CA Inter Taxation MCQ Test 7 (Income-tax + GST): answer key

Question 1 · 2 marks · Chapter 3 Unit 3: Profits and Gains of Business or Profession · hard

Scenario. Pranav Mehta, a resident individual, carries on a manufacturing business in Vadodara under the name Mehta Industrial Components. He follows the mercantile system of accounting and maintains regular books of account. His net profit for the previous year 2025-26, as per the statement of profit and loss, is Rs. 48,60,000 after charging all the following expenses. On 1 February 2026, he purchased raw materials worth Rs. 12,00,000 from a supplier registered as a micro enterprise under the MSMED Act, 2006. There was no written agreement prescribing the payment period. The goods were accepted on the same date, but Pranav settled the invoice only on 20 February 2026. Another invoice of Rs. 8,00,000 from a small enterprise was accepted on 1 March 2026, under a written agreement requiring payment within 30 days. This invoice was settled on 25 March 2026. During December 2025, Pranav credited professional consultancy charges of Rs. 1,20,000 to the account of an individual director who provided independent technical advice. No tax was deducted at source, although the entire amount was debited to the statement of profit and loss. The director's remuneration was not included in any other payment. Further, on 1 October 2025, Pranav acquired new manufacturing machinery for Rs. 20,00,000 and installed it immediately. The machinery was put to use for manufacturing operations from that date and continued to be used until 31 March 2026. Its applicable depreciation rate under the Income-tax Rules is 15%. Depreciation charged in the books on this machinery was Rs. 2,00,000. The business has no brought-forward losses or unabsorbed depreciation. All other expenditure is assumed to be allowable, and no other disallowance or adjustment is required. Pranav wants to determine the adjustments necessary to arrive at his business income for A.Y. 2026-27.

Examine the allowability of the expenditure of Rs. 12,00,000 payable to the micro enterprise and Rs. 8,00,000 payable to the small enterprise while computing Pranav's business income for P.Y. 2025-26.

1. Both amounts are allowable in P.Y. 2025-26 because both were actually paid during that previous year; section 43B(h) does not defer a payment to a later previous year when it is made within the current one. (correct answer)
2. The expenditure of Rs. 12,00,000 is allowable only in P.Y. 2026-27, whereas Rs. 8,00,000 is allowable in P.Y. 2025-26 because payment was made within the written agreement period.
3. Both amounts are allowable in P.Y. 2025-26 because section 43B permits payment up to the due date for filing the return of income.
4. The expenditure of Rs. 12,00,000 is allowable in P.Y. 2025-26, but Rs. 8,00,000 is allowable only in P.Y. 2026-27 because the supplier is a small enterprise.

Answer: A — Both amounts are allowable in P.Y. 2025-26 because both were actually paid during that previous year; section 43B(h) does not defer a payment to a later previous year when it is made within the current one.

Working. First invoice: payment on 20 February 2026 is beyond the 15-day MSMED period, so it is not allowed on accrual; however, it is allowed in the year of actual payment, which is still P.Y. 2025-26. Second invoice: payment on 25 March 2026 is within the written 30-day period and is also allowed in P.Y. 2025-26.

Explanation. Section 43B(h) prevents a deduction on accrual where payment to a micro or small enterprise is made after the MSMED period, but it allows the deduction in the previous year of actual payment. The ₹12,00,000 payment was late for accrual treatment, yet it was actually paid on 20 February 2026, within P.Y. 2025-26. The ₹8,00,000 payment was also made in that previous year. Hence neither deduction is deferred to P.Y. 2026-27.

Where it goes wrong. Assuming that a late payment within the same previous year is deferred to the next previous year, rather than to the previous year in which it is actually paid.

Authority. Section 43B(h); Section 15, MSMED Act, 2006

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

What amount is required to be disallowed from the consultancy charges of Rs. 1,20,000 credited to the director while computing business income for A.Y. 2026-27?

1. Rs. 1,20,000, because the entire consultancy expenditure becomes inadmissible when tax is not deducted.
2. Rs. 12,000, because only 10% of the consultancy charges is disallowed under section 40(a)(ia).
3. Rs. 36,000, because 30% of the expenditure is disallowed under section 40(a)(ia). (correct answer)
4. Nil, because consultancy charges paid to a director are outside the scope of tax deduction at source.

Answer: C — Rs. 36,000, because 30% of the expenditure is disallowed under section 40(a)(ia).

Working. Consultancy charges = Rs. 1,20,000. Disallowance under section 40(a)(ia) = Rs. 1,20,000 × 30% = Rs. 36,000.

Explanation. Director's fees or remuneration for professional or technical services attract deduction under section 194J without a monetary threshold for director remuneration. Failure to deduct the required tax attracts disallowance of 30% of the expenditure under section 40(a)(ia). The tempting full disallowance is incorrect because the provision restricts the disallowance to 30%, rather than the entire amount.

Where it goes wrong. Applying a full disallowance or confusing the applicable 30% disallowance with the TDS rate.

Authority. Section 194J; Section 40(a)(ia)

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

Determine the depreciation allowable on the new manufacturing machinery for P.Y. 2025-26, assuming the applicable depreciation rate is 15%.

1. Rs. 3,00,000, because the machinery is eligible for full depreciation at 15% of its actual cost. (correct answer)
2. Rs. 1,50,000, because machinery put to use for less than 180 days during the previous year qualifies for depreciation at half the prescribed rate.
3. Rs. 2,00,000, because depreciation charged in the books of account is allowable for income-tax purposes.
4. Rs. 1,20,000, because only 60% of the prescribed depreciation rate is available for machinery acquired during the second half of the year.

Answer: A — Rs. 3,00,000, because the machinery is eligible for full depreciation at 15% of its actual cost.

Working. 1 October 2025 to 31 March 2026 = 182 days. Actual cost = ₹20,00,000; full prescribed rate = 15%; depreciation = ₹20,00,000 × 15% = ₹3,00,000.

Explanation. Depreciation follows the prescribed income-tax rate, not book depreciation. Machinery put to use from 1 October 2025 through 31 March 2026 was used for 182 days, which is more than 180 days. The half-rate restriction therefore does not apply. Full depreciation at 15% on ₹20,00,000 is ₹3,00,000. Option b incorrectly treats the period as less than 180 days.

Where it goes wrong. Counting 1 October to 31 March as less than 180 days, instead of the actual 182 days.

Authority. Section 32(1); Rule 5, Income-tax Rules, 1962

Question 4 · 2 marks · Chapter 2: Residence and Scope of Total Income · hard

Scenario. Raghav Malhotra, an Indian citizen employed as a software architect, accepted an overseas employment contract with a Singapore-based technology company. He departed from India on 10 September 2025 to take up the employment and remained outside India until 31 March 2026. During the previous year 2025-26, he was physically present in India for 130 days. His aggregate stay in India during the four immediately preceding previous years was 410 days. His Indian income, excluding income from foreign sources, amounted to Rs. 18,40,000. He had no Indian business or profession under his control. During the year, Raghav earned salary of Rs. 36,00,000 for services physically rendered in Singapore. His Singapore bank account also generated fixed-deposit interest of Rs. 2,40,000, which was credited to that account and was not received in India during the year. Separately, he received Rs. 3,00,000 as rent from a residential property situated in Pune, directly into his Indian bank account. He also received Rs. 1,20,000 in India from an Indian company as interest on debentures. On 15 February 2026, Raghav transferred Rs. 5,00,000 from his Singapore account to his Indian savings account. The amount represented accumulated savings from his overseas employment and did not include any new income earned during the year. His parents continue to reside in Jaipur, and he holds an Indian passport throughout the relevant period. Raghav believes that his Indian citizenship and substantial Indian income automatically make him a resident in India. He also assumes that every amount connected with his overseas employment must be included in his Indian total income. Determine the correct residential status and the tax implications of the different receipts for A.Y. 2026-27, applying the statutory provisions governing residence and scope of total income.

What is Raghav's residential status in India for P.Y. 2025-26?

1. Resident and ordinarily resident, because his stay in India during the four preceding previous years exceeds 365 days and he is an Indian citizen.
2. Resident but not ordinarily resident, because his Indian income exceeds Rs. 15 lakh and his stay in India exceeds 120 days.
3. Non-resident, because an Indian citizen leaving India for employment outside India is subject to the 182-day condition and his stay is only 130 days. (correct answer)
4. Resident and ordinarily resident, because the 60-day and 365-day conditions are satisfied independently of the purpose of departure.

Answer: C — Non-resident, because an Indian citizen leaving India for employment outside India is subject to the 182-day condition and his stay is only 130 days.

Working. Indian citizen leaving India for employment outside India. Stay in P.Y. 2025-26 = 130 days. Applicable residence threshold = 182 days. Since 130 < 182, Raghav is non-resident.

Explanation. An Indian citizen leaving India during the relevant previous year for employment outside India is covered by the exception to the general residence test. For this category, residence requires a stay of at least 182 days in India. Raghav stayed only 130 days. The 60-day plus 365-day test does not apply to him. His Indian income exceeding Rs. 15 lakh does not alter this employment-related exception.

Where it goes wrong. Applying the modified 120-day test for visiting Indian citizens or persons of Indian origin instead of the separate exception for an Indian citizen leaving for overseas employment.

Authority. Section 6(1); Section 6(1), Explanation 1(a) (employment outside India)

Question 5 · 2 marks · Chapter 2: Residence and Scope of Total Income; Chapter 1: Basic Concepts · hard

Which of the following correctly describes the taxability of Raghav's receipts for A.Y. 2026-27, considering his residential status?

1. His Singapore salary, Singapore bank interest and Indian rental income are all taxable because he is an Indian citizen.
2. His Singapore salary and Singapore bank interest are not taxable, while his Indian rental income and Indian debenture interest are taxable. (correct answer)
3. His Singapore salary is taxable because it is received outside India, but the Singapore bank interest is exempt because it arises outside India.
4. His Singapore salary is taxable because he transferred accumulated savings to India, while the Indian rental income is taxable only if received outside India.

Answer: B — His Singapore salary and Singapore bank interest are not taxable, while his Indian rental income and Indian debenture interest are taxable.

Working. Singapore salary for services abroad: not taxable in India. Singapore bank interest received abroad: not taxable in India. Indian rental income: taxable in India. Indian debenture interest: taxable in India. Remittance of accumulated savings: not fresh income.

Explanation. A non-resident is taxable on income received or deemed received in India and income accruing or arising or deemed to accrue or arise in India. Salary for services rendered in Singapore and foreign bank interest received outside India are not taxable merely because the recipient is an Indian citizen. Indian property rent and interest on Indian debentures are taxable. A subsequent remittance of accumulated savings is not fresh income.

Where it goes wrong. Confusing citizenship and remittance of accumulated savings with receipt of income in India, and overlooking the Indian-source income taxable in the hands of a non-resident.

Authority. Section 5(2); Section 9; Section 6(1)

Question 6 · 2 marks · Chapter 1: Basic Concepts; Chapter 2: Residence and Scope of Total Income · medium

Raghav argues that the Rs. 5,00,000 transferred from his Singapore bank account to India constitutes income of P.Y. 2025-26 merely because the amount was received in his Indian bank account during that year. Which statement is correct?

1. The entire Rs. 5,00,000 is taxable because every amount received in India during the previous year is income under section 5.
2. Only 50% of the amount is taxable because the remittance represents foreign income accumulated over different years.
3. The amount is exempt only if Raghav is resident and ordinarily resident in India.
4. The amount is not taxable merely on remittance because it represents accumulated savings from income already earned; remittance of capital does not constitute fresh income. (correct answer)

Answer: D — The amount is not taxable merely on remittance because it represents accumulated savings from income already earned; remittance of capital does not constitute fresh income.

Working. Remittance = Rs. 5,00,000. Nature = accumulated savings from earlier overseas earnings. No fresh income arises merely because the money is transferred to India during P.Y. 2025-26. Taxable amount on this remittance alone = Nil.

Explanation. The scope of total income under section 5 concerns income received or deemed received, or income accruing or arising, during the relevant previous year. A transfer of accumulated savings from a foreign bank account to India does not create a new income event. The fact that money enters an Indian bank account does not automatically convert previously accumulated capital into income of the current previous year.

Where it goes wrong. Treating every inward remittance as taxable income without distinguishing the remittance of accumulated capital from current-year income.

Authority. Section 5(2); Chapter 1: Meaning of Income and Previous Year

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

Scenario. On 12 June 2025, Kavita purchased a residential plot in Jaipur from an unrelated individual for Rs. 60,00,000. The agreement fixing the consideration was executed on that date, and she transferred Rs. 5,00,000 through NEFT to the seller on the same day. The remaining consideration was paid subsequently. The stamp duty value on the agreement date was Rs. 67,00,000, whereas the value on the registration date, 20 December 2025, was Rs. 73,00,000. The Assessing Officer has not referred the property to a Valuation Officer. The plot is held as a capital asset and is not intended for trading.

Determine the amount, if any, chargeable to tax in Kavita's hands under the head 'Income from Other Sources' in respect of the purchase of the residential plot.

1. Rs. 13,00,000, because the difference between the registration-date stamp duty value and consideration is taxable.
2. Rs. 7,00,000, because the agreement-date stamp duty value exceeds the consideration by more than Rs. 50,000. (correct answer)
3. Nil, because the agreement-date stamp duty value can be considered and the difference does not exceed the higher of Rs. 50,000 and 10% of consideration.
4. Rs. 7,30,000, because 10% of the registration-date stamp duty value is chargeable as income from other sources.

Answer: B — Rs. 7,00,000, because the agreement-date stamp duty value exceeds the consideration by more than Rs. 50,000.

Working. Agreement-date stamp duty value = Rs. 67,00,000. Consideration = Rs. 60,00,000. Difference = Rs. 7,00,000. Threshold = Higher of Rs. 50,000 and 10% of Rs. 60,00,000 = Rs. 6,00,000. Since Rs. 7,00,000 exceeds Rs. 6,00,000, taxable income = Rs. 7,00,000. Correct answer: b.

Explanation. Because part of the consideration was paid through NEFT on the agreement date, the agreement-date stamp duty value of ₹67,00,000 may be used. It exceeds the ₹60,00,000 consideration by ₹7,00,000. The safe-harbour threshold is the higher of ₹50,000 and 10% of consideration, namely ₹6,00,000. Since the difference exceeds that threshold, the full ₹7,00,000 is taxable under section 56(2)(x).

Where it goes wrong. Applying the registration-date valuation without considering the permitted agreement-date valuation, or comparing the difference with Rs. 50,000 alone rather than the higher threshold.

Authority. Section 56(2)(x); Section 56(2)(x), proviso relating to agreement date stamp duty value

Question 8 · 1 marks · Chapter 7: Advance Tax, Tax Deduction at Source and Tax Collection at Source · medium

Scenario. On 18 January 2026, an automobile dealer in Indore sold a new motor vehicle to an individual customer for Rs. 14,50,000. The vehicle was sold at the retail level, and the dealer received Rs. 4,00,000 as an advance on 18 January and the balance on 10 February 2026. The customer paid part of the consideration in cash and the remainder through banking channels. The customer furnished a valid PAN, and no exemption from TCS is available.

What is the amount of tax collectible at source by the dealer on receipt of the advance of Rs. 4,00,000 on 18 January 2026?

1. Rs. 14,500, because TCS at 1% is collectible on the entire sale consideration when the sale agreement is executed.
2. Rs. 40,000, because TCS at 10% applies to the advance received on a high-value motor vehicle.
3. Nil, because TCS on a motor vehicle is applicable only when the entire sale consideration is received.
4. Rs. 4,000, because TCS at 1% is collectible on the amount of sale consideration received as advance. (correct answer)

Answer: D — Rs. 4,000, because TCS at 1% is collectible on the amount of sale consideration received as advance.

Working. Advance received = Rs. 4,00,000. Applicable TCS rate = 1%. TCS = Rs. 4,00,000 × 1% = Rs. 4,000.

Explanation. Under section 206C(1F), the seller must collect TCS at 1% on the sale consideration of a motor vehicle whose value exceeds Rs. 10 lakh. Collection is required at the time of receipt of sale consideration. Accordingly, TCS on the advance received is Rs. 4,000. The entire sale consideration is not the amount on which collection is made at this particular receipt.

Where it goes wrong. Collecting TCS on the entire consideration at the first instalment instead of applying the collection requirement at each receipt of sale consideration.

Authority. Section 206C(1F); CBDT Circular No. 22/2016 dated 8 June 2016

Question 9 · 2 marks · Chapter 8 - Input Tax Credit · hard

Scenario. Aarohan Industrial Solutions Private Limited, registered under GST in Maharashtra, manufactures specialised industrial equipment at its Pune factory. The company follows the regular scheme of taxation and files monthly returns. During the financial year 2025-26, the following transactions took place: 1. On 15 February 2025, the company placed an order with Vardhan Metals for specialised steel components worth ₹8,00,000 plus GST of ₹1,44,000. The entire consignment was agreed to be delivered in three instalments. The first two instalments were received in October and November 2025, while the final instalment was received on 10 December 2025. The supplier had issued the invoice in February 2025, and the company had paid the entire invoice amount in advance. The company's annual return for FY 2024-25 was not filed until December 2025. 2. On 1 August 2025, the company purchased production machinery accessories from Nivaan Components for ₹5,00,000 plus GST of ₹90,000. The accessories were received immediately, and ITC was availed in the August 2025 return. Due to a commercial dispute, the company paid only ₹3,54,000, including proportionate tax, within 180 days of the invoice date. The remaining amount was settled on 15 March 2026. No credit note or other adjustment was issued by the supplier. 3. In September 2025, the company engaged a registered works contractor to renovate its existing administrative office building. The works contract invoice included GST of ₹1,80,000. The entire renovation expenditure was capitalised in the company's books. The building is used exclusively for business activities. During the same month, the company also purchased a specialised machine foundation system forming part of its production plant, and the related GST was ₹1,20,000. 4. In November 2025, the company purchased an eighteen-seater bus, including the driver's seat, for transporting factory employees. GST charged was ₹2,70,000. It also paid ₹36,000 as GST on general insurance for a five-seater car used by its senior executives exclusively for official business travel. Neither vehicle is used for making taxable outward supplies of passenger transportation or imparting driving training. 5. For October 2026, the company had output tax liabilities of ₹2,00,000 under IGST, ₹1,20,000 under CGST and ₹1,00,000 under SGST. Its electronic credit ledger contained IGST credit of ₹1,50,000, CGST credit of ₹1,00,000 and SGST credit of ₹80,000. There were no reverse charge liabilities included in these figures. 6. During October 2026, the value of its taxable supplies, excluding exempt and zero-rated supplies, exceeded ₹50 lakh. Its output tax liability for the relevant cumulative period of the financial year was ₹11,52,000. The company had already discharged ₹15,000 of its cumulative output tax liability through the electronic cash ledger during that financial year. It satisfies none of the other specified exceptions to the restriction under rule 86B. The company seeks advice on the admissibility of ITC and the manner of discharging its output tax liabilities.

With reference to the steel components purchased from Vardhan Metals, determine whether Aarohan Industrial Solutions Private Limited can avail ITC of ₹1,44,000 in December 2025.

1. No, because ITC on goods supplied in instalments becomes available only on receipt of the last instalment, and the time limit under section 16(4) had already expired on 30 November 2025. (correct answer)
2. Yes, because the company paid the entire invoice value in advance and received the final instalment before filing its annual return.
3. Yes, because the time limit under section 16(4) begins from the date of receipt of the last instalment of goods rather than the financial year in which the tax invoice was originally issued.
4. No, because ITC on goods supplied in instalments is available only when all instalments are received and the supplier issues a fresh invoice after the final instalment.

Answer: A — No, because ITC on goods supplied in instalments becomes available only on receipt of the last instalment, and the time limit under section 16(4) had already expired on 30 November 2025.

Working. Invoice financial year: 2024-25. Last date under section 16(4): 30 November 2025, subject to the earlier annual return date. Last instalment received: 10 December 2025. Therefore, ITC is time-barred.

Explanation. Under the first proviso to section 16(2), ITC on goods received in lots or instalments becomes available only upon receipt of the last lot. However, section 16(4) independently restricts availment to 30 November following the relevant financial year or the date of filing the relevant annual return, whichever is earlier. The invoice belongs to FY 2024-25, so the deadline was 30 November 2025. The last instalment arrived on 10 December 2025. Option (c) is tempting because receipt of the last lot determines eligibility, but it does not extend the separate statutory deadline.

Where it goes wrong. Confusing the date on which the last instalment is received with the independent time limit for claiming ITC.

Authority. Section 16(2), first proviso; Section 16(4)

Question 10 · 2 marks · Chapter 8 - Input Tax Credit · hard

In relation to the purchase from Nivaan Components, determine the amount of ITC which Aarohan Industrial Solutions Private Limited is required to reverse on account of non-payment within 180 days.

1. ₹90,00,000 is not correct, but ₹90,000 because the entire ITC must be reversed whenever the invoice consideration is not fully discharged within 180 days.
2. ₹36,000, because ITC attributable to the unpaid 40% of the invoice must be reversed along with applicable interest. (correct answer)
3. ₹54,000, because ITC attributable to the amount actually paid within 180 days alone is required to be reversed.
4. Nil, because the company has ultimately paid the entire invoice amount before the end of the financial year.

Answer: B — ₹36,000, because ITC attributable to the unpaid 40% of the invoice must be reversed along with applicable interest.

Working. Invoice value including GST = ₹5,90,000. Amount paid = ₹3,54,000 = 60%. Amount unpaid = ₹2,36,000 = 40%. ITC reversal = ₹90,000 × 40% = ₹36,000, along with applicable interest. Credit may be re-availed upon subsequent payment.

Explanation. The second proviso to section 16(2), read with rule 37, requires reversal of ITC proportionate to the amount remaining unpaid where the value of supply along with tax is not paid within 180 days. The company paid 60% of the invoice and left 40% unpaid. Accordingly, ₹90,000 × 40% = ₹36,000 must be paid or reversed with applicable interest. Option (d) is tempting because the outstanding amount was subsequently settled, but subsequent payment permits re-availment of the credit; it does not eliminate the initial reversal requirement.

Where it goes wrong. Ignoring proportionate reversal and treating subsequent payment as eliminating the earlier statutory default.

Authority. Section 16(2), second proviso; Rule 37; Section 50

Question 11 · 2 marks · Chapter 8 - Input Tax Credit · hard

Which of the following correctly determines the admissibility of ITC on the renovation of the administrative building and the specialised machine foundation system?

1. ITC of ₹3,00,000 is available because both expenditures relate exclusively to the company's manufacturing business.
2. ITC of ₹1,80,000 is available on renovation, but ITC of ₹1,20,000 on the machine foundation system is blocked because both expenditures are capitalised.
3. ITC of ₹1,20,000 is available on the eligible plant and machinery component, whereas ITC of ₹1,80,000 on the capitalised renovation of the office building is blocked. (correct answer)
4. Both credits are blocked because any works contract expenditure capitalised in the books of a registered person is ineligible for ITC.

Answer: C — ITC of ₹1,20,000 is available on the eligible plant and machinery component, whereas ITC of ₹1,80,000 on the capitalised renovation of the office building is blocked.

Working. Office renovation: ₹1,80,000 - blocked. Eligible plant and machinery component: ₹1,20,000 - admissible. Total admissible ITC = ₹1,20,000.

Explanation. Section 17(5)(c) blocks ITC on works contract services used for construction of immovable property other than plant and machinery, except where such services are used for further supply of works contract services. The definition of construction includes repairs and renovation to the extent capitalised. Thus, the office renovation credit of ₹1,80,000 is blocked. The machine foundation system qualifies as part of eligible plant and machinery, for which the statutory exclusion applies. Option (a) is tempting because both expenditures serve business purposes, but business use alone does not override blocked-credit provisions.

Where it goes wrong. Assuming exclusive business use overrides the restrictions applicable to capitalised construction and renovation expenditure.

Authority. Section 17(5)(c); Section 17(5)(d); Explanation to section 17(5)

Question 12 · 2 marks · Chapter 8 - Input Tax Credit · medium

Determine the total ITC admissible to Aarohan Industrial Solutions Private Limited in respect of the bus and the car insurance premium.

1. ₹2,70,000, because the bus has a seating capacity exceeding 13 persons, including the driver, whereas insurance relating to the ineligible five-seater car is blocked. (correct answer)
2. ₹3,06,000, because both employee transportation and official business travel qualify as eligible business purposes for claiming input tax credit on motor vehicles under section 16(1).
3. Nil, because motor vehicles used for employee transportation are blocked irrespective of their seating capacity.
4. ₹36,000, because general insurance is eligible for ITC when the insured vehicle is used exclusively for business.

Answer: A — ₹2,70,000, because the bus has a seating capacity exceeding 13 persons, including the driver, whereas insurance relating to the ineligible five-seater car is blocked.

Working. Eighteen-seater bus: ₹2,70,000 admissible. Five-seater car insurance: ₹36,000 blocked. Total admissible ITC = ₹2,70,000.

Explanation. Section 17(5)(a) blocks ITC on motor vehicles for transportation of persons having an approved seating capacity of not more than 13 persons, including the driver, subject to specified exceptions. The restriction does not cover the eighteen-seater bus, so ITC of ₹2,70,000 is admissible. Insurance relating to the five-seater car is also blocked under section 17(5)(ab), since the underlying vehicle is ineligible and no exception applies. Option (b) incorrectly assumes that business use alone makes both credits admissible.

Where it goes wrong. Applying the motor vehicle restriction without considering seating capacity and the consequential restriction on insurance services.

Authority. Section 17(5)(a); Section 17(5)(ab)

Question 13 · 2 marks · Chapter 13 - Payment of Tax · hard

Considering the electronic credit ledger balances and the output tax liabilities for October 2026, what is the minimum amount required to be discharged through the electronic cash ledger, assuming the company utilises ITC in accordance with the prescribed order?

1. ₹1,00,000, because CGST credit cannot be used against IGST liability and IGST credit must first be utilised against CGST and SGST liabilities.
2. ₹90,000, because IGST credit must first be exhausted against IGST, after which CGST credit can be used against the remaining IGST liability and then CGST, while SGST credit is used against SGST. (correct answer)
3. ₹70,000, because the remaining IGST liability can be discharged using SGST credit before utilising CGST credit.
4. ₹1,70,000, because CGST and SGST credits cannot be used against IGST liability under any circumstances.

Answer: B — ₹90,000, because IGST credit must first be exhausted against IGST, after which CGST credit can be used against the remaining IGST liability and then CGST, while SGST credit is used against SGST.

Working. IGST liability ₹2,00,000: IGST ITC ₹1,50,000 + CGST ITC ₹50,000. Remaining CGST liability: ₹1,20,000 - ₹50,000 = ₹70,000. Remaining SGST liability: ₹1,00,000 - ₹80,000 = ₹20,000. Minimum cash payment = ₹70,000 + ₹20,000 = ₹90,000.

Explanation. Section 49(5), read with sections 49A and 49B and rule 88A, prescribes the order of ITC utilisation. IGST credit of ₹1,50,000 is first used against IGST liability of ₹2,00,000, leaving ₹50,000. CGST credit can then discharge this remaining IGST liability. The remaining CGST credit of ₹50,000 is used against CGST liability, while SGST credit of ₹80,000 is used against SGST liability. Option (a) is tempting because it correctly recognises the restriction on cross-utilisation of CGST and SGST but incorrectly prohibits CGST credit from being used against IGST.

Where it goes wrong. Incorrectly applying the restrictions on cross-utilisation between CGST and SGST to the utilisation of CGST credit against IGST.

Authority. Section 49(5); Section 49A; Section 49B; Rule 88A

Question 14 · 2 marks · Chapter 13 - Payment of Tax · hard

With reference to the restriction under rule 86B, determine whether Aarohan Industrial Solutions Private Limited can discharge its entire October 2026 output tax liability through the electronic credit ledger, assuming the stated cumulative cash payment relates to discharge of its output tax liability.

1. No, because taxable supplies exceeding ₹50 lakh in a month invariably require at least 1% of the output tax liability to be paid in cash in that month.
2. No, because rule 86B restricts ITC utilisation to 99% of output tax liability, and the restriction cannot be relaxed on account of cash payments made during earlier months.
3. Yes, because cumulative cash payment of ₹15,000 exceeds 1% of the cumulative output tax liability of ₹11,52,000, attracting the specified exception to rule 86B. (correct answer)
4. Yes, because rule 86B applies only where the monthly taxable supply exceeds ₹1 crore and not where it exceeds ₹50 lakh.

Answer: C — Yes, because cumulative cash payment of ₹15,000 exceeds 1% of the cumulative output tax liability of ₹11,52,000, attracting the specified exception to rule 86B.

Working. Monthly taxable supplies exceed ₹50 lakh. Cumulative output tax liability = ₹11,52,000. One per cent = ₹11,520. Cumulative cash payment = ₹15,000. Since ₹15,000 exceeds ₹11,520, the specified exception applies and full ITC utilisation is permitted, subject to other applicable provisions.

Explanation. Rule 86B ordinarily restricts utilisation of electronic credit ledger balances to 99% of output tax liability where the value of taxable supplies, excluding exempt and zero-rated supplies, exceeds ₹50 lakh in a month. However, the amended exception permits full ITC utilisation where cumulative cash payment towards output tax exceeds 1% of the total cumulative output tax liability up to that month in the current financial year. Here, 1% of ₹11,52,000 is ₹11,520, whereas cumulative cash payment is ₹15,000. Therefore, the exception applies. Option (a) incorrectly treats the ordinary restriction as unconditional.

Where it goes wrong. Applying the monthly 99% ITC restriction without examining the amended cumulative cash-payment exception.

Authority. Rule 86B; Notification No. 20/2025 CT dated 31.12.2025, effective 01.02.2026

Question 15 · 2 marks · Chapter 4 - Place of Supply · medium

Scenario. M/s Eventique Planners, registered in Rajasthan, enters into an agreement with Mr. Raghav, an unregistered individual whose residential address is recorded as Lucknow, Uttar Pradesh. Eventique is engaged to organise a three-day wedding celebration, including venue coordination, stage arrangements, catering coordination and guest management. The entire wedding celebration is scheduled to take place in Dubai, UAE. The agreement is executed and the advance payment is received at Jaipur. Eventique also engages an Indian decorator for certain preparatory activities, but the contract with Mr. Raghav covers the complete event organisation service. Both parties are located in India, and the service is supplied in the ordinary course of Eventique's business.

Determine the place of supply of the event organisation service supplied by Eventique Planners to Mr. Raghav.

1. Jaipur, Rajasthan, because the agreement was executed and the advance consideration was received there.
2. Dubai, UAE, because the place where an event is actually held is always the place of supply, irrespective of whether the recipient is registered or unregistered.
3. Rajasthan, because the location of the supplier determines the place of supply whenever the event takes place outside India.
4. Lucknow, Uttar Pradesh, because where event organisation services are supplied to an unregistered person for an event held outside India, the place of supply is the location of the recipient. (correct answer)

Answer: D — Lucknow, Uttar Pradesh, because where event organisation services are supplied to an unregistered person for an event held outside India, the place of supply is the location of the recipient.

Working. Recipient: Unregistered. Event location: Dubai, outside India. Applicable rule: Section 12(7). Place of supply = location of recipient = Lucknow, Uttar Pradesh.

Explanation. Section 12(7) of the IGST Act provides specific rules for event organisation services. For a registered recipient, the place of supply is the recipient's location. For an unregistered recipient, it is ordinarily the place where the event is held. However, where the event is held outside India, the place of supply is the location of the recipient. Since Mr. Raghav is unregistered, has his recorded address in Lucknow and the wedding takes place in Dubai, Lucknow is the place of supply. Option (b) overlooks the specific exception for events held outside India.

Where it goes wrong. Applying the ordinary place-of-event rule without considering the specific exception for events organised outside India for unregistered recipients.

Authority. Section 12(7) of the IGST Act

Question 16 · 1 marks · Chapter 5 - Exemptions from GST · medium

Scenario. M/s Pratham Textiles, a registered manufacturer in Gujarat, engaged an independent truck owner, Mr. Kunal, to transport finished textile goods from its Ahmedabad factory to its warehouse in Surat. Mr. Kunal owns and operates the truck himself and charges ₹18,000 for the transportation. He does not issue a consignment note and does not operate as a goods transportation agency or courier agency. The transportation is undertaken entirely by road, and no other service is bundled with it.

Determine the GST treatment of the transportation service supplied by Mr. Kunal.

1. Taxable, because every transportation service supplied to a registered business is subject to GST.
2. Exempt only if Mr. Kunal is registered under GST and has opted for the composition scheme.
3. Taxable under reverse charge, because the recipient is a registered manufacturer and the transportation is undertaken for business purposes.
4. Exempt, because transportation of goods by road is exempt except where supplied by a goods transportation agency or a courier agency. (correct answer)

Answer: D — Exempt, because transportation of goods by road is exempt except where supplied by a goods transportation agency or a courier agency.

Working. Transportation mode: Road. Supplier: Independent truck owner. Consignment note: Not issued. GTA/courier status: Neither. Result: Exempt supply.

Explanation. The exemption covering transportation of goods by road excludes services supplied by a goods transportation agency and a courier agency. Mr. Kunal is an independent truck owner who transports goods by road without issuing a consignment note and is neither a GTA nor a courier agency. Accordingly, his service falls within the exemption. The amendment effective from 22 September 2025 retains this distinction. Option (c) incorrectly assumes that the recipient's registration and business use automatically attract reverse charge.

Where it goes wrong. Confusing transportation by an independent truck owner with transportation supplied by a goods transportation agency.

Authority. Notification No. 12/2017 CT(R) dated 28.06.2017, transportation of goods by road exemption; Notification No. 16/2025 CT(R) dated 17.09.2025, effective 22.09.2025; Notification No. 9/2017 IT(R) dated 28.06.2017