CA Inter Taxation - Income-tax Law MCQ Test 4: answer key

Question 1 · 2 marks · Chapter 6: Deductions from Gross Total Income · easy

Scenario. Aarohi Menon, a Central Government employee covered by the National Pension System, has opted for its Unified Pension Scheme (UPS). Her salary for section 80CCD purposes is ₹12,00,000 for P.Y. 2025-26. The Central Government contributes ₹2,10,000 to her UPS account. Aarohi also invests ₹1,20,000 in PPF and pays ₹70,000 as premium on a qualifying life-insurance policy. She pays ₹22,000 by bank transfer for health insurance covering herself, her spouse and dependent child, and spends ₹3,000 in cash on their preventive health check-up. Her resident mother, aged 67, is covered by health insurance for which Aarohi pays ₹48,000 by bank transfer. She also spends ₹4,000 in cash on her mother's preventive health check-up. All payments satisfy the other applicable conditions. No other deductions are relevant.

Taking the Central Government's contribution as an employer contribution to Aarohi's UPS account, what is the maximum deduction allowable under section 80CCD(2) for P.Y. 2025-26?

1. ₹2,10,000
2. Nil, since the UPS contribution is not eligible for deduction
3. ₹1,68,000 (correct answer)
4. ₹1,50,000

Answer: C — ₹1,68,000

Working. Salary for section 80CCD purposes = ₹12,00,000 Central Government employer-contribution deduction ceiling = 14% of salary = ₹12,00,000 × 14% = ₹1,68,000 Actual Central Government contribution to UPS = ₹2,10,000 Allowable deduction = Lower of ₹2,10,000 and ₹1,68,000 = ₹1,68,000

Explanation. Section 80CCD(2) allows a deduction for the employer's contribution, restricted to 14% of salary where the employer is the Central Government. The UPS is an option under the NPS for Central Government employees, and the employer-contribution deduction is available under either tax regime. Therefore, the eligible deduction is ₹1,68,000, rather than the entire ₹2,10,000 contributed or the ₹1,50,000 limit applicable to certain other deductions.

Where it goes wrong. Applying the ₹1,50,000 limit under section 80CCE to employer contributions, or assuming that the employer's contribution to the UPS is disallowed.

Authority. Chapter 6, section 80CCD(2), pp. 6.26–6.27; January 2027 Statutory Update, Chapter 6 – Introduction of Unified Pension Scheme, p. 3

Question 2 · 2 marks · Chapter 6: Deductions from Gross Total Income · medium

Assuming Aarohi exercises the option to shift out of the default tax regime, what is the aggregate deduction allowable under sections 80C and 80D on the facts given?

1. ₹1,75,000
2. ₹2,25,000 (correct answer)
3. ₹2,20,000
4. ₹2,32,000

Answer: B — ₹2,25,000

Working. Section 80C: PPF investment = ₹1,20,000 Qualifying life-insurance premium = ₹70,000 Total eligible investment = ₹1,90,000 Maximum deduction under section 80C = ₹1,50,000 Section 80D: Self, spouse and dependent child: Health insurance premium = ₹22,000 Preventive health check-up = ₹3,000 Total = ₹25,000 Allowable deduction = ₹25,000 Resident senior-citizen mother: Health insurance premium = ₹48,000 Eligible balance of aggregate preventive check-up limit = ₹2,000 Allowable deduction = ₹50,000 Aggregate preventive health check-up expenditure = ₹7,000 Maximum deduction for preventive health check-up = ₹5,000 Total section 80D deduction = ₹25,000 + ₹50,000 = ₹75,000 Combined deduction under sections 80C and 80D = ₹1,50,000 + ₹75,000 = ₹2,25,000

Explanation. The qualifying PPF and life-insurance payments total ₹1,90,000, but the section 80C deduction is restricted to ₹1,50,000. Under section 80D, the family-health-insurance category allows ₹25,000 and the resident senior-citizen parent category allows ₹50,000. Preventive health check-up expenditure is subject to an aggregate limit of ₹5,000. Accordingly, the total section 80D deduction is ₹75,000, making the combined deduction ₹2,25,000.

Where it goes wrong. Ignoring the separate parent limit, allowing the entire ₹7,000 preventive check-up expenditure, or overlooking the section 80C ceiling.

Authority. Chapter 6, section 80C, pp. 6.10–6.23; Chapter 6, section 80D, pp. 6.33–6.36; Chapter 6, section 80CCE, p. 6.28

Question 3 · 2 marks · Chapter 6: Deductions from Gross Total Income · easy

If Aarohi instead pays tax under the default tax regime under section 115BAC, what is the total deduction allowable from her Gross Total Income among the three categories discussed in the scenario: sections 80CCD(2), 80C and 80D?

1. ₹2,25,000, being the combined deduction under sections 80C and 80D
2. ₹1,50,000, being the maximum section 80C deduction
3. ₹1,68,000, being the allowable employer contribution under section 80CCD(2) (correct answer)
4. Nil, because all Chapter VI-A deductions are disallowed

Answer: C — ₹1,68,000, being the allowable employer contribution under section 80CCD(2)

Working. Under the default tax regime: Deduction under section 80C = Nil Deduction under section 80D = Nil Deduction under section 80CCD(2) = 14% of ₹12,00,000 = ₹1,68,000 Total allowable deduction among the three specified categories = ₹1,68,000

Explanation. Under the default tax regime, sections 80C and 80D deductions are not available. However, deduction under section 80CCD(2) for an employer's contribution to the pension scheme of the Central Government remains allowable. The applicable ceiling is 14% of Aarohi's ₹12,00,000 salary, giving ₹1,68,000. Therefore, neither complete disallowance nor the optional-regime deductions can be applied.

Where it goes wrong. Assuming that all Chapter VI-A deductions are prohibited under section 115BAC, or carrying the optional-regime deductions into the default regime.

Authority. Chapter 6, General Provisions, pp. 6.2–6.4; Chapter 6, section 80CCD(2), pp. 6.26–6.27; Chapter 6, Chapter Overview, p. 6.2

Question 4 · 2 marks · Chapter 9: Income-tax Liability - Computation and Optimisation · hard

Scenario. Dev Malhotra is a resident individual employed in Delhi. For P.Y. 2025-26, his gross salary is ₹13,00,000 and he has no other income. Under the default regime, his standard deduction is ₹75,000. Under the optional tax regime, his standard deduction is ₹50,000, and he satisfies all conditions for deductions of ₹1,50,000 under section 80C and ₹25,000 under section 80D. He has no HRA exemption, professional tax, entertainment allowance, house-property loss, capital gains, other deductions, TDS or surcharge. Apply the A.Y. 2026-27 tax slabs, section 87A rebate and applicable marginal relief. Health and Education Cess is 4%. Round the final tax liability to the nearest ₹10.

What is Dev's final income-tax liability under the default tax regime, including Health and Education Cess? Apply the rebate and marginal-relief provisions under section 87A wherever applicable.

1. ₹26,000 (correct answer)
2. Nil
3. ₹63,960
4. ₹10,400

Answer: A — ₹26,000

Working. Gross salary = ₹13,00,000 Less: Standard deduction under the default regime = ₹75,000 Total income = ₹12,25,000 Income-tax before rebate: Up to ₹4,00,000 = Nil ₹4,00,000 to ₹8,00,000 @ 5% = ₹20,000 ₹8,00,000 to ₹12,00,000 @ 10% = ₹40,000 ₹12,00,000 to ₹12,25,000 @ 15% = ₹3,750 Total income-tax = ₹63,750 Income exceeding ₹12,00,000 = ₹25,000 Since tax of ₹63,750 exceeds the excess income of ₹25,000: Rebate/marginal relief under section 87A = ₹63,750 − ₹25,000 = ₹38,750 Income-tax after rebate = ₹25,000 Health and Education Cess @ 4% = ₹1,000 Final tax liability = ₹26,000

Explanation. The default-regime taxable income is ₹12,25,000 after the ₹75,000 standard deduction. Tax under the slab rates is ₹63,750. As the income exceeds ₹12,00,000 by ₹25,000, the section 87A marginal-relief calculation reduces the income-tax to ₹25,000. Health and Education Cess at 4% is ₹1,000. The final tax liability is therefore ₹26,000. Merely adding cess without applying marginal relief would overstate the liability.

Where it goes wrong. Computing tax without marginal relief, granting the full rebate available only when total income does not exceed ₹12,00,000, or applying cess before reducing the rebate.

Authority. Chapter 9, Step 8 – Computation of Total Income, p. 9.11; Chapter 9, Step 9 – Default Tax Regime Slab Rates, p. 9.12; Chapter 9, Step 10 – Rebate under section 87A, pp. 9.15–9.16; Chapter 9, Standard Deduction under section 16(ia), p. 9.20

Question 5 · 2 marks · Chapter 9: Income-tax Liability - Computation and Optimisation · medium

What is Dev's final tax liability, including Health and Education Cess, if he exercises the option to shift out of the default tax regime and pays tax under the optional tax regime?

1. ₹1,48,200
2. ₹1,40,400 (correct answer)
3. ₹1,32,600
4. ₹1,35,000

Answer: B — ₹1,40,400

Working. Gross salary = ₹13,00,000 Less: Standard deduction under optional regime = ₹50,000 Gross Total Income = ₹12,50,000 Less: Section 80C deduction = ₹1,50,000 Less: Section 80D deduction = ₹25,000 Total income = ₹10,75,000 Income-tax: Up to ₹2,50,000 = Nil ₹2,50,000 to ₹5,00,000 @ 5% = ₹12,500 ₹5,00,000 to ₹10,00,000 @ 20% = ₹1,00,000 ₹10,00,000 to ₹10,75,000 @ 30% = ₹22,500 Total income-tax = ₹1,35,000 Health and Education Cess @ 4% = ₹5,400 Final tax liability = ₹1,40,400

Explanation. Under the optional regime, Dev receives a standard deduction of ₹50,000. The resulting Gross Total Income of ₹12,50,000 is reduced by section 80C deduction of ₹1,50,000 and section 80D deduction of ₹25,000, leaving total income of ₹10,75,000. Applying the ordinary individual slab rates gives income-tax of ₹1,35,000. Adding Health and Education Cess of ₹5,400 gives a final liability of ₹1,40,400.

Where it goes wrong. Using the ₹75,000 standard deduction applicable under the default regime, omitting Health and Education Cess, or overlooking the section 80D deduction.

Authority. Chapter 9, Step 9 – Optional Tax Regime Slab Rates, p. 9.12; Chapter 9, Standard Deduction under section 16(ia), pp. 9.20–9.21; Chapter 6, sections 80C and 80D, pp. 6.10–6.36; Chapter 9, Step 11 – Health and Education Cess, p. 9.15

Question 6 · 2 marks · Chapter 9: Income-tax Liability - Computation and Optimisation · hard

Considering the final tax liabilities under both tax regimes on Dev's facts, which option correctly identifies the more beneficial regime and the amount of tax saved?

1. Optional tax regime, with a saving of ₹1,14,400
2. Optional tax regime, with a saving of ₹1,09,000
3. Default tax regime, with a saving of ₹1,09,000
4. Default tax regime, with a saving of ₹1,14,400 (correct answer)

Answer: D — Default tax regime, with a saving of ₹1,14,400

Working. Final tax under default regime = ₹26,000 Final tax under optional regime = ₹1,40,400 Tax saving under default regime: ₹1,40,400 − ₹26,000 = ₹1,14,400 Therefore, the default tax regime is more beneficial by ₹1,14,400.

Explanation. The default-regime calculation, after applying section 87A marginal relief and cess, gives a tax liability of ₹26,000. The optional-regime calculation, after the standard deduction, sections 80C and 80D deductions, and cess, gives ₹1,40,400. The difference is ₹1,14,400. Therefore, the default regime results in the lower tax liability on these facts. Comparing only the slab rates or ignoring the marginal-relief provision could lead to an incorrect conclusion.

Where it goes wrong. Choosing a regime based only on the amount of available deductions, without comparing the final tax liabilities after rebate, marginal relief and cess.

Authority. Chapter 9, comparison of default and optional tax regimes, pp. 9.12–9.16; Chapter 9, section 87A rebate and marginal relief, p. 9.15; Chapter 9, tax optimisation illustrations, pp. 9.47–9.61

Question 7 · 2 marks · Chapter 2: Residence and Scope of Total Income · medium

Scenario. During P.Y. 2025-26, Arjun, an Indian citizen, stayed in India for 188 days. He was non-resident in 9 of the 10 previous years immediately preceding that year. A consultancy business controlled in India earned ₹6,00,000, which accrued and was received in Singapore. He also received ₹2,00,000 interest from an unrelated Singapore bank account, which accrued and was received outside India.

What amount of Arjun's foreign-source receipts is includible in his total income in India for A.Y. 2026-27?

1. Nil
2. ₹8,00,000
3. ₹2,00,000
4. ₹6,00,000 (correct answer)

Answer: D — ₹6,00,000

Working. Stay in India during P.Y. 2025-26 = 188 days Since stay is 182 days or more, Arjun is resident under section 6(1). Non-resident in 9 out of 10 preceding previous years = qualifies as RNOR under section 6(6). Foreign consultancy income: Derived from a business controlled in India = ₹6,00,000 Included in RNOR's total income under section 5(1). Singapore bank interest: Accrued and received outside India; not derived from a business controlled in India = ₹2,00,000 Not includible in RNOR's total income. Total foreign-source receipts includible in India = ₹6,00,000.

Explanation. Arjun satisfies the 182-day residence condition under section 6(1). Since he was non-resident in 9 out of the 10 preceding previous years, he qualifies as RNOR under section 6(6). An RNOR is taxable on foreign income derived from a business controlled in India, even when it accrues and is received outside India. The unrelated Singapore bank interest is not included because it has no Indian receipt, accrual or business connection of the specified kind.

Where it goes wrong. Treating an RNOR as an ROR and including all foreign income, or treating him as a non-resident and excluding income from a business controlled in India.

Authority. Chapter 2, section 6(1) – Residential Status of Individuals, p. 2.4; Chapter 2, section 6(6) – Resident but Not Ordinarily Resident, pp. 2.8–2.9; Chapter 2, section 5(1) – Scope of Total Income for RNOR, pp. 2.15–2.17

Question 8 · 1 marks · Chapter 7: Advance Tax · easy

Scenario. Naman is an individual resident in India carrying on an eligible profession. For P.Y. 2025-26, he computes his professional profits on the presumptive basis under section 44ADA(1). After adjusting tax deducted at source, his advance-tax liability for the financial year is ₹64,000. He is not entitled to any special exemption from advance-tax payment.

Which statement correctly describes the payment schedule applicable to Naman's advance-tax liability?

1. He must pay the whole ₹64,000 in one instalment on or before 15 March 2026; an amount paid on or before 31 March 2026 is also treated as advance tax for the year. (correct answer)
2. He must pay 15%, 45%, 75% and the balance in the four regular instalments.
3. He must pay at least 75% of the advance-tax liability by 15 December 2025 and the balance by 31 March 2026.
4. He is required to pay the whole amount only by 31 March 2026, as the 15 March due date does not apply to presumptive professions.

Answer: A — He must pay the whole ₹64,000 in one instalment on or before 15 March 2026; an amount paid on or before 31 March 2026 is also treated as advance tax for the year.

Working. Naman computes professional profits under section 44ADA(1). Advance-tax liability after TDS = ₹64,000 Under section 211, an eligible assessee computing professional profits on a presumptive basis under section 44ADA(1) must pay the entire advance-tax liability in one instalment on or before 15 March 2026. Any advance-tax amount paid on or before 31 March 2026 is also treated as advance tax paid during P.Y. 2025-26. Applicable requirement: Full amount of ₹64,000 on or before 15 March 2026.

Explanation. Section 211 prescribes a special payment schedule for an eligible assessee computing professional profits under section 44ADA(1). The entire advance-tax liability is payable in one instalment on or before 15 March of the financial year. The chapter also provides that an amount paid by way of advance tax on or before 31 March is treated as advance tax paid during that financial year. The ordinary four-instalment schedule does not apply.

Where it goes wrong. Applying the normal four-instalment schedule to a presumptive professional, or confusing the 31 March payment treatment with the prescribed 15 March due date.

Authority. Chapter 7, sections 207 and 208 – Liability for Payment of Advance Tax, pp. 7.75–7.76; Chapter 7, section 211 – Instalments of Advance Tax and Due Dates, p. 7.78