gross annual value when it is lower than expected rent.
2. Rs. 1,45,000, because municipal taxes are deducted after the thirty per cent standard deduction.
3. Rs. 2,15,000, because only the standard deduction of thirty per cent is allowed against the gross annual value.
4. Rs. 1,05,000, because expected rent of Rs. 5,00,000 is the gross annual value and interest is fully allowed. (correct answer)

Answer: D — Rs. 1,05,000, because expected rent of Rs. 5,00,000 is the gross annual value and interest is fully allowed.

Working. ER = 5,00,000; Actual = 4,40,000; GAV = 5,00,000; NAV = 4,50,000; 30% = 1,35,000; Income = 4,50,000 - 1,35,000 - 2,10,000 = 1,05,000.

Explanation. Expected rent is higher of municipal value Rs. 5,00,000 and fair rent Rs. 4,80,000, restricted to standard rent Rs. 5,10,000, so Rs. 5,00,000. Actual rent after excluding unrealised rent is Rs. 4,40,000. GAV is the higher, Rs. 5,00,000. After municipal taxes NAV is Rs. 4,50,000; thirty per cent is Rs. 1,35,000; interest Rs. 2,10,000 is fully allowed. Income is Rs. 1,05,000.

Where it goes wrong. Unrealised rent reduces actual rent but GAV remains expected rent here; municipal taxes precede the thirty per cent deduction.

Authority. Section 23(1); Section 24(a); Section 24(b)

Question 5 · 2 marks · Income from House Property; Income from Other Sources · hard

What amount is taxable as income from other sources in respect of the cash gift and the forfeited advance?

1. Rs. 1,20,000, because only the forfeited advance is taxable under section 56(2)(ix).
2. Rs. 1,95,000, because the cash gift exceeds Rs. 50,000 and the forfeited advance is taxable in the year of receipt. (correct answer)
3. Rs. 75,000, because the forfeited advance reduces the cost of the plot.
4. Rs. 1,95,000, because both receipts are exempt capital receipts.

Answer: B — Rs. 1,95,000, because the cash gift exceeds Rs. 50,000 and the forfeited advance is taxable in the year of receipt.

Working. 75,000 + 1,20,000 = 1,95,000.

Explanation. Cash gift of Rs. 75,000 from a non-relative exceeds Rs. 50,000 and is taxable under section 56(2)(x). Forfeited advance of Rs. 1,20,000 on failed transfer negotiations is taxable under section 56(2)(ix) in the year of forfeiture. Both are income from other sources, so the aggregate is Rs. 1,95,000. The option saying the advance reduces cost is wrong because forfeiture after 1.4.2014 is taxed separately.

Where it goes wrong. The forfeited advance is not reduced from cost after 1.4.2014.

Authority. Section 56(2)(x); Section 56(2)(ix)

Question 6 · 2 marks · Income from House Property; Income from Other Sources · hard

What is the total income chargeable under Income from Other Sources before Chapter VI-A deductions?

1. Rs. 3,57,000, because savings interest is included and only half of the compensation interest is taxable. (correct answer)
2. Rs. 2,00,000, because house property loss is restricted to Rs. 2,00,000 for inter-head set-off against salary income under the express provisions of section 71(3A) of the Act.
3. Rs. 4,32,000, because the whole compensation interest and savings interest are taxable.
4. Rs. 3,45,000, because savings interest is excluded before Chapter VI-A deductions.

Answer: A — Rs. 3,57,000, because savings interest is included and only half of the compensation interest is taxable.

Working. 75,000 + 1,20,000 + (3,00,000 - 50 per cent) + 12,000 = 75,000 + 1,20,000 + 1,50,000 + 12,000 = 3,57,000.

Explanation. Cash gift Rs. 75,000 and forfeited advance Rs. 1,20,000 are taxable. Interest on enhanced compensation is taxed in the year of receipt with a fifty per cent deduction under section 57(iv), so Rs. 1,50,000 is taxable; legal fees are not separately allowed. Savings interest Rs. 12,000 is also included. Total is Rs. 3,57,000 before any Chapter VI-A deduction. Deducting legal fees or excluding savings interest gives the tempting wrong figures.

Where it goes wrong. Legal fees are not deductible from compensation interest; only the statutory fifty per cent deduction applies.

Authority. Section 56(2)(viii); Section 57(iv); Section 56(2)(x)

Question 7 · 2 marks · Capital Gains · hard

Scenario. Ms. Ananya sold a plot of land on 20.1.2026 for Rs. 80,00,000. The sale agreement was made on 5.8.2025, when she received Rs. 10,00,000 by an account payee cheque. The stamp duty value of the plot was Rs. 92,00,000 on 5.8.2025 and Rs. 98,00,000 on 20.1.2026. She had acquired the plot in May 2005 for Rs. 18,00,000. She paid brokerage at one per cent of the actual sale consideration. The plot is a capital asset and she has not invested in any residential house. What is the full value of consideration deemed under section 50C for computing her capital gains for A.Y. 2026-27?

What is the full value of consideration deemed under section 50C for computing capital gains for A.Y. 2026-27?

1. Rs. 80,00,000, because actual consideration is the full value when part payment is by cheque.
2. Rs. 1,50,000, because deduction under section 80C is allowable up to Rs. 1,50,000 for life insurance premium paid for an independent married daughter of the assessee.
3. Rs. 92,00,000, because part consideration was paid by account payee cheque before the agreement date and the agreement-date stamp value exceeds 110 per cent of actual consideration. (correct answer)
4. Rs. 88,00,000, because the tolerance margin of ten per cent is added to actual consideration.

Answer: C — Rs. 92,00,000, because part consideration was paid by account payee cheque before the agreement date and the agreement-date stamp value exceeds 110 per cent of actual consideration.

Working. Actual 80,00,000; 110 per cent = 88,00,000; agreement-date stamp value 92,00,000 > 88,00,000; deemed full value = 92,00,000.

Explanation. Under section 50C, if the agreement date differs from the transfer date and part consideration is paid by account payee cheque on or before the agreement date, the stamp duty value on the agreement date is used when it exceeds 110 per cent of actual consideration. Here Rs. 92,00,000 exceeds 110 per cent of Rs. 80,00,000, so Rs. 92,00,000 is the deemed full value. Transfer-date value and the tolerance figure are traps.

Where it goes wrong. The transfer-date stamp value is not used when the agreement-date condition is satisfied.

Authority. Section 50C

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

Scenario. Mr. Naman, a resident individual aged 58, has total income of Rs. 3,80,000 for A.Y. 2026-27 under the default tax regime. He spent Rs. 2,60,000 on foreign travel for himself and his spouse during P.Y. 2025-26. He has no other transaction requiring a return and no income above the basic exemption limit. Is he required to furnish a return of income under section 139(1) for A.Y. 2026-27?

Is Mr. Naman required to furnish a return of income under section 139(1) for A.Y. 2026-27?

1. No, because only current account deposits above Rs. 1 crore require a return of income.
2. No, because total income is below Rs. 4,00,000 and foreign travel is not a filing trigger.
3. Yes, because foreign travel expenditure incurred exceeds Rs. 1,00,000 and total income exceeds the basic exemption limit under the seventh proviso to section 139(1) of the Act.
4. Yes, because foreign travel expenditure exceeds Rs. 2,00,000 even though total income is below the basic exemption limit. (correct answer)

Answer: D — Yes, because foreign travel expenditure exceeds Rs. 2,00,000 even though total income is below the basic exemption limit.

Working. Foreign travel 2,60,000 > 2,00,000; return required under section 139(1).

Explanation. Under section 139(1), a person other than a company or firm must file a return if foreign travel expenditure exceeds Rs. 2,00,000, even when total income is below the basic exemption limit. Mr. Naman spent Rs. 2,60,000, so filing is required. The income limit and current account deposit threshold are not the governing tests here.

Where it goes wrong. The basic exemption limit is irrelevant when a specified filing trigger is crossed.

Authority. Section 139(1)