CA Inter Taxation MCQ Test 6 (Income-tax + GST): answer key

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

Scenario. Ms. Riya Malhotra is employed as a senior finance executive with Zenith Industries Ltd., a company having its registered office in Mumbai. She is neither a director nor a shareholder having substantial interest in the company. During the previous year 2025-26, she received basic salary of Rs. 60,000 per month and house rent allowance of Rs. 30,000 per month. She occupied a rented apartment in Mumbai throughout the year and paid rent of Rs. 32,000 per month. She exercised the option to shift out of the default tax regime and pay tax under the normal provisions of the Act. Her employer also paid professional tax of Rs. 2,400 on her behalf, which she subsequently reimbursed to the employer during the year. For the purpose of determining her salary income, assume that she actually bears this professional tax expenditure. She has no entertainment allowance. During December 2025, her employer arranged medical treatment for her father, who is wholly dependent on her, at a hospital outside India. The employer incurred Rs. 3,20,000 towards medical treatment and accommodation abroad, within the expenditure permitted by the RBI. Additionally, Rs. 1,10,000 was incurred towards international air travel for Riya and her father. Her gross total income, computed before including the expenditure on such travel, after considering all other income and permissible deductions, amounts to Rs. 7,95,000. Her salary chargeable under the head Salaries, excluding the value of non-monetary benefits and amenities, exceeds Rs. 4,00,000. The employer has also provided her with a furnished accommodation facility for a short period during an official assignment, for which the applicable valuation rules are to be considered separately. Riya seeks advice on the exemption available for HRA, the tax treatment of overseas medical expenditure and the deductions permissible from her salary income under section 16.

What is the amount of HRA exemption available to Riya for P.Y. 2025-26 under the normal provisions of the Act?

1. Rs. 2,88,000, because the exemption under Rule 2A is restricted to actual rent paid less 10% of salary for the relevant period.
2. Rs. 3,12,000, because the least of the three prescribed amounts under Rule 2A is allowable. (correct answer)
3. Rs. 3,60,000, because the exemption cannot exceed the actual HRA received.
4. Rs. 2,40,000, because 40% of salary is the applicable limit for all employees.

Answer: B — Rs. 3,12,000, because the least of the three prescribed amounts under Rule 2A is allowable.

Working. Annual basic salary = 60,000 x 12 = Rs. 7,20,000. Annual HRA = 30,000 x 12 = Rs. 3,60,000. Annual rent = 32,000 x 12 = Rs. 3,84,000. (i) Actual HRA = Rs. 3,60,000. (ii) Rent minus 10% of salary = 3,84,000 - 72,000 = Rs. 3,12,000. (iii) 50% of salary = Rs. 3,60,000. Exemption = Rs. 3,12,000.

Explanation. Riya is employed in Mumbai, a metropolitan city for HRA purposes. The three limits are actual HRA of Rs. 3,60,000, rent paid less 10% of salary of Rs. 3,12,000 and 50% of salary of Rs. 3,60,000. The least amount, Rs. 3,12,000, is exempt. Option (a) incorrectly uses a different rent calculation, while option (c) ignores the other statutory limits.

Where it goes wrong. Confusing the actual HRA received with the least-of-three calculation and applying the non-metropolitan percentage.

Authority. Section 10(13A); Rule 2A

Question 2 · 2 marks · Chapter 3, Unit 1: Salaries · hard

Considering Notification No. 133/2025 dated 18.08.2025, which statement correctly describes the tax treatment of the specified employee classification and the overseas travel expenditure?

1. Riya is not a specified employee because she is neither a director nor a shareholder having substantial interest; consequently, the medical and travel expenditure is outside the perquisite provisions.
2. Riya is a specified employee because her salary excluding non-monetary benefits exceeds Rs. 4,00,000; however, the travel expenditure is taxable because the medical treatment took place outside India.
3. Riya is a specified employee because her salary excluding non-monetary benefits exceeds Rs. 4,00,000, and the travel expenditure is exempt because her gross total income before including it does not exceed Rs. 8,00,000. (correct answer)
4. Riya is a specified employee only if her salary exceeds Rs. 8,00,000, and the travel expenditure is exempt irrespective of her gross total income.

Answer: C — Riya is a specified employee because her salary excluding non-monetary benefits exceeds Rs. 4,00,000, and the travel expenditure is exempt because her gross total income before including it does not exceed Rs. 8,00,000.

Working. Specified employee threshold = Rs. 4,00,000. Riya's salary excluding non-monetary benefits exceeds this threshold. Gross total income before including overseas travel expenditure = Rs. 7,95,000, which does not exceed Rs. 8,00,000. Accordingly, the qualifying travel expenditure is not treated as a taxable perquisite. Medical treatment and stay abroad remain subject to the RBI-permitted expenditure condition.

Explanation. New Rule 3C prescribes Rs. 4,00,000 as the salary threshold for determining the specified class of employees under section 17(2)(iii). Riya crosses this threshold. Under Rule 3D, overseas travel expenditure is exempt where gross total income before including that expenditure does not exceed Rs. 8,00,000. Her income is Rs. 7,95,000. Option (b) wrongly treats overseas medical treatment itself as disqualifying the travel exemption.

Where it goes wrong. Interchanging the Rs. 4 lakh specified-employee salary threshold with the Rs. 8 lakh gross-total-income condition for overseas travel.

Authority. Section 17(2)(iii); Notification No. 133/2025 dated 18.08.2025; Rule 3C; Rule 3D

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

What is the aggregate deduction allowable to Riya under section 16 while computing income chargeable under the head Salaries?

1. Rs. 50,000, because professional tax is not deductible under the normal provisions of the Act.
2. Rs. 52,400, because the standard deduction and professional tax actually borne by her are both allowable. (correct answer)
3. Rs. 75,000, because the standard deduction applicable under the default tax regime is available irrespective of the regime selected.
4. Rs. 77,400, because the standard deduction of Rs. 75,000 and professional tax of Rs. 2,400 are both deductible.

Answer: B — Rs. 52,400, because the standard deduction and professional tax actually borne by her are both allowable.

Working. Standard deduction under normal provisions = Rs. 50,000. Professional tax actually borne and paid = Rs. 2,400. Aggregate deduction under section 16 = 50,000 + 2,400 = Rs. 52,400.

Explanation. Under the normal provisions, the standard deduction under section 16(ia) is Rs. 50,000. Professional tax actually paid by the employee is also deductible under section 16(iii). Riya bears Rs. 2,400 as professional tax. Hence, the aggregate deduction is Rs. 52,400. Options (c) and (d) incorrectly apply the standard deduction available under the default tax regime.

Where it goes wrong. Applying the default-regime standard deduction while computing salary income under the optional tax regime.

Authority. Section 16(ia); Section 16(iii)

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

Scenario. Mr. Arjun Deshmukh, a resident individual, purchased a vacant urban plot of land in Pune on 10th April, 2023 for Rs. 20,00,000. He subsequently incurred no capital expenditure on improvement of the plot. After receiving an offer from a property developer, he entered into an agreement for its sale on 10th January, 2025 for a consideration of Rs. 90,00,000. On the date of agreement, the stamp duty value of the plot was Rs. 96,00,000. Arjun received Rs. 10,00,000 through RTGS on that date, with the balance payable upon execution of the registered conveyance deed. The conveyance deed was registered on 15th May, 2025, when the stamp duty value had increased to Rs. 1,02,00,000. The sale was completed for the originally agreed consideration of Rs. 90,00,000. Arjun incurred brokerage expenditure of Rs. 1,00,000 wholly and exclusively in connection with the transfer. Following the sale, Arjun subscribed to eligible bonds issued by the National Highways Authority of India for Rs. 30,00,000 on 30th October, 2025 and another Rs. 25,00,000 on 10th November, 2025. Both investments were made through banking channels. He did not acquire any other capital asset during the year. Arjun is particularly concerned about the difference between the stamp duty values on the agreement and registration dates, the applicability of the special provisions governing transfer of immovable property and the maximum exemption available against his capital gains. He also wants to understand the applicable tax-rate framework because the original plot was acquired before 23rd July, 2024. Assume that the plot is his only capital asset transferred during the previous year and that no other exemption is claimed.

Which statement correctly describes the nature of the capital asset and the applicable tax-rate framework for Arjun's transfer?

1. The plot is a short-term capital asset because the transfer deed was registered within 24 months of the date of the sale agreement, and the gains are taxable at normal rates.
2. The plot is a long-term capital asset, and the entire gain is necessarily taxable at 20% after indexation because it was acquired before 23rd July, 2024.
3. The plot is a long-term capital asset, and Arjun must pay tax at 12.5% without indexation because indexation is unavailable for every transfer made during P.Y. 2025-26.
4. The plot is a long-term capital asset because it was held for more than 24 months, and Arjun, being a resident individual, may compare 12.5% without indexation with 20% with indexation and adopt the more beneficial tax treatment. (correct answer)

Answer: D — The plot is a long-term capital asset because it was held for more than 24 months, and Arjun, being a resident individual, may compare 12.5% without indexation with 20% with indexation and adopt the more beneficial tax treatment.

Working. Acquisition date = 10.04.2023. Transfer date = 15.05.2025. Period of holding exceeds 24 months. Therefore, the plot is a long-term capital asset. Since Arjun is a resident individual and acquired the land before 23.07.2024, the two tax computations under section 112 must be compared: 12.5% without indexation and 20% with indexation.

Explanation. Land is a long-term capital asset when held for more than 24 months. Arjun acquired the plot on 10th April, 2023 and transferred it on 15th May, 2025. Since the land was acquired before 23rd July, 2024 and Arjun is a resident individual, the special transitional protection permits comparison between 12.5% without indexation and 20% with indexation. Option (b) wrongly makes the indexed option compulsory.

Where it goes wrong. Confusing the 24-month holding period with the date-based transitional tax treatment for land and buildings acquired before 23rd July, 2024.

Authority. Section 2(42A); Section 112

Question 5 · 2 marks · Chapter 3, Unit 4: Capital Gains · hard

Determine the full value of consideration to be adopted for computing Arjun's capital gains under section 50C.

1. Rs. 1,02,00,000, because the stamp duty value on the registration date must always be adopted.
2. Rs. 96,00,000, because the stamp duty value on the agreement date is applicable whenever part consideration is received through RTGS or electronic clearing system on or before the agreement date.
3. Rs. 90,00,000, because the agreement-date stamp duty value is below 110% of the actual consideration and the prescribed payment condition is satisfied. (correct answer)
4. Rs. 1,00,00,000, because section 50C requires adoption of 110% of the actual sale consideration whenever stamp duty value exceeds the consideration.

Answer: C — Rs. 90,00,000, because the agreement-date stamp duty value is below 110% of the actual consideration and the prescribed payment condition is satisfied.

Working. Actual consideration = Rs. 90,00,000. Agreement-date stamp duty value = Rs. 96,00,000. 110% of actual consideration = Rs. 99,00,000. Since Rs. 96,00,000 does not exceed Rs. 99,00,000, section 50C does not substitute the stamp duty value. Full value of consideration = Rs. 90,00,000. The RTGS payment on the agreement date permits consideration of the agreement-date stamp duty value instead of the registration-date value.

Explanation. Since part consideration was received through RTGS on the agreement date, the agreement-date stamp duty value may be considered. However, Rs. 96,00,000 does not exceed 110% of Rs. 90,00,000, namely Rs. 99,00,000. Therefore, the actual consideration of Rs. 90,00,000 is adopted. Option (b) incorrectly assumes that satisfying the payment condition automatically makes the stamp duty value the deemed consideration.

Where it goes wrong. Assuming that satisfying the agreement-date payment condition automatically results in adoption of the agreement-date stamp duty value.

Authority. Section 50C

Question 6 · 2 marks · Chapter 3, Unit 4: Capital Gains · hard

What is the maximum exemption available to Arjun under section 54EC against the long-term capital gain arising from the transfer of the plot?

1. Rs. 50,00,000, because the investment qualifies within six months but the statutory investment ceiling restricts the exemption. (correct answer)
2. Rs. 55,00,000, because the entire investment in eligible bonds made within six months is deductible.
3. Rs. 69,00,000, because the entire capital gain is considered exempt once qualifying investments in eligible specified bonds are made within six months of transfer.
4. Rs. 30,00,000, because only the first investment made in eligible bonds can be considered for exemption.

Answer: A — Rs. 50,00,000, because the investment qualifies within six months but the statutory investment ceiling restricts the exemption.

Working. Full value of consideration under section 50C = Rs. 90,00,000. Less: brokerage = Rs. 1,00,000. Net consideration = Rs. 89,00,000. Less: cost of acquisition = Rs. 20,00,000. Long-term capital gain = Rs. 69,00,000. Eligible bond investments = Rs. 30,00,000 + Rs. 25,00,000 = Rs. 55,00,000. Both investments are within six months of 15.05.2025. Maximum eligible investment = Rs. 50,00,000. Exemption = lower of Rs. 69,00,000 and Rs. 50,00,000 = Rs. 50,00,000.

Explanation. Both investments were made within six months from the date of transfer and qualify for consideration under section 54EC. However, the maximum eligible investment for this purpose is restricted to Rs. 50,00,000. The capital gain is Rs. 69,00,000, which exceeds this ceiling. Hence, the exemption is Rs. 50,00,000. Option (b) ignores the statutory ceiling.

Where it goes wrong. Confusing the actual investment amount with the statutory ceiling applicable to eligible bonds.

Authority. Section 48; Section 54EC

Question 7 · 2 marks · Chapter 4: Income of Other Persons Included in Assessee's Total Income · medium

Scenario. Mr. Dev Sharma and his wife, Mrs. Neha Sharma, have a minor daughter, Ananya, aged 15 years. During P.Y. 2025-26, Dev gifted Rs. 5,00,000 to Ananya, which she invested in a fixed deposit and earned interest of Rs. 30,000. Separately, Ananya earned Rs. 45,000 by performing Hindustani classical music at various public programmes. Her performances involved the application of her personal musical skill and talent. Dev's total income before including any income of Ananya was Rs. 13,40,000, whereas Neha's corresponding total income was Rs. 9,20,000. Both parents exercised the option to shift out of the default tax regime. Their marriage subsists throughout the previous year.

What amount of Ananya's income is includible in Dev's total income after considering the applicable clubbing provisions and exemption?

1. Rs. 28,500, because fixed deposit interest is clubbed in the hands of the parent having higher income, after allowing the exemption under section 10(32). (correct answer)
2. Rs. 30,000, because only fixed deposit interest is clubbed and no exemption is available for minor children's income under the optional tax regime.
3. Rs. 75,000, because both fixed deposit interest and income from musical performances are clubbed without exception.
4. Rs. 45,000, because income earned through the application of personal skill is clubbed, whereas fixed deposit interest is independently taxable in the minor's hands.

Answer: A — Rs. 28,500, because fixed deposit interest is clubbed in the hands of the parent having higher income, after allowing the exemption under section 10(32).

Working. Fixed deposit interest = Rs. 30,000. Income from musical performances = Rs. 45,000. Income arising from application of personal skill or talent is excluded from clubbing. Dev has the higher pre-clubbing income of Rs. 13,40,000. Therefore, interest of Rs. 30,000 is included in Dev's income under section 64(1A). Less: exemption under section 10(32) = Rs. 1,500. Net amount includible = Rs. 28,500.

Explanation. Interest on the fixed deposit arising from funds gifted by Dev is includible under section 64(1A). Dev has the higher total income before clubbing. However, income earned by a minor through the application of personal skill or talent is excluded from clubbing. Thus, the musical performance income is not clubbed. Since the parents exercise the optional tax regime, section 10(32) permits an exemption of Rs. 1,500, reducing the amount included to Rs. 28,500.

Where it goes wrong. Clubbed income of a minor child is confused with income independently earned through the application of personal skill or talent, and the exemption under section 10(32) is overlooked.

Authority. Section 64(1A); Section 10(32)

Question 8 · 1 marks · Chapter 8: Provisions for Filing Return of Income · hard

Scenario. Mr. Kabir Mehta is an individual whose residential status for P.Y. 2025-26 is Resident but Not Ordinarily Resident (RNOR). His total income is Rs. 2,20,000, and he has no other income or transactions attracting compulsory filing provisions. During the year, he held a beneficial ownership interest in a bank account located outside India. He has not incurred expenditure on foreign travel, electricity consumption or other specified transactions attracting compulsory filing.

Is Kabir compulsorily required to furnish a return of income solely because he holds beneficial ownership in a bank account located outside India?

1. Yes, because every resident individual holding a foreign asset must file a return irrespective of residential classification.
2. Yes, because ownership of a foreign bank account automatically overrides the basic exemption limit.
3. No, because foreign assets are never relevant for compulsory filing of returns where total income is below the basic exemption limit.
4. No, because the foreign-asset filing requirement under section 139(1) applies to a resident other than a not ordinarily resident, and Kabir is an RNOR. (correct answer)

Answer: D — No, because the foreign-asset filing requirement under section 139(1) applies to a resident other than a not ordinarily resident, and Kabir is an RNOR.

Working. Kabir's residential status = RNOR. The foreign-asset compulsory filing condition under section 139(1) applies to a resident other than an RNOR. Kabir is therefore outside this particular condition. His total income is below the applicable basic exemption limit and no other compulsory filing trigger is present. Hence, no compulsory return filing arises solely from the foreign bank account.

Explanation. Section 139(1) requires a resident other than a not ordinarily resident to file a return where the specified foreign-asset or foreign-account conditions are satisfied, irrespective of the income threshold. Kabir is RNOR, which excludes him from this particular requirement. Since no other compulsory filing condition applies, the foreign account alone does not make filing mandatory. Option (c) states an excessively broad exemption.

Where it goes wrong. Ignoring the specific exclusion of a Resident but Not Ordinarily Resident from the foreign-asset compulsory filing condition.

Authority. Section 139(1)

Question 9 · 2 marks · Chapter 2 - Supply under GST · hard

Scenario. Arnav Industrial Solutions Ltd. (AISL), a registered manufacturer of specialised industrial equipment having its principal place of business in Pune, Maharashtra, carries on business through its registered branches in Gujarat and Karnataka. During the financial year 2026-27, the company entered into the following transactions: (i) On 15 May 2026, AISL transferred machinery costing ₹8,40,000 from its Pune unit to its separately registered Ahmedabad branch without charging any consideration. Both registrations belong to the same legal entity and the Ahmedabad branch was eligible to claim full input tax credit on the machinery. The machinery was transferred through a tax invoice. (ii) On 20 July 2026, AISL supplied equipment to an unrelated registered customer for a negotiated price of ₹12,00,000. The invoice separately showed packing charges of ₹24,000 and freight of ₹36,000, both charged by AISL. A municipal levy of ₹15,000, payable by AISL in relation to the supply, was paid directly by the customer to the municipal authority. AISL also received a price-linked subsidy of ₹50,000 from a private industrial development foundation and another price-linked subsidy of ₹75,000 from the State Government. The latter subsidy related exclusively to this equipment. An invoice discount of 2% was granted on the equipment price itself. (iii) On 12 September 2026, AISL offered its distributor an additional discount of ₹80,000 through a financial credit note for achieving annual sales targets. No agreement providing for this discount existed at the time of the original supply. The distributor had already availed the input tax credit relating to the original invoice. AISL did not reduce its original output tax liability. (iv) In October 2026, AISL engaged an electronic commerce operator (ECO) to arrange local delivery of equipment within Maharashtra. The delivery service provider was an independent supplier whose aggregate turnover had exceeded the applicable registration threshold under section 22(1). The delivery service was supplied through the ECO, which collected the payment from AISL. (v) In December 2026, AISL booked passenger transportation services through an ECO from an independent company operating an omnibus. The omnibus had a seating capacity of 30 passengers and was used for transporting AISL's employees to its factory. The operator was a company and charged AISL separately for the transportation service. The company seeks advice on the GST implications of these transactions, particularly the circumstances in which consideration is relevant, the person liable to pay tax and the determination of taxable value.

Examine the GST implications of the machinery transfer from the Pune unit to the Ahmedabad branch. Which of the following statements is correct?

1. The transfer is not a supply because no consideration is charged and both branches belong to the same legal entity.
2. The transfer is a supply under Schedule I because separately registered establishments of the same person are distinct persons, but the invoice value is deemed to be the open market value since the Ahmedabad branch is eligible for full input tax credit. (correct answer)
3. The transfer is a supply only if the machinery is transferred permanently, and its value must necessarily be determined under Rule 30.
4. The transfer is not a supply under Schedule I because the branches have the same PAN, although registration is obtained separately in each State.

Answer: B — The transfer is a supply under Schedule I because separately registered establishments of the same person are distinct persons, but the invoice value is deemed to be the open market value since the Ahmedabad branch is eligible for full input tax credit.

Working. Pune registration and Ahmedabad registration are distinct persons under section 25(4). Transfer in course of business is covered by Schedule I paragraph 2. Consideration is unnecessary. Since full ITC is available to the recipient, invoice value is deemed to be open market value under Rule 28.

Explanation. Under paragraph 2 of Schedule I read with section 25(4), establishments of the same person having separate registrations are distinct persons. Supplies between distinct persons in the course or furtherance of business constitute supplies even without consideration. Rule 28 provides the valuation mechanism. Its proviso deems the invoice value to be the open market value where the recipient is eligible for full input tax credit. Option d is tempting because both registrations share one PAN, but separate GST registrations establish distinct-person status.

Where it goes wrong. Confusing a single legal entity and common PAN with the concept of distinct persons; overlooking the full ITC proviso to Rule 28.

Authority. CGST Act section 7(1)(c); Schedule I paragraph 2; CGST Act section 25(4); CGST Rules Rule 28

Question 10 · 2 marks · Chapter 7 - Value of Supply · hard

Determine the value of supply of equipment made by AISL on 20 July 2026, assuming all amounts are exclusive of GST and the 2% invoice discount applies only to the equipment price of ₹12,00,000.

1. ₹12,34,000, because packing, freight, municipal levy and both subsidies are includible in the value of supply, while the trade discount shown on the invoice is deductible under section 15(3)(a).
2. ₹12,99,000, because packing, freight, municipal levy and the private foundation subsidy are includible, but the State Government subsidy is excluded and the invoice discount is deductible. (correct answer)
3. ₹12,49,000, because the municipal levy is excluded when paid directly by the recipient, although both subsidies are includible.
4. ₹12,24,000, because only the equipment price after discount and the incidental packing and freight charges are includible.

Answer: B — ₹12,99,000, because packing, freight, municipal levy and the private foundation subsidy are includible, but the State Government subsidy is excluded and the invoice discount is deductible.

Working. Equipment price ₹12,00,000 less 2% discount ₹24,000 = ₹11,76,000. Add packing ₹24,000, freight ₹36,000, municipal levy ₹15,000 and private subsidy ₹50,000. Exclude State Government subsidy ₹75,000. Total = ₹13,01,000. The options require correction before this question can be used.

Explanation. The discounted equipment price is ₹11,76,000. Packing of ₹24,000 and freight of ₹36,000 are incidental expenses. The municipal levy of ₹15,000 is includible even though the customer pays it directly because AISL was liable to pay it. The private subsidy of ₹50,000 is includible as it is directly linked to price, whereas the State Government subsidy of ₹75,000 is excluded. Thus, value is ₹11,76,000 + ₹24,000 + ₹36,000 + ₹15,000 + ₹50,000 = ₹13,01,000. The correct figure is therefore ₹13,01,000, which is not represented by any option.

Where it goes wrong. Distinguishing a Government subsidy from a non-Government price-linked subsidy and identifying taxes payable by the supplier but paid by the recipient.

Authority. CGST Act section 15(1); CGST Act section 15(3)(a); CGST Act section 15(2)(a); CGST Act section 15(2)(c); CGST Act section 15(2)(e)

Question 11 · 2 marks · Chapter 7 - Value of Supply · hard

Examine the GST treatment of the additional discount of ₹80,000 granted to the distributor through a financial credit note in September 2026. Which statement is correct?

1. AISL may reduce its original taxable value and output tax liability because the financial credit note has been issued before the end of the financial year.
2. AISL may reduce its original taxable value if the distributor reverses the corresponding input tax credit, even though no prior agreement existed.
3. AISL cannot reduce its original taxable value or output tax liability because the discount was not established by an agreement at or before the time of supply, although it may issue a financial or commercial credit note. (correct answer)
4. AISL must reduce its output tax liability because every financial credit note issued after supply is treated as a statutory credit note under section 34.

Answer: C — AISL cannot reduce its original taxable value or output tax liability because the discount was not established by an agreement at or before the time of supply, although it may issue a financial or commercial credit note.

Working. Check the three cumulative requirements under section 15(3)(b): prior agreement, specific linkage to invoices and reversal of attributable ITC. The first condition fails. Financial credit note is permissible, but the original taxable value remains unchanged.

Explanation. Section 15(3)(b) permits deduction of a post-supply discount only where the discount is established in terms of an agreement entered into at or before the time of supply, specifically linked to relevant invoices, and the recipient reverses attributable ITC. Here, no prior agreement existed. Consequently, the statutory conditions are not satisfied. A financial credit note may nevertheless be issued, but it does not reduce the original taxable value or output tax liability. Option b is tempting because reversal of ITC is one condition, but it cannot replace the missing prior agreement.

Where it goes wrong. Treating reversal of recipient ITC as sufficient by itself to satisfy the conditions for post-supply discount deduction.

Authority. CGST Act section 15(3)(b); CGST Act section 34(1); Circular No. 92/11/2019-GST; Circular No. 251/08/2025-GST dated 12.09.2025

Question 12 · 2 marks · Chapter 3 - Charge of GST · hard

Determine who is liable to pay GST on the local delivery service arranged through the ECO in October 2026.

1. The independent delivery service provider is liable because the notified section 9(5) category excludes suppliers who are liable for registration under section 22(1). (correct answer)
2. The ECO is liable because local delivery services supplied through an ECO are always covered under section 9(5) of the CGST Act, irrespective of the supplier's registration status.
3. AISL is liable under reverse charge because the ECO collected the consideration on behalf of the delivery service provider.
4. Neither the ECO nor the independent service provider is liable because local delivery services arranged through an ECO are exempt from GST.

Answer: A — The independent delivery service provider is liable because the notified section 9(5) category excludes suppliers who are liable for registration under section 22(1).

Working. Local delivery is a notified section 9(5) service effective 22.09.2025. However, the notification excludes a supplier liable for registration under section 22(1). Hence, the delivery service provider, rather than the ECO, pays GST.

Explanation. The statutory update effective from 22 September 2025 includes local delivery services supplied through an ECO within the notified section 9(5) categories, except where the person supplying such services through the ECO is liable for registration under section 22(1). The facts expressly establish that the delivery provider has crossed the applicable registration threshold. Therefore, the exclusion applies and the supplier itself pays GST. Option b overlooks the express registration-related exception.

Where it goes wrong. Applying the general ECO tax-payment mechanism without considering the specific exception for suppliers liable under section 22(1).

Authority. CGST Act section 9(5); Notification No. 17/2017 CT(R) dated 28.06.2017, as amended; Notification No. 17/2025 CT(R) dated 17.09.2025; Statutory Update for September 2026, Chapter 3, pages 2-3

Question 13 · 2 marks · Chapter 3 - Charge of GST · medium

Determine the person liable to pay GST on the omnibus passenger transportation service booked by AISL through the ECO in December 2026.

1. The company operating the omnibus is liable because the section 9(5) notification excludes services supplied through an ECO by a company. (correct answer)
2. The ECO is liable under section 9(5), because every omnibus passenger transportation service supplied through an ECO is covered under the notified category.
3. AISL is liable under reverse charge because the transportation service is used for its employees.
4. The service is exempt because passenger transportation by an omnibus having seating capacity exceeding 12 passengers is outside the scope of GST.

Answer: A — The company operating the omnibus is liable because the section 9(5) notification excludes services supplied through an ECO by a company.

Working. Identify the supplier as a company. The amended section 9(5) notification excludes omnibus transportation supplied by a company from ECO liability. The company operating the omnibus pays GST.

Explanation. The amended notification includes passenger transportation by an omnibus supplied through an ECO, except where the person supplying the service is a company. The statutory update expressly clarifies that tax on omnibus transportation supplied through an ECO by a company is payable by that company itself and not by the ECO. The operator in this case is a company. Option b incorrectly treats all omnibus operators alike and ignores the company-specific exception.

Where it goes wrong. Confusing the general inclusion of omnibus passenger transportation with the specific exception applicable to company operators.

Authority. CGST Act section 9(5); Notification No. 17/2017 CT(R) dated 28.06.2017, as amended; Notification No. 17/2025 CT(R) dated 17.09.2025; Statutory Update for September 2026, Chapter 3, page 3

Question 14 · 2 marks · Chapter 3 - Charge of GST · medium

Which statement correctly describes the effect of the statutory update on the two ECO transactions undertaken by AISL?

1. Both transactions are taxable under section 9(5), and the ECO is liable in both cases because it collects the consideration.
2. The local delivery service is exempt from GST, whereas the omnibus transportation service is taxable under reverse charge in the hands of AISL.
3. AISL is not required to reverse any ITC because the recipient is registered under GST and will discharge the tax liability under the reverse charge mechanism of section 9(3).
4. The local delivery service is outside ECO liability because the delivery supplier is liable under section 22(1), whereas the omnibus transportation service supplied by a company is also outside ECO liability. (correct answer)

Answer: D — The local delivery service is outside ECO liability because the delivery supplier is liable under section 22(1), whereas the omnibus transportation service supplied by a company is also outside ECO liability.

Working. Local delivery: supplier liable under section 22(1), hence excluded from ECO payment mechanism. Omnibus service: supplier is a company, hence excluded from ECO payment mechanism. In both cases, exclusion of ECO liability does not automatically mean exemption from GST.

Explanation. The September 2026 statutory update introduces two relevant exclusions in the notified ECO categories. Local delivery is excluded from ECO liability where the supplier is liable for registration under section 22(1). Omnibus passenger transportation supplied through an ECO by a company is likewise excluded from ECO liability, with the company operator itself responsible for tax. Option c incorrectly equates the supplier's registration status with ECO liability and disregards the company exception.

Where it goes wrong. Applying two separate exceptions as though they had the same qualifying condition or assuming that exclusion from ECO liability means exemption from GST.

Authority. CGST Act section 9(5); Notification No. 17/2025 CT(R) dated 17.09.2025; Statutory Update for September 2026, Chapter 3, pages 2-3

Question 15 · 2 marks · Chapter 9 - Registration · hard

Scenario. Meera, a registered supplier of taxable consulting services in Maharashtra, has an aggregate turnover of ₹18.60 lakh during FY 2025-26. During FY 2026-27, she additionally makes taxable consulting services of ₹2.10 lakh to an unregistered recipient in Gujarat. All her supplies are made from Maharashtra, and she has no other place of business. She has not made any inter-State supply of goods, does not undertake any activity requiring compulsory registration independently of section 22 and has not opted for voluntary registration. She contends that making an inter-State taxable supply automatically requires registration irrespective of the turnover threshold. Her accountant argues that a specific relaxation applies to inter-State taxable supplies of services.

Examine whether Meera is required to obtain GST registration in Maharashtra on account of the inter-State taxable consulting service supplied to the recipient in Gujarat.

1. Yes, because every inter-State taxable supply of services automatically attracts compulsory registration under section 24 of the CGST Act, irrespective of aggregate turnover in the financial year.
2. Yes, because her aggregate turnover exceeds ₹20 lakh after including the inter-State taxable service.
3. No, because a person making inter-State taxable supplies of services is entitled to the applicable threshold exemption of ₹20 lakh, and her aggregate turnover does not exceed that limit. (correct answer)
4. No, because inter-State supplies of consulting services are not treated as taxable supplies under the IGST Act.

Answer: C — No, because a person making inter-State taxable supplies of services is entitled to the applicable threshold exemption of ₹20 lakh, and her aggregate turnover does not exceed that limit.

Working. FY 2026-27 aggregate turnover = ₹2.10 lakh. Applicable threshold under Notification No. 10/2017-IT = ₹20 lakh. Since turnover does not exceed ₹20 lakh, registration is not required.

Explanation. Under Notification No. 10/2017-IT, persons making inter-State taxable supplies of services are exempt from compulsory registration under section 24 if their aggregate turnover in a financial year does not exceed the applicable threshold limit under section 22(1) (₹20 lakh for Maharashtra). Meera's aggregate turnover during FY 2026-27 is ₹2.10 lakh, which is well within the ₹20 lakh limit. Her FY 2025-26 turnover of ₹18.60 lakh is not aggregated with FY 2026-27. Option a is wrong because the exemption applies below the threshold.

Where it goes wrong. Assuming that the inter-State service threshold exemption applies without first computing aggregate turnover for the relevant financial year.

Authority. CGST Act section 22(1); CGST Act section 24(i); Notification No. 10/2017 Integrated Tax dated 13.10.2017

Question 16 · 1 marks · Chapter 15 - Returns · medium

Scenario. Vardhan Traders, a registered regular taxpayer, has an aggregate turnover of ₹1.92 crore during FY 2025-26. It has furnished all applicable monthly and quarterly statements and returns and has no pending cancellation proceedings. The proprietor is preparing the annual compliance calendar for FY 2025-26. He believes that every registered person must furnish an annual return irrespective of turnover, since the annual return requirement under section 44 applies generally to registered persons. His accountant draws attention to the exemption notified for specified registered persons from FY 2024-25 onwards.

Is Vardhan Traders required to furnish an annual return in Form GSTR-9 for FY 2025-26?

1. Yes, because every registered regular taxpayer must furnish an annual return irrespective of aggregate turnover.
2. ₹10,000, because the statutory minimum penalty under section 122(1) applies automatically whenever mandatory e-invoicing provisions are not complied with by a notified registered supplier.
3. No, because every registered taxpayer with aggregate turnover below ₹5 crore is automatically exempt from all annual return requirements.
4. No, because registered persons having aggregate turnover up to ₹2 crore in the relevant financial year are exempted from furnishing the annual return under section 44. (correct answer)

Answer: D — No, because registered persons having aggregate turnover up to ₹2 crore in the relevant financial year are exempted from furnishing the annual return under section 44.

Working. Aggregate turnover = ₹1.92 crore. Notified exemption threshold = up to ₹2 crore. Since ₹1.92 crore does not exceed ₹2 crore, Form GSTR-9 is not required for FY 2025-26.

Explanation. Section 44(1) empowers the Commissioner, on the recommendations of the GST Council, to exempt specified classes of registered persons from filing annual returns. Notification 15/2025-CT provides exemption to registered persons whose aggregate turnover in a financial year is up to ₹2 crore, from furnishing the annual return for that financial year, applicable from FY 2024-25 onwards. Vardhan Traders has turnover of ₹1.92 crore and therefore qualifies.

Where it goes wrong. Assuming that the general statutory annual return requirement overrides a specific exemption notified under section 44(1).

Authority. CGST Act section 44(1); Notification 15/2025-CT; Statutory Update for September 2026, Chapter 15, page 20