CA Inter Taxation - Income-tax Law MCQ Test 3: answer key

Question 1 · 2 marks · Chapter 3 Unit 2: Income from House Property · easy

Scenario. Meera owns a residential house in Indore, which she let out throughout the previous year 2025-26. The municipal value of the property is ₹2,10,000 per annum, its fair rent is ₹2,80,000 and the standard rent under the applicable Rent Control law is ₹2,50,000. The tenant paid rent of ₹20,000 per month for all 12 months. Municipal taxes for the year amounted to ₹21,000; Meera paid ₹15,000 herself and the tenant paid the remaining ₹6,000 directly to the municipal authority. Meera had borrowed capital for acquiring the house and paid interest of ₹90,000 during the year. Assume that the figures stated are the only relevant amounts and all conditions for deduction of interest are satisfied.

What is the Gross Annual Value (GAV) of Meera's house property for the Assessment Year 2026-27?

1. ₹2,50,000 (correct answer)
2. ₹2,10,000
3. ₹2,40,000
4. ₹2,80,000

Answer: A — ₹2,50,000

Working. Expected Rent = Higher of municipal value ₹2,10,000 and fair rent ₹2,80,000, restricted to standard rent of ₹2,50,000 = ₹2,50,000. Actual rent = ₹20,000 × 12 = ₹2,40,000. GAV = Higher of expected rent ₹2,50,000 and actual rent ₹2,40,000 = ₹2,50,000.

Explanation. Under section 23(1), expected rent is the higher of municipal value and fair rent, restricted to standard rent. The higher of ₹2,10,000 and ₹2,80,000 is ₹2,80,000, capped at ₹2,50,000. Actual rent for twelve months is ₹2,40,000. Therefore, GAV is ₹2,50,000. The tempting ₹2,80,000 option ignores the standard-rent restriction.

Where it goes wrong. Applying fair rent without restricting expected rent to standard rent.

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

Question 2 · 2 marks · Chapter 3 Unit 2: Income from House Property · medium

What is the Net Annual Value (NAV) of Meera's house property for the previous year 2025-26?

1. ₹2,44,000
2. ₹2,29,000
3. ₹2,50,000
4. ₹2,35,000 (correct answer)

Answer: D — ₹2,35,000

Working. GAV = ₹2,50,000. Municipal taxes actually paid by Meera during the previous year = ₹15,000. Municipal taxes paid by the tenant = ₹6,000, not deductible by Meera. NAV = ₹2,50,000 − ₹15,000 = ₹2,35,000.

Explanation. NAV is calculated by deducting municipal taxes actually paid by the owner during the previous year from GAV. Meera paid ₹15,000 herself. The ₹6,000 paid directly by the tenant is not deductible by her. Thus, NAV is ₹2,50,000 minus ₹15,000, giving ₹2,35,000. The tempting ₹2,29,000 option wrongly deducts the entire municipal tax liability.

Where it goes wrong. Deducting municipal taxes paid by the tenant instead of restricting the deduction to taxes paid by the owner.

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

Question 3 · 2 marks · Chapter 3 Unit 2: Income from House Property · medium

Compute the income chargeable under the head 'Income from house property' for Meera for A.Y. 2026-27. Round amounts to the nearest rupee, wherever necessary.

1. ₹1,45,000
2. ₹74,500 (correct answer)
3. ₹70,000
4. ₹1,64,500

Answer: B — ₹74,500

Working. GAV = ₹2,50,000. Less: Municipal taxes paid by owner = ₹15,000. NAV = ₹2,35,000. Less: Standard deduction under section 24(a) = 30% × ₹2,35,000 = ₹70,500. Less: Interest on borrowed capital under section 24(b) = ₹90,000. Income from house property = ₹2,35,000 − ₹70,500 − ₹90,000 = ₹74,500.

Explanation. Section 24 permits a standard deduction of 30% of NAV and deduction of interest on borrowed capital for a let-out property. The standard deduction is ₹70,500 and interest is ₹90,000. After deducting both from NAV of ₹2,35,000, taxable house-property income is ₹74,500. The tempting ₹70,000 option incorrectly calculates the 30% deduction on GAV instead of NAV.

Where it goes wrong. Applying the 30% standard deduction to GAV instead of NAV or omitting one of the section 24 deductions.

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

Question 4 · 2 marks · Chapter 5: Aggregation of Income, Set-off and Carry Forward of Losses · medium

Scenario. Raghav, an individual, exercises the option of shifting out of the default tax regime for the previous year 2025-26. His salary income is ₹7,80,000. His computation shows a loss of ₹2,60,000 under the head 'Income from house property' and a current-year loss of ₹1,20,000 from a non-speculative business. He has no income from any other head apart from salary. He validly exercised the option to opt out of the default tax regime by furnishing Form 10-IEA on or before the due date under section 139(1), but he furnishes his return of income only after that date, so the return is belated. Assume that both losses are otherwise computed in accordance with the provisions of the Act.

What is the maximum amount of Raghav's house-property loss that can be set off against his salary income in A.Y. 2026-27?

1. ₹1,20,000
2. Nil
3. ₹2,60,000
4. ₹2,00,000 (correct answer)

Answer: D — ₹2,00,000

Working. Current-year house-property loss = ₹2,60,000. Maximum inter-head set-off under the optional tax regime = ₹2,00,000. Salary income = ₹7,80,000, which is sufficient to absorb the permitted set-off. Amount of house-property loss carried forward = ₹2,60,000 − ₹2,00,000 = ₹60,000.

Explanation. Since Raghav has exercised the option of shifting out of the default tax regime, house-property loss can be set off against income under other heads, subject to a maximum of ₹2,00,000 in the same assessment year. His salary income is sufficient to absorb this amount. The remaining ₹60,000 is unabsorbed. The ₹2,60,000 option ignores the statutory inter-head restriction.

Where it goes wrong. Setting off the entire house-property loss against salary without applying the ₹2,00,000 restriction.

Authority. Section 71; Section 71B; Section 115BAC(1A)

Question 5 · 2 marks · Chapter 5: Aggregation of Income, Set-off and Carry Forward of Losses · easy

How much of Raghav's non-speculative business loss of ₹1,20,000 can be set off against his salary income in the same assessment year?

1. ₹2,00,000
2. Nil (correct answer)
3. ₹60,000
4. ₹1,20,000

Answer: B — Nil

Working. Business loss = ₹1,20,000. Income from salary = ₹7,80,000. Business loss cannot be set off against salary. Income under any other positive head is not given. Therefore, allowable set-off against salary = Nil.

Explanation. A business loss may generally be adjusted against income under other heads, but section 71 specifically prohibits setting off business loss against salary income. Raghav has no positive income under another head against which this business loss can be adjusted. Consequently, none of the ₹1,20,000 can be set off against salary. The full-set-off option overlooks the salary exception.

Where it goes wrong. Applying the general inter-head set-off rule without considering the specific restriction on business loss against salary.

Authority. Section 71

Question 6 · 2 marks · Chapter 5: Aggregation of Income, Set-off and Carry Forward of Losses · hard

Considering that Raghav filed a belated return, which statement correctly describes the carry-forward treatment of his unabsorbed losses?

1. Only the business loss of ₹1,20,000 can be carried forward for up to eight assessment years.
2. Both the business loss of ₹1,20,000 and the house-property loss of ₹60,000 can be carried forward for eight assessment years.
3. Only the unabsorbed house-property loss of ₹60,000 can be carried forward for up to eight succeeding assessment years. (correct answer)
4. Neither loss can be carried forward because the return was filed after the due date.

Answer: C — Only the unabsorbed house-property loss of ₹60,000 can be carried forward for up to eight succeeding assessment years.

Working. House-property loss originally = ₹2,60,000. Current-year inter-head set-off = ₹2,00,000. Unabsorbed house-property loss = ₹60,000. This loss can be carried forward for up to eight succeeding assessment years, even though the return is belated. Business loss = ₹1,20,000. Since the return was not filed within the section 139(1) due date, section 80 prevents its carry-forward under section 72.

Explanation. Section 80 requires a return of loss under section 139(3) to be filed within the due date under section 139(1) for carrying forward business loss under section 72. A belated return does not satisfy this condition. However, this timely-return requirement does not apply to house-property loss under section 71B. Therefore, the unabsorbed ₹60,000 house-property loss can be carried forward for up to eight succeeding assessment years.

Where it goes wrong. Assuming that the timely-return condition for carrying forward business loss also applies to house-property loss.

Authority. Section 80; Section 139(3); Section 139(1); Section 71B; Section 72(1)

Question 7 · 2 marks · Chapter 3 Unit 5: Income from Other Sources · easy

Scenario. During the previous year 2025-26, Aarav received two pieces of jewellery from a friend without consideration. Their fair market values on the respective dates of receipt were ₹36,000 and ₹29,000. The jewellery is held by Aarav as capital assets, and none of the exceptions to section 56(2)(x) applies.

What amount is chargeable to tax under the head 'Income from other sources' under section 56(2)(x) in respect of the jewellery received by Aarav?

1. ₹15,000
2. Nil
3. ₹65,000 (correct answer)
4. ₹29,000

Answer: C — ₹65,000

Working. Fair market value of first jewellery receipt = ₹36,000. Fair market value of second jewellery receipt = ₹29,000. Aggregate fair market value = ₹36,000 + ₹29,000 = ₹65,000. Since the aggregate exceeds ₹50,000, the whole aggregate value of ₹65,000 is chargeable to tax under section 56(2)(x).

Explanation. For movable property received without consideration, section 56(2)(x) taxes the aggregate fair market value when it exceeds ₹50,000. The fair market value of the two jewellery receipts totals ₹65,000. Accordingly, the entire ₹65,000 is taxable. The tempting ₹15,000 option wrongly treats the amount exceeding ₹50,000 as taxable instead of applying the threshold to determine whether the aggregate receipt is chargeable.

Where it goes wrong. Taxing only the amount exceeding ₹50,000 instead of the entire aggregate fair market value.

Authority. Section 56(2)(x)

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

Scenario. A payer credits an amount to Devika on 21 September 2025, when her PAN is inoperative because Aadhaar has not been linked. Devika completes the Aadhaar linkage, and her PAN becomes operative on 29 November 2025. The payer is determining whether the higher-rate TDS consequence under section 206AA applies to that credit.

Under CBDT Circular No. 9/2025 dated 21 July 2025, is the payer eligible for relief from the higher TDS rate under section 206AA in respect of this credit?

1. Yes, because the PAN became operative by 30 November 2025, being two months from the end of September 2025. (correct answer)
2. No, because the PAN had to become operative within two months from 21 September 2025 itself.
3. No, because the circular's relief applies only to amounts credited up to 31 July 2025.
4. No, because the PAN had to become operative by 30 September 2025.

Answer: A — Yes, because the PAN became operative by 30 November 2025, being two months from the end of September 2025.

Working. Date of credit = 21 September 2025. End of the month of credit = 30 September 2025. Two months from the end of that month = 30 November 2025. Date on which PAN became operative = 29 November 2025. Since PAN became operative within the prescribed period, the payer qualifies for relief from the higher TDS rate under section 206AA.

Explanation. For amounts paid or credited on or after 1 August 2025, Circular No. 9/2025 provides relief where the PAN becomes operative within two months from the end of the month of payment or credit. September 2025 ends on 30 September, making 30 November 2025 the relevant deadline. Devika's PAN became operative on 29 November, so the payer qualifies. The 30 September 2025 cut-off applies to an earlier payment period.

Where it goes wrong. Calculating the two-month period from the actual credit date or applying the earlier 30 September 2025 deadline to a credit made after 31 July 2025.

Authority. Section 139AA(2); Section 206AA; Circular No. 9/2025 dated 21.07.2025