CA Inter Taxation - Income-tax Law MCQ Test 9: answer key

Question 1 · 2 marks · Chapter 3, Unit 4: Capital Gains · medium

Scenario. Ms. Kavya Mehra, a resident individual, owns a residential house in Jaipur, which she acquired on 12 April 2016 for Rs. 42 lakh. On 15 May 2025, she entered into an agreement to sell the property to Mr. Arjun for Rs. 1.50 crore. The stamp duty value on that date was Rs. 1.62 crore. She received Rs. 10 lakh through NEFT on the agreement date. The sale deed was registered on 20 August 2025, when the stamp duty value had increased to Rs. 1.80 crore. Brokerage of Rs. 3 lakh was incurred wholly in connection with the transfer. On 1 October 2024, Kavya had purchased another residential house in Ahmedabad for Rs. 70 lakh. She has not transferred this newly acquired house. During November 2025, Kavya also transferred 2,000 unquoted equity shares of Zenith Private Limited to her cousin for Rs. 18 lakh. The fair market value of these shares, determined in the prescribed manner, was Rs. 25 lakh on the date of transfer. Her cost of acquisition of these shares was Rs. 8 lakh. The company is neither undergoing liquidation nor covered by any prescribed exception to the provisions governing transfer of unquoted shares. Kavya has not incurred any expenditure in connection with the transfer of these shares. She intends to understand the tax implications of all three transactions before finalising her return for A.Y. 2026-27. She has also retained copies of the purchase agreements and payment records for both properties.

Determine the full value of consideration to be adopted for computing capital gains on the transfer of Kavya's residential house under section 50C.

1. Rs. 4,20,000, because municipal valuation must be adopted as the Gross Annual Value under section 23(1) whenever it is higher than the standard rent determined for the let-out residential property.
2. Rs. 1.50 crore, because the stamp duty value on the agreement date does not exceed 110% of the actual consideration and part of the consideration was received through NEFT on or before that date. (correct answer)
3. Rs. 1.80 crore, because the stamp duty value on the registration date is invariably considered for section 50C.
4. Rs. 1.62 crore, because the difference between the agreement-date stamp duty value and actual consideration is taxable irrespective of the prescribed tolerance.

Answer: B — Rs. 1.50 crore, because the stamp duty value on the agreement date does not exceed 110% of the actual consideration and part of the consideration was received through NEFT on or before that date.

Working. Actual consideration = Rs. 1,50,00,000. Agreement-date stamp duty value = Rs. 1,62,00,000. Tolerance limit = Rs. 1,50,00,000 × 110% = Rs. 1,65,00,000. Since Rs. 1,62,00,000 is within the tolerance and NEFT payment was received on the agreement date, deemed full value of consideration = Rs. 1,50,00,000.

Explanation. Where the agreement date differs from the registration date, the stamp duty value on the agreement date may be considered if the whole or part of the consideration is received through a prescribed banking or electronic mode on or before the agreement date. Here, Rs. 10 lakh was received through NEFT on that date. Further, Rs. 1.62 crore is only 108% of Rs. 1.50 crore and does not exceed the 110% tolerance. Hence, actual consideration of Rs. 1.50 crore applies. Option a incorrectly ignores the tolerance.

Where it goes wrong. Applying the agreement-date stamp duty value without checking the 110% tolerance condition.

Authority. Study Material, Chapter 3, Unit 4, section 50C, computation of capital gains on transfer of land or building, page 3.467.

Question 2 · 2 marks · Chapter 3, Unit 4: Capital Gains · hard

Considering the transfer of the residential house and Kavya's earlier acquisition of another residential house, determine the long-term capital gain chargeable to tax after considering the exemption under section 54.

1. Rs. 35 lakh, because the capital gain is Rs. 1.05 crore and the cost of the residential house purchased within one year before transfer, amounting to Rs. 70 lakh, qualifies for exemption. (correct answer)
2. Rs. 1.05 crore, because section 54 permits exemption only where the new residential house is purchased after the transfer of the original asset.
3. Rs. 35 lakh, because the entire capital gain is exempt under section 54 and the remaining amount is taxable only as income from other sources.
4. Rs. 75 lakh, because only Rs. 30 lakh of the new residential house cost qualifies for exemption after deducting brokerage from the investment.

Answer: A — Rs. 35 lakh, because the capital gain is Rs. 1.05 crore and the cost of the residential house purchased within one year before transfer, amounting to Rs. 70 lakh, qualifies for exemption.

Working. Full value of consideration = Rs. 1,50,00,000. Less: Brokerage = Rs. 3,00,000. Net sale consideration = Rs. 1,47,00,000. Less: Cost of acquisition = Rs. 42,00,000. LTCG = Rs. 1,05,00,000. Less: Section 54 exemption = Rs. 70,00,000. LTCG chargeable to tax = Rs. 35,00,000.

Explanation. The house is a long-term capital asset. Its full value of consideration is Rs. 1.50 crore under section 50C. After deducting brokerage of Rs. 3 lakh and acquisition cost of Rs. 42 lakh, LTCG is Rs. 1.05 crore. Section 54 permits purchase of a residential house in India within one year before or two years after transfer. Kavya purchased the Ahmedabad house within the permitted preceding period. The exemption is Rs. 70 lakh, leaving Rs. 35 lakh chargeable. Option c incorrectly treats the entire gain as exempt.

Where it goes wrong. Confusing the permissible purchase period under section 54 with a requirement that the new house must be acquired only after the original asset is transferred.

Authority. Study Material, Chapter 3, Unit 4, computation of long-term capital gains and section 54, pages 3.370 and 3.474-3.476.

Question 3 · 2 marks · Chapter 3, Unit 4: Capital Gains · hard

Determine the full value of consideration and capital gain arising from the transfer of Kavya's unquoted equity shares under section 50CA.

1. The full value of consideration is Rs. 18 lakh and the capital gain is Rs. 10 lakh, because the actual consideration received must be adopted for every transfer of shares.
2. The full value of consideration is Rs. 25 lakh and the capital gain is Rs. 17 lakh, because the prescribed fair market value is deemed to be the full value of consideration where actual consideration is lower. (correct answer)
3. The full value of consideration is Rs. 25 lakh and the capital gain is Rs. 10 lakh, because section 50CA applies only for determining the value of consideration and not for computing the resulting capital gain.
4. The full value of consideration is Rs. 18 lakh and the capital gain is Rs. 17 lakh, because the fair market value is substituted only for determining the cost of acquisition.

Answer: B — The full value of consideration is Rs. 25 lakh and the capital gain is Rs. 17 lakh, because the prescribed fair market value is deemed to be the full value of consideration where actual consideration is lower.

Working. Actual consideration = Rs. 18,00,000. Prescribed FMV = Rs. 25,00,000. Since actual consideration is lower, section 50CA substitutes FMV. Full value of consideration = Rs. 25,00,000. Less: Cost of acquisition = Rs. 8,00,000. Capital gain = Rs. 17,00,000.

Explanation. Section 50CA applies where consideration received or accruing on transfer of an unquoted share is lower than its fair market value determined in the prescribed manner. The prescribed FMV of Rs. 25 lakh is therefore deemed to be the full value of consideration. Deducting the acquisition cost of Rs. 8 lakh gives a capital gain of Rs. 17 lakh. Option c correctly identifies the deemed consideration but incorrectly retains the actual consideration while computing the gain.

Where it goes wrong. Applying the deemed consideration provision but subsequently calculating capital gains using the actual transfer price.

Authority. Study Material, Chapter 3, Unit 4, section 50CA, page 3.433 and related discussion.

Question 4 · 2 marks · Chapter 3, Unit 3: Profits and Gains of Business or Profession · hard

Scenario. Mr. Raghav Bansal, a resident individual, operates a retail trading business in electrical goods in Pune. His turnover for the P.Y. 2025-26 was Rs. 2.85 crore, of which Rs. 12 lakh was received in cash and the balance through account payee instruments and prescribed electronic modes. All non-cash receipts were received during the previous year or before the due date of filing the return under section 139(1). Cash receipts constitute less than 5% of his total turnover. His books show an actual business profit of Rs. 14 lakh. Raghav had opted for presumptive taxation in the immediately preceding assessment year. During the same year, his wife, Ms. Tanvi Bansal, independently carried on the profession of architecture. Her gross professional receipts amounted to Rs. 72 lakh, including cash receipts of Rs. 3.20 lakh. The remaining receipts were received through banking channels. She is a resident individual and has no income from any agency business or commission. Her books indicate professional income of Rs. 31 lakh. Separately, Raghav's brother, Mr. Dev Bansal, is engaged in the business of plying goods carriages. During the entire P.Y. 2025-26, Dev owned two heavy goods vehicles having gross vehicle weights of 16,000 kg and 14,000 kg respectively, and one other goods carriage weighing 8,000 kg. All three vehicles remained owned by him throughout the year. His books indicate business income of Rs. 4.20 lakh from this activity. However, he has neither maintained the prescribed books of account nor obtained an audit report. The brothers have approached their tax adviser to determine the presumptive income applicable to their respective activities and the conditions governing their claims.

Determine Raghav's presumptive business income from retail trading under section 44AD for P.Y. 2025-26.

1. Rs. 17.34 lakh, because 8% applies to cash receipts and 6% applies to receipts through prescribed electronic modes, and the turnover and cash-receipt conditions are satisfied. (correct answer)
2. Rs. 2,10,000, because interest on capital borrowed for acquisition of self-occupied property is deductible up to Rs. 2,00,000 plus an additional allowable deduction of Rs. 10,000 for repair loans.
3. Rs. 22.80 lakh, because 8% of the entire turnover is taxable irrespective of the mode of receipt.
4. Rs. 17.10 lakh, because 6% applies to the entire turnover where cash receipts are within the 5% threshold.

Answer: A — Rs. 17.34 lakh, because 8% applies to cash receipts and 6% applies to receipts through prescribed electronic modes, and the turnover and cash-receipt conditions are satisfied.

Working. Total turnover = Rs. 2,85,00,000. Cash receipts = Rs. 12,00,000. Non-cash receipts = Rs. 2,73,00,000. Cash receipt percentage = 12,00,000 / 2,85,00,000 × 100 = 4.21% approximately. Eligible for enhanced Rs. 3 crore threshold. Presumptive income = 8% of Rs. 12,00,000 + 6% of Rs. 2,73,00,000 = Rs. 96,000 + Rs. 16,38,000 = Rs. 17,34,000.

Explanation. Raghav's turnover of Rs. 2.85 crore is within the enhanced Rs. 3 crore threshold applicable where cash receipts do not exceed 5% of turnover. His cash receipts are below that limit. The presumptive rate is 8% for cash receipts and 6% for receipts through prescribed modes received within the stipulated period. Therefore, presumptive income is Rs. 17.34 lakh. Option d incorrectly applies the 6% rate to cash receipts also.

Where it goes wrong. Applying the enhanced turnover limit correctly but incorrectly applying the 6% rate to cash receipts.

Authority. Study Material, Chapter 3, Unit 3, section 44AD, presumptive income and turnover limits, pages 3.308-3.310 and 3.313-3.314.

Question 5 · 2 marks · Chapter 3, Unit 3: Profits and Gains of Business or Profession · medium

Determine whether Tanvi can opt for presumptive taxation under section 44ADA and, if eligible, the presumptive professional income chargeable to tax.

1. She is eligible and her presumptive income is Rs. 31 lakh, because the actual profit shown in her books is higher than 50% of gross receipts.
2. She is not eligible because the gross receipt ceiling under section 44ADA is Rs. 50 lakh in every case.
3. She is eligible and her presumptive income is Rs. 36 lakh, because her gross receipts are within Rs. 75 lakh and cash receipts do not exceed 5% of total gross receipts. (correct answer)
4. She is not eligible because any receipt in cash disqualifies a professional from applying section 44ADA.

Answer: C — She is eligible and her presumptive income is Rs. 36 lakh, because her gross receipts are within Rs. 75 lakh and cash receipts do not exceed 5% of total gross receipts.

Working. Gross professional receipts = Rs. 72,00,000. Cash receipts = Rs. 3,20,000. Cash receipt percentage = 3,20,000 / 72,00,000 × 100 = 4.44% approximately. Since cash receipts do not exceed 5%, enhanced ceiling = Rs. 75 lakh. Tanvi qualifies. Presumptive income = 50% × Rs. 72,00,000 = Rs. 36,00,000.

Explanation. Architecture is a specified profession covered by section 44AA(1). The enhanced gross receipt ceiling of Rs. 75 lakh applies where aggregate cash receipts do not exceed 5% of total gross receipts. Tanvi's cash receipts are approximately 4.44% of total receipts, and her gross receipts are Rs. 72 lakh. She is eligible. Presumptive income is 50% of Rs. 72 lakh, i.e. Rs. 36 lakh. Option a incorrectly substitutes the book profit for the presumptive amount.

Where it goes wrong. Ignoring the enhanced gross receipt threshold and treating the standard Rs. 50 lakh threshold as applicable in every case.

Authority. Study Material, Chapter 3, Unit 3, section 44ADA, eligibility and presumptive income, pages 3.308-3.310 and 3.339.

Question 6 · 2 marks · Chapter 3, Unit 3: Profits and Gains of Business or Profession · hard

Considering Dev's ownership of goods carriages and the actual profit disclosed in his books, determine the amount of business income chargeable under section 44AE.

1. Rs. 2,00,000, because current year house property loss can be set off against salary income up to Rs. 2,00,000 under section 71(3A), while the remaining loss must be carried forward.
2. Rs. 3.60 lakh, because only heavy goods vehicles qualify for presumptive taxation under section 44AE.
3. Rs. 4.50 lakh, because Dev owns not more than ten goods carriages and cannot claim lower profits without maintaining the prescribed books and obtaining an audit report. (correct answer)
4. Rs. 4.50 lakh, because section 44AE permits a lower profit only when the assessee maintains books, but an audit report is not required in such circumstances.

Answer: C — Rs. 4.50 lakh, because Dev owns not more than ten goods carriages and cannot claim lower profits without maintaining the prescribed books and obtaining an audit report.

Working. Heavy goods vehicle 1: 16 tons × Rs. 1,000 × 12 = Rs. 1,92,000. Heavy goods vehicle 2: 14 tons × Rs. 1,000 × 12 = Rs. 1,68,000. Other goods carriage: Rs. 7,500 × 12 = Rs. 90,000. Total presumptive income = Rs. 1,92,000 + Rs. 1,68,000 + Rs. 90,000 = Rs. 4,50,000. Since Dev has not maintained prescribed books or obtained an audit report, the lower actual profit of Rs. 4.20 lakh cannot be substituted.

Explanation. Dev owns only three goods carriages, satisfying the ownership condition under section 44AE. For each heavy goods vehicle, presumptive income is Rs. 1,000 per ton of gross vehicle weight per month or part of a month. For the other vehicle, the prescribed amount is Rs. 7,500 per month. The resulting amount is Rs. 4.50 lakh. Claiming lower profits requires prescribed books under section 44AA and audit under section 44AB. Option d overlooks the audit requirement.

Where it goes wrong. Recognising that lower profits may be declared under section 44AE but overlooking the combined books-of-account and tax-audit requirements.

Authority. Study Material, Chapter 3, Unit 3, sections 44AE(7), 44AA and 44AB, pages 3.304 and 3.310-3.311; illustration relating to goods carriages.

Question 7 · 2 marks · Chapter 3, Unit 1: Salaries · medium

Scenario. Ms. Niharika Rao is employed in Delhi and exercises the option of shifting out of the default tax regime for P.Y. 2025-26. Her monthly basic salary was Rs. 60,000 throughout the year. She received dearness allowance of Rs. 10,000 per month, which forms part of salary for retirement benefits, and house rent allowance of Rs. 32,000 per month. She paid monthly rent of Rs. 30,000 for residential accommodation in Delhi throughout the year. Her employer deducted professional tax of Rs. 2,400 from her salary during the year. She received no other allowances, bonus or perquisites. She is not entitled to any entertainment allowance deduction.

Compute Niharika's income chargeable under the head Salaries for P.Y. 2025-26 under the optional tax regime.

1. Rs. 8,98,000, because the standard deduction is Rs. 50,000 but professional tax paid by the employee is not deductible under the optional tax regime.
2. Rs. 8,95,600, because the HRA exemption is Rs. 2,76,000 and the standard deduction is Rs. 50,000, but professional tax is treated as an exemption under section 10.
3. Rs. 8,71,600, because the entire HRA received is exempt to the extent of rent paid less 10% of salary and the standard deduction is Rs. 50,000.
4. Rs. 8,95,600, because taxable HRA is Rs. 1,08,000, standard deduction is Rs. 50,000 and professional tax of Rs. 2,400 is deductible. (correct answer)

Answer: D — Rs. 8,95,600, because taxable HRA is Rs. 1,08,000, standard deduction is Rs. 50,000 and professional tax of Rs. 2,400 is deductible.

Working. Basic salary = Rs. 60,000 × 12 = Rs. 7,20,000. DA = Rs. 10,000 × 12 = Rs. 1,20,000. HRA received = Rs. 32,000 × 12 = Rs. 3,84,000. Salary for HRA = Rs. 8,40,000. Rent paid less 10% of salary = Rs. 3,60,000 - Rs. 84,000 = Rs. 2,76,000. 50% of salary = Rs. 4,20,000. HRA exemption = least of Rs. 3,84,000, Rs. 2,76,000 and Rs. 4,20,000 = Rs. 2,76,000. Taxable HRA = Rs. 1,08,000. Gross salary = Rs. 7,20,000 + Rs. 1,20,000 + Rs. 1,08,000 = Rs. 9,48,000. Less: Standard deduction = Rs. 50,000. Less: Professional tax = Rs. 2,400. Taxable salary = Rs. 8,95,600.

Explanation. Salary for HRA purposes includes basic salary and DA forming part of retirement benefits. The exemption is the least of actual HRA, rent paid less 10% of salary, and 50% of salary for Delhi. These amounts are Rs. 3.84 lakh, Rs. 2.76 lakh and Rs. 4.20 lakh respectively. Taxable HRA is Rs. 1.08 lakh. Standard deduction of Rs. 50,000 and professional tax of Rs. 2,400 are deductible under section 16. Option b gives the correct final figure but incorrectly classifies professional tax as an exemption.

Where it goes wrong. Confusing an exemption under section 10 with a deduction under section 16 while computing taxable salary.

Authority. Study Material, Chapter 3, Unit 1, section 10(13A), Rule 2A and section 16, pages 3.6, 3.21-3.23 and 3.100-3.101.

Question 8 · 1 marks · Chapter 1: Basic Concepts · hard

Scenario. Mr. Aditya commenced a new business on 1 December 2025. He had no other business or professional activity during the financial year 2025-26. His business continued until 31 March 2026 and earned income during this period. He is an individual following the regular financial year accounting period. He is preparing his income-tax computation for the assessment year immediately following P.Y. 2025-26.

What would constitute the previous year for Aditya in respect of his newly commenced business under section 3?

1. Rs. 75,000, because the deduction under section 80DD is admissible at Rs. 75,000 for normal disability and Rs. 1,25,000 for severe disability irrespective of actual expenditure.
2. The period from 1 April 2026 to 31 March 2027, because income from a newly commenced business is assessed in the financial year immediately following its commencement.
3. The period from 1 December 2025 to 31 March 2027, because the previous year continues until the end of the assessment year.
4. The period from 1 December 2025 to 31 March 2026, because where a business is newly set up during a financial year, the previous year begins on the date of setting up and ends on 31 March. (correct answer)

Answer: D — The period from 1 December 2025 to 31 March 2026, because where a business is newly set up during a financial year, the previous year begins on the date of setting up and ends on 31 March.

Working. Date of commencement of business = 1 December 2025. End of financial year = 31 March 2026. Previous year for the newly commenced business = 1 December 2025 to 31 March 2026.

Explanation. Section 3 provides that where a business or profession is newly set up during a financial year, the previous year in respect of that business or profession is the period beginning with the date of setting up and ending with the said financial year. Since Aditya commenced business on 1 December 2025, the relevant period ends on 31 March 2026. Option a incorrectly applies the full financial-year period despite the special provision for a newly commenced business.

Where it goes wrong. Applying the ordinary twelve-month financial-year concept without considering the special rule for a newly set-up business or profession.

Authority. Study Material, Chapter 1, Basic Concepts, definition of Previous Year, section 3.