CA Inter Taxation MCQ Test 8 (Income-tax + GST): answer key

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

Scenario. Ms. Kavya Mehta, a resident individual, owns a residential building in Pune which she purchased in April 2021 using a housing loan from a scheduled bank. The property consists of two independent floors. She let out the first floor to Mr. Arjun Rao under a genuine tenancy agreement for residential purposes at a monthly rent of Rs. 55,000. The second floor was occupied by Kavya herself throughout the previous year 2025-26. The municipal valuation of the entire building is Rs. 6,10,000 per annum, while the fair rent of comparable buildings in the locality is Rs. 6,40,000 per annum. The standard rent fixed under the applicable Rent Control Act is Rs. 6,20,000 per annum. Both floors have equal built-up areas. The first-floor tenant occupied the premises from 1 April 2025 to 31 January 2026. The property remained vacant during February and March 2026 because the tenant vacated and Kavya could not find another tenant despite advertising. The tenant also failed to pay the rent for December 2025. Kavya excluded this amount from her rent records after taking reasonable legal steps to recover it. The tenant vacated the premises and does not occupy any other property belonging to Kavya. Kavya paid municipal taxes of Rs. 48,000 during the previous year, relating to the entire building. An additional municipal tax liability of Rs. 12,000 relating to the same year remained unpaid on 31 March 2026. Interest of Rs. 3,60,000 was payable on the housing loan during the year, of which Rs. 1,80,000 was attributable to the first floor and Rs. 1,80,000 to the self-occupied floor. The bank also charged Rs. 18,000 as a processing fee. Separately, Kavya owns a small commercial unit in the same city. She let it to a design studio for an annual building rent of Rs. 6,60,000 and separately received Rs. 1,20,000 for security, lift and power-backup services. The tenant was contractually free to accept the building without these services, and the agreements were independently enforceable. Kavya does not carry on any business of providing such services. She has exercised the option of shifting out of the default tax regime and pays tax under the normal provisions of the Act. You are required to determine the appropriate income-tax treatment of these transactions for A.Y. 2026-27.

Considering the vacancy and the tenant's default in payment of rent, what should be taken as the Gross Annual Value of the first floor for P.Y. 2025-26?

1. Rs. 5,50,000, because rent for ten months is receivable and the tenant's default cannot reduce the Gross Annual Value under the statutory provisions of section 23(1).
2. Rs. 4,95,000, because the qualifying unrealised rent is excluded and the actual rent, reduced by vacancy, is adopted under the vacancy provision. (correct answer)
3. Rs. 6,20,000, because standard rent is the minimum annual value chargeable irrespective of vacancy and unrealised rent.
4. Rs. 5,50,000, because the vacancy provision applies but unrealised rent can be deducted only from Net Annual Value.

Answer: B — Rs. 4,95,000, because the qualifying unrealised rent is excluded and the actual rent, reduced by vacancy, is adopted under the vacancy provision.

Working. Expected Rent = Higher of Rs. 6,10,000 and Rs. 6,40,000, restricted to Rs. 6,20,000 = Rs. 6,20,000. Actual rent = Rs. 55,000 x 10 = Rs. 5,50,000. Less: Qualifying unrealised rent = Rs. 55,000. Actual rent = Rs. 4,95,000. Since the shortfall is attributable to vacancy, GAV = Rs. 4,95,000.

Explanation. Expected rent is Rs. 6,20,000, being the higher of municipal value and fair rent restricted to standard rent. Actual rent for ten months is Rs. 5,50,000. The December default qualifies as unrealised rent because the tenancy is genuine, the tenant has vacated, does not occupy another property of Kavya and reasonable recovery steps have been taken. Actual rent therefore becomes Rs. 4,95,000. Since the actual rent is lower than expected rent owing to vacancy, the vacancy provision applies. Option (a) ignores the qualifying unrealised rent.

Where it goes wrong. Confusing actual rent with expected rent and overlooking the exclusion of qualifying unrealised rent before applying the vacancy provision.

Authority. Study Material Chapter 3, Unit 2, Section 2.5, section 23(1)(a), section 23(1)(b), section 23(1)(c), pages 3.142-3.147; Study Material Chapter 3, Unit 2, Treatment of Unrealised Rent, Explanation below section 23(1), Rule 4, page 3.146

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

What is the income chargeable under the head Income from House Property in respect of the first floor, after considering the allowable deductions for P.Y. 2025-26?

1. Rs. 1,32,900, because municipal taxes paid, 30% of Net Annual Value and the entire attributable interest are deductible. (correct answer)
2. Rs. 1,47,300, because only municipal taxes paid and 30% of Gross Annual Value are deductible, while interest on a let-out property is restricted to Rs. 1,50,000.
3. Rs. 1,50,300, because the unpaid municipal taxes are also deductible and interest is allowable only on actual payment.
4. Rs. 1,32,900, because the bank processing fee is also deductible along with interest on borrowed capital.

Answer: A — Rs. 1,32,900, because municipal taxes paid, 30% of Net Annual Value and the entire attributable interest are deductible.

Working. GAV = Rs. 4,95,000. Municipal taxes attributable to first floor = Rs. 48,000 x 50% = Rs. 24,000. NAV = Rs. 4,71,000. Deduction under section 24(a) = 30% x Rs. 4,71,000 = Rs. 1,41,300. Interest under section 24(b) = Rs. 1,80,000. Income from House Property = Rs. 4,71,000 - Rs. 1,41,300 - Rs. 1,80,000 = Rs. 1,49,700.

Explanation. Municipal taxes are deductible only when actually paid by the owner during the previous year. Thus, only Rs. 24,000 attributable to the first floor is deductible. The Net Annual Value is Rs. 4,71,000, and the standard deduction is 30% of this amount. Interest on borrowed capital for a let-out property is allowable without the self-occupied property limit. The processing fee is not separately deductible under section 24, whose deductions are exhaustive. Option (d) reaches the right figure only if an inadmissible processing fee is incorrectly added as a deduction, so it is not correct.

Where it goes wrong. Deducting municipal taxes merely because they relate to the previous year, rather than checking actual payment, and adding an expenditure outside the exhaustive section 24 deductions.

Authority. Study Material Chapter 3, Unit 2, Section 2.5, municipal taxes, page 3.146-3.147; Study Material Chapter 3, Unit 2, Section 2.6, section 24(a) and 24(b), pages 3.148-3.150

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

How should Kavya classify the annual building rent and the separately charged service fees received from the commercial unit?

1. The entire Rs. 7,80,000 is taxable under Income from House Property because the services are provided in connection with the building.
2. The building rent of Rs. 6,60,000 is taxable under Income from House Property, while Rs. 1,20,000 is taxable under Income from Other Sources or Profits and Gains of Business or Profession, as applicable. (correct answer)
3. The entire Rs. 7,80,000 is taxable under Income from Other Sources because the tenant receives the building and services under connected arrangements.
4. The building rent of Rs. 6,60,000 is taxable under Income from House Property and Rs. 1,20,000 is necessarily taxable under Profits and Gains of Business or Profession because all service charges constitute business income.

Answer: B — The building rent of Rs. 6,60,000 is taxable under Income from House Property, while Rs. 1,20,000 is taxable under Income from Other Sources or Profits and Gains of Business or Profession, as applicable.

Working. Building rent = Rs. 6,60,000: Income from House Property. Service charges = Rs. 1,20,000: separately assessable under Income from Other Sources or Profits and Gains of Business or Profession, depending on the nature of the activity. Total receipts = Rs. 7,80,000, but they are not assessed under a single head.

Explanation. The building and services are separable because the tenant is contractually entitled to accept the building without the additional services. Consequently, the building rent is assessed under section 22 as Income from House Property. The service charges are assessed separately under Profits and Gains of Business or Profession or Income from Other Sources, depending on the circumstances. Since Kavya does not carry on a service business, option (d) is not necessarily correct. Option (a) incorrectly treats separable service charges as building rent.

Where it goes wrong. Assuming that separately identifiable service charges automatically follow the tax treatment of building rent, without examining whether the lettings are separable.

Authority. Study Material Chapter 3, Unit 2, Section 2.3, Composite Rent, pages 3.140-3.141

Question 4 · 2 marks · Chapter 6: Deductions from Gross Total Income · medium

Scenario. Mr. Devansh Kulkarni, aged 42 years, is employed with a private-sector company in Bengaluru. For the previous year 2025-26, his Gross Total Income, before Chapter VI-A deductions, is Rs. 18,50,000. He has exercised the option of shifting out of the default tax regime under section 115BAC(1A). During the year, Devansh contributed Rs. 1,10,000 to his Public Provident Fund account and paid Rs. 25,000 as tuition fees to a school in India for the full-time education of his daughter. He also paid a life insurance premium of Rs. 52,000 for a policy on his own life issued on 1 April 2018. The actual capital sum assured under that policy is Rs. 4,50,000. The premium was paid through banking channels. Devansh maintains a separate health insurance policy covering himself, his wife and his dependent son, for which he paid Rs. 22,000 by cheque. His father, aged 68 years and resident in India, is covered by a separate health insurance policy for which Devansh paid Rs. 48,000 by cheque. His father is not covered by any employer-provided medical insurance. Devansh additionally paid Rs. 4,000 in cash towards preventive health check-ups of himself and his wife. During the year, Devansh also paid Rs. 1,20,000 as interest on an education loan obtained from a scheduled bank in respect of his younger brother's postgraduate course. The loan agreement was entered into by Devansh as the borrower, and his brother is neither his spouse nor his child nor a student for whom he is the legal guardian. The interest repayment commenced in the previous year 2019-20, and the entire interest has not yet been repaid. Separately, Devansh's father, a retired Central Government employee, is a subscriber to the Unified Pension Scheme (UPS). At retirement, his individual corpus amounted to Rs. 32,00,000. An amount of Rs. 4,00,000 was transferred from his individual corpus to the pool corpus. He received Rs. 20,00,000 from the NPS Trust and a separate lump-sum payment calculated under the applicable Department of Financial Services notification. His monthly emoluments, comprising Basic Pay and Dearness Allowance, immediately before retirement were Rs. 1,20,000, and he had completed 28 years of qualifying service. Assume all the stated contributions, premiums and receipts satisfy the respective procedural requirements. Devansh seeks advice on the deductions available to him and the tax treatment of his father's retirement receipts.

What is the eligible deduction under section 80C in respect of Devansh's PPF contribution, life insurance premium and tuition fees for A.Y. 2026-27?

1. Rs. 1,87,000, because the entire PPF contribution, premium paid and tuition fees qualify for deduction.
2. Rs. 1,62,000, because the life insurance premium is fully deductible and the aggregate deduction is restricted only after allowing the tuition fees.
3. Rs. 1,50,000, because the eligible life insurance premium is restricted to 10% of the actual capital sum assured and the aggregate deduction is subject to the overall ceiling. (correct answer)
4. Rs. 1,45,000, because the eligible insurance premium is Rs. 45,000 and tuition fees paid for a child cannot be claimed together with PPF contributions.

Answer: C — Rs. 1,50,000, because the eligible life insurance premium is restricted to 10% of the actual capital sum assured and the aggregate deduction is subject to the overall ceiling.

Working. PPF = Rs. 1,10,000. Eligible insurance premium = Lower of Rs. 52,000 and 10% of Rs. 4,50,000 = Rs. 45,000. Tuition fees = Rs. 25,000. Aggregate qualifying payments = Rs. 1,80,000. Deduction under section 80C = Lower of Rs. 1,80,000 and Rs. 1,50,000 = Rs. 1,50,000.

Explanation. For a life insurance policy issued on 1 April 2018, the premium qualifying under section 80C is restricted to 10% of actual capital sum assured. Thus, Rs. 45,000 qualifies rather than Rs. 52,000. PPF contribution of Rs. 1,10,000 and eligible tuition fees of Rs. 25,000 are also qualifying payments. Their aggregate is Rs. 1,80,000, restricted to Rs. 1,50,000 under section 80C. Option (a) ignores both the insurance premium restriction and the overall ceiling.

Where it goes wrong. Allowing the entire insurance premium and overlooking the combined deduction ceiling under section 80CCE.

Authority. Study Material Chapter 6, Section 2.1, section 80C, life insurance premium and tuition fees, pages 6.10-6.17; Study Material Chapter 6, Section 2.4, section 80CCE, page 6.28

Question 5 · 2 marks · Chapter 6: Deductions from Gross Total Income · hard

What is the aggregate deduction available to Devansh under section 80D in respect of the health insurance premiums and preventive health check-up expenditure?

1. Rs. 73,000, because the family deduction is restricted to Rs. 25,000 and the parental deduction is Rs. 48,000. (correct answer)
2. Rs. 75,000, because the family deduction is Rs. 25,000 and the deduction for parents, including the preventive health check-up expenditure, is restricted to Rs. 50,000.
3. Rs. 77,000, because the entire insurance premiums and the preventive health check-up expenditure qualify independently.
4. Rs. 70,000, because preventive health check-up payments made in cash are inadmissible under section 80D.

Answer: A — Rs. 73,000, because the family deduction is restricted to Rs. 25,000 and the parental deduction is Rs. 48,000.

Working. Self, spouse and dependent children: Rs. 22,000 + Rs. 4,000 = Rs. 26,000, restricted to Rs. 25,000. Parents: Rs. 48,000, restricted to Rs. 50,000. Aggregate deduction = Rs. 25,000 + Rs. 48,000 = Rs. 73,000. Correct answer: Rs. 73,000.

Explanation. The self, spouse and dependent-child bucket is capped at ₹25,000. It includes the ₹22,000 premium and ₹4,000 preventive check-up, which is permitted in cash but restricted together to ₹25,000. The resident senior-citizen parent's premium of ₹48,000 is allowed within that parent's separate ₹50,000 limit. The aggregate deduction is therefore ₹73,000; option b wrongly treats the unused parental limit as deductible.

Where it goes wrong. Treating preventive health check-up expenditure as an additional deduction outside the overall section 80D limits or rejecting it because payment was made in cash.

Authority. Study Material Chapter 6, Section 2.6, section 80D, pages 6.33-6.35

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

Considering the Unified Pension Scheme provisions introduced by the Taxation Law (Amendment) Act, 2025, what is the amount of the father's retirement receipts that is exempt from income-tax, considering the NPS Trust payment, pool corpus transfer and prescribed lump-sum payment together?

1. Rs. 26,72,000, because the entire NPS Trust payment, the pool corpus transfer and the prescribed lump-sum payment are exempt.
2. Rs. 20,00,000, because only the NPS Trust payment is exempt and the prescribed lump-sum payment is taxable on retirement.
3. Rs. 25,92,000, because Rs. 19,20,000 of the NPS Trust payment and the entire prescribed lump-sum payment are exempt, while the pool corpus transfer is not treated as a receipt. (correct answer)
4. Rs. 23,20,000, because the NPS Trust payment is exempt only up to 60% of the amount received on closure, and the pool corpus transfer is fully taxable as income from other sources.

Answer: C — Rs. 25,92,000, because Rs. 19,20,000 of the NPS Trust payment and the entire prescribed lump-sum payment are exempt, while the pool corpus transfer is not treated as a receipt.

Working. Individual corpus = Rs. 32,00,000. NPS Trust payment = Rs. 20,00,000. Exemption under section 10(12AA) = 60% x Rs. 32,00,000 = Rs. 19,20,000. Prescribed lump-sum exemption = 10% x Rs. 1,20,000 x 56 completed six-month periods = Rs. 6,72,000. Transfer to pool corpus = Rs. 4,00,000, not treated as receipt under section 80CCD(6). Total exemption = Rs. 19,20,000 + Rs. 6,72,000 = Rs. 25,92,000. Taxable portion of the NPS Trust payment = Rs. 80,000.

Explanation. Under section 10(12AA), payments from the NPS Trust to a UPS subscriber on retirement are exempt to the extent of 60% of the individual's corpus. Sixty per cent of Rs. 32,00,000 is Rs. 19,20,000. The Rs. 4,00,000 transferred from individual corpus to pool corpus is not treated as received under section 80CCD(6). The prescribed lump-sum payment is separately exempt under section 10(12AB). The payment is 10% of monthly emoluments for every completed six months of qualifying service. Option (a) incorrectly exempts the entire NPS Trust payment.

Where it goes wrong. Confusing the exemption for the NPS Trust payment with the separate lump-sum exemption and treating the transfer to pool corpus as a taxable receipt.

Authority. January 2027 Statutory Update, Chapter 6, Introduction of Unified Pension Scheme in line with NPS, sections 80CCD(3A), 80CCD(6), 10(12AA) and 10(12AB), pages 2-3

Question 7 · 2 marks · Chapter 5: Aggregation of Income, Set-off and Carry Forward of Losses · hard

Scenario. Mr. Nikhil Desai, an individual resident in India, exercises the option of shifting out of the default tax regime for A.Y. 2026-27. His computed income before adjustment of current-year losses comprises salary of Rs. 8,00,000 and short-term capital gains of Rs. 1,50,000. His let-out house property results in a current-year loss of Rs. 3,10,000 after applying the applicable deductions. His non-speculative trading business records a loss of Rs. 90,000, while a separate speculative business records a loss of Rs. 40,000. He has no speculative business profits, no other business profits and no brought-forward losses. Assume all amounts are computed under the normal provisions of the Act.

Which of the following correctly describes the set-off and carry-forward treatment of Nikhil's losses for A.Y. 2026-27?

1. The house property loss of Rs. 3,10,000 can be fully adjusted against salary, the business loss can also be adjusted against salary and the speculative loss must be carried forward.
2. The house property loss can be adjusted against salary up to Rs. 2,00,000, the non-speculative business loss must be carried forward because it cannot be adjusted against any other head, and the speculative loss can be adjusted against short-term capital gains.
3. The house property loss of Rs. 2,00,000 can be set off against salary, but the balance Rs. 1,10,000 cannot be carried forward; both business losses can be adjusted against capital gains.
4. The house property loss can be set off against other heads only up to Rs. 2,00,000, the balance Rs. 1,10,000 can be carried forward, the non-speculative business loss can be set off against capital gains, and the speculative loss of Rs. 40,000 must be carried forward. (correct answer)

Answer: D — The house property loss can be set off against other heads only up to Rs. 2,00,000, the balance Rs. 1,10,000 can be carried forward, the non-speculative business loss can be set off against capital gains, and the speculative loss of Rs. 40,000 must be carried forward.

Working. House property loss = Rs. 3,10,000. Current-year inter-head set-off = Rs. 2,00,000. Balance house property loss carried forward = Rs. 1,10,000. Non-speculative business loss = Rs. 90,000, adjusted against capital gains of Rs. 1,50,000, leaving capital gains of Rs. 60,000. Speculative loss = Rs. 40,000, carried forward for set-off against speculative business income only. Total income after these adjustments = Salary Rs. 8,00,000 - Rs. 2,00,000 + capital gains Rs. 60,000 = Rs. 6,60,000.

Explanation. Under the normal provisions, current-year house property loss can be set off against income under other heads only up to Rs. 2,00,000. The remaining Rs. 1,10,000 can be carried forward for set-off against future house property income for up to eight assessment years. Non-speculative business loss cannot be adjusted against salary but can be adjusted against capital gains. Speculative loss is restricted to speculative business profits and therefore must be carried forward. Option (c) incorrectly denies carry forward of the remaining house property loss.

Where it goes wrong. Confusing the restriction on business loss adjustment against salary with a complete prohibition on inter-head adjustment, and overlooking the eight-year carry-forward period for house property losses.

Authority. Study Material Chapter 5, Inter-head Adjustment, section 71, page 5.6; Study Material Chapter 5, Carry Forward and Set-off of Loss from House Property, section 71B, page 5.7; Study Material Chapter 5, Losses in Speculation Business, section 73, pages 5.12-5.13

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

Scenario. Mrs. Shalini Iyer, a resident individual aged 63 years, receives pension income and interest from bank deposits during the previous year 2025-26. She does not carry on any business or profession and has no income assessable under the head Profits and Gains of Business or Profession. After considering the tax payable on her estimated total income, rebate, TDS and other eligible credits, her remaining tax liability is Rs. 22,000. She has not made any payment towards advance tax during the year. Her bank has already deducted the applicable TDS on the interest income.

Is Shalini liable to pay advance tax for P.Y. 2025-26?

1. Yes, because her remaining tax liability exceeds Rs. 10,000 and therefore advance tax is compulsory for every individual.
2. No, because TDS has already been deducted on her bank interest, irrespective of her age and nature of income.
3. Yes, because the exemption for senior citizens applies only when their total income consists exclusively of pension and not bank interest.
4. No, because a resident individual aged 60 years or more who does not have income chargeable under the head Profits and Gains of Business or Profession is exempt from advance tax liability. (correct answer)

Answer: D — No, because a resident individual aged 60 years or more who does not have income chargeable under the head Profits and Gains of Business or Profession is exempt from advance tax liability.

Working. Age = 63 years. Residential status = Resident. Income under PGBP = Nil. Both conditions for the senior-citizen exemption under section 207 are satisfied. Accordingly, Shalini is not liable to pay advance tax despite the remaining tax liability of Rs. 22,000.

Explanation. Section 207 provides an exception to the advance tax requirement for a resident individual aged 60 years or more during the relevant previous year who has no income chargeable under Profits and Gains of Business or Profession. Shalini satisfies both conditions. The fact that her remaining tax liability exceeds Rs. 10,000 does not override this specific exemption. Option (a) overlooks the senior-citizen exception, while option (b) incorrectly treats TDS as the reason for exemption.

Where it goes wrong. Applying the Rs. 10,000 threshold without first examining the specific exemption available to resident senior citizens having no business or professional income.

Authority. Study Material Chapter 7, Liability for Payment of Advance Tax, sections 207 and 208, page 7.117

Question 9 · 2 marks · Chapter 6 - Time of Supply · medium

Scenario. Alok Industrial Solutions Private Limited (AIS), registered under GST in Maharashtra, manufactures and supplies industrial equipment and also provides installation and technical consultancy services. It follows the regular scheme of taxation and maintains its books of account on an accrual basis. During the financial year 2026-27, the following transactions took place:\n\n1. On 12 May 2026, AIS received an advance of ₹2,40,000 from Meridian Components Ltd. against an order for industrial machinery. The machinery was dispatched on 8 June 2026 and the corresponding tax invoice for the entire agreed price of ₹12,00,000 was issued on 7 June 2026. The advance was adjusted against the invoice. The machinery was neither covered by any special notification nor supplied under reverse charge.\n\n2. AIS entered into an installation contract with Zenith Engineering Ltd. The installation service was completed on 30 June 2026. AIS had received ₹1,80,000 on 10 June 2026 as an advance specifically against this contract. The balance consideration was payable after completion. AIS issued the tax invoice for the entire contract value on 20 July 2026, and the remaining payment was received on 5 August 2026. The contract was an ordinary taxable service and the invoice was issued within the prescribed period.\n\n3. AIS provided a separate technical consultancy service to Nova Systems Ltd. on 1 August 2026. Although the service was completed on that date, the invoice was issued only on 10 September 2026. The consideration was credited to AIS's books on 18 August 2026, whereas the amount was credited to its bank account on 16 August 2026. The service was not a continuous supply of services.\n\n4. On 15 September 2026, AIS supplied machinery having a list price of ₹8,00,000 to an unrelated customer. The invoice separately disclosed municipal levies of ₹16,000, packing charges of ₹12,000 and testing charges of ₹7,000 for testing completed before delivery. A non-government industrial development foundation provided a subsidy of ₹40,000 directly linked to the price of this machinery. The Central Government separately provided a general capital assistance grant of ₹25,000, not linked to the price. AIS also allowed a discount of ₹20,000 in the invoice itself. All the above amounts relate to this machinery supply, and the stated list price excludes taxes and discounts.\n\n5. AIS supplied another batch of machinery to an independent dealer on 18 October 2026. On 15 November 2026, it granted the dealer a post-sale commercial discount of ₹60,000 through a financial credit note. There was no prior agreement for this discount, and the dealer had not undertaken any independent activity for AIS in return. Separately, AIS had supplied goods on 25 March 2026 and subsequently discovered an excess amount charged in the original invoice. Its relevant annual return for FY 2025-26 was furnished on 5 November 2026. AIS issued a tax credit note for the earlier supply on 12 November 2026. The incidence of tax on that earlier supply had not been passed on to any other person.\n\nAssume all supplies mentioned above are taxable and all other relevant statutory conditions are satisfied.

Determine the time of supply of the machinery supplied to Meridian Components Ltd. and the amount of advance that is relevant for determining such time of supply.

1. The time of supply is 12 May 2026, because receipt of advance consideration is the earliest event under section 12(2) of the CGST Act, irrespective of the nature or removal of goods being supplied.
2. The time of supply is 7 June 2026, because the invoice was issued before removal and the advance received for an ordinary forward-charge supply of goods does not accelerate payment of GST. (correct answer)
3. The time of supply is 8 June 2026, because the date of removal always determines the time of supply even when the invoice is issued earlier.
4. The time of supply is 7 June 2026, because the date of invoice and date of receipt of advance are treated as simultaneous events for all supplies.

Answer: B — The time of supply is 7 June 2026, because the invoice was issued before removal and the advance received for an ordinary forward-charge supply of goods does not accelerate payment of GST.

Working. Invoice date: 7 June 2026. Advance receipt: 12 May 2026, disregarded for GST payment on ordinary forward-charge goods under Notification No. 66/2017 CT. Removal: 8 June 2026. Time of supply: 7 June 2026.

Explanation. Under section 12(2), the relevant date for ordinary forward-charge goods is the earlier of the invoice date or the last date on which the invoice ought to have been issued, and the date of receipt of payment. However, Notification No. 66/2017 CT provides that registered persons covered by the notification need not pay GST on advances received against outward supplies of goods. Consequently, the advance on 12 May does not determine the payment liability. The invoice was issued on 7 June before removal on 8 June, making 7 June the relevant date. Option (a) incorrectly applies the general statutory rule without considering the special procedure.

Where it goes wrong. Applying the general advance-payment rule for goods without considering the special procedure under Notification No. 66/2017 CT.

Authority. CGST Act, section 12(2); CGST Act, section 31(1); Notification No. 66/2017 CT dated 15.11.2017

Question 10 · 2 marks · Chapter 6 - Time of Supply · hard

Determine the time of supply of the installation service provided to Zenith Engineering Ltd. for the advance portion and the balance portion of the contract consideration, respectively.

1. 10 June 2026 for the entire contract, because receipt of any advance determines the time of supply of the complete service.
2. 20 July 2026 for the entire contract, because an invoice issued within 30 days of completion of the taxable service overrides every earlier receipt of payment under section 13(2) of the CGST Act, 2017.
3. 10 June 2026 for the advance portion and 20 July 2026 for the balance portion, because the timely invoice and advance receipt operate to the extent they cover the respective portions of the service. (correct answer)
4. 30 June 2026 for the advance portion and 5 August 2026 for the balance portion, because completion and subsequent payment determine the time of supply.

Answer: C — 10 June 2026 for the advance portion and 20 July 2026 for the balance portion, because the timely invoice and advance receipt operate to the extent they cover the respective portions of the service.

Working. Advance portion: earlier of 10 June 2026 and 20 July 2026 = 10 June 2026. Balance portion: earlier of invoice date 20 July 2026 and payment date 5 August 2026 = 20 July 2026.

Explanation. Section 13(2)(a) applies because the invoice was issued within the prescribed 30-day period under section 31(2) read with rule 47. The earlier of the invoice date and payment receipt determines the time of supply, but only to the extent the payment or invoice covers the service. The advance received on 10 June fixes the time of supply for the advance portion. For the remaining consideration, the invoice dated 20 July precedes payment on 5 August. Option (a) incorrectly extends the advance-related time of supply to the entire contract.

Where it goes wrong. Ignoring the words 'to the extent the invoice or payment covers the supply' and treating an advance as determining the time of supply for the entire contract.

Authority. CGST Act, section 13(2)(a); CGST Act, section 31(2); CGST Rules, rule 47

Question 11 · 2 marks · Chapter 6 - Time of Supply · hard

What is the time of supply of the technical consultancy service provided to Nova Systems Ltd.?

1. 16 August 2026, because the amount was credited to the supplier's bank account before it was recorded in the books of account.
2. 18 August 2026, because the supplier's books of account always determine the date of receipt of payment.
3. 10 September 2026, because the invoice date is relevant even if the invoice is issued beyond the prescribed time limit.
4. 1 August 2026, because the invoice was not issued within the prescribed period and the date of provision of service precedes the date of receipt of payment. (correct answer)

Answer: D — 1 August 2026, because the invoice was not issued within the prescribed period and the date of provision of service precedes the date of receipt of payment.

Working. Invoice deadline: 31 August 2026. Actual invoice: 10 September 2026, hence late. Payment receipt date: earlier of 18 August and 16 August = 16 August. Earlier of service provision (1 August) and payment receipt (16 August) = 1 August 2026.

Explanation. The invoice dated 10 September was issued beyond 30 days from the date of provision of service, namely 1 August. Therefore, section 13(2)(b) applies. The time of supply is the earlier of the date of provision of service and the date of receipt of payment. For this purpose, payment is received on the earlier of the date of recording in the supplier's books and the date of credit to the bank account, i.e. 16 August. Since 1 August precedes 16 August, option (d) is correct. Option (a) identifies the payment date correctly but applies the wrong comparison.

Where it goes wrong. Confusing the date of receipt of payment with the ultimate time of supply when the invoice is issued late.

Authority. CGST Act, section 13(2)(b); CGST Act, section 31(2); CGST Rules, rule 47

Question 12 · 2 marks · Chapter 7 - Value of Supply · medium

Compute the value of taxable supply of machinery made by AIS on 15 September 2026 under section 15 of the CGST Act.

1. ₹8,60,000, because municipal levies, packing charges, testing charges and the non-government subsidy are included, while the Central Government grant and invoice discount are excluded. (correct answer)
2. ₹8,85,000, because all subsidies and incidental charges are includible, while only the invoice discount is deductible.
3. ₹8,45,000, because municipal levies and packing charges are included, but testing charges and subsidies are excluded.
4. ₹8,40,000, because the value includes the municipal levy, packing charges and non-government subsidy but excludes both testing charges and the invoice discount.

Answer: A — ₹8,60,000, because municipal levies, packing charges, testing charges and the non-government subsidy are included, while the Central Government grant and invoice discount are excluded.

Working. List price ₹8,00,000 + municipal levy ₹16,000 + packing ₹12,000 + testing ₹7,000 + non-government price-linked subsidy ₹40,000 - invoice discount ₹20,000 = ₹8,55,000. Central Government grant ₹25,000 is excluded.

Explanation. Under section 15(2), separately charged municipal levies, packing charges and pre-delivery testing charges are includible. A subsidy directly linked to price is also included unless provided by the Central or State Government. Therefore, the ₹40,000 foundation subsidy is included, whereas the ₹25,000 Central Government grant is excluded. The ₹20,000 discount is deductible because it is allowed before or at the time of supply and recorded in the invoice. Option (d) wrongly excludes testing charges, although they relate to an activity performed before delivery.

Where it goes wrong. Confusing government and non-government subsidies and overlooking charges for activities performed before delivery.

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

Question 13 · 2 marks · Chapter 7 - Value of Supply · hard

What is the GST treatment of the ₹60,000 post-sale commercial discount granted by AIS to the independent dealer through a financial credit note, considering the absence of a prior agreement and any independent activity by the dealer?

1. AIS may reduce its original taxable value and output tax because every commercial credit note issued after supply qualifies as a discount under section 15(3)(b).
2. AIS cannot reduce its original taxable value, but the discount constitutes additional consideration for the dealer's subsequent supply because the manufacturer has financially supported the dealer.
3. AIS cannot reduce its original taxable value on account of the discount, and the amount is not consideration for an independent supply by the dealer merely because it receives the discount. (correct answer)
4. AIS cannot issue a financial credit note after the supply, because section 34 permits credit notes only where the discount was agreed before the original invoice.

Answer: C — AIS cannot reduce its original taxable value on account of the discount, and the amount is not consideration for an independent supply by the dealer merely because it receives the discount.

Working. Prior agreement: absent. Independent dealer activity: absent. Section 15(3)(b) conditions: not satisfied. Financial credit note: permissible for commercial settlement, but no reduction in original taxable value or output tax. No separate consideration arises merely from the discount in the stated principal-to-principal arrangement.

Explanation. Section 15(3)(b) permits deduction of a post-supply discount only where its statutory conditions are satisfied, including a prior agreement and the required recipient-side linkage. Those conditions are absent. The financial credit note therefore does not reduce the original transaction value or the supplier's output tax. Further, Circular No. 251/08/2025 GST clarifies that an ordinary competitive post-sale discount in a principal-to-principal dealer relationship, without an independent activity by the dealer, is not consideration for another supply. Option (b) wrongly treats the discount as consideration merely because it benefits the dealer.

Where it goes wrong. Treating every post-sale discount as consideration for a separate dealer service, or assuming that issuing a financial credit note automatically reduces taxable value.

Authority. CGST Act, section 15(3)(b); CGST Act, section 2(31); Circular No. 92/11/2019-GST dated 07.03.2019; Circular No. 251/08/2025 GST dated 12.09.2025

Question 14 · 2 marks · Chapter 10 - Tax Invoice, Credit and Debit Notes · hard

Considering the earlier supply made on 25 March 2026, determine whether AIS can reduce its output tax liability through the credit note issued on 12 November 2026.

1. Yes, because the credit note was issued within 30 November 2026 and the incidence of tax was not passed on to another person.
2. No, because the relevant annual return was furnished on 5 November 2026, which is earlier than 30 November 2026, and the credit note was issued after that date. (correct answer)
3. Rs. 24,000, because the entire turnover of Rs. 4,00,000 is liable to tax at 6% without any threshold deduction when opting for the section 10(2A) composition scheme.
4. No, because a credit note relating to a supply made in the preceding financial year cannot be issued after 31 March 2026.

Answer: B — No, because the relevant annual return was furnished on 5 November 2026, which is earlier than 30 November 2026, and the credit note was issued after that date.

Working. Supply financial year: FY 2025-26. Normal outer date: 30 November 2026. Annual return filing date: 5 November 2026. Applicable earlier date: 5 November 2026. Credit note issuance: 12 November 2026. Result: reduction in output tax liability is not permissible under section 34(2).

Explanation. Section 34(2) requires the details of a credit note to be declared no later than 30 November following the end of the financial year in which the supply was made, or the date of furnishing the relevant annual return, whichever is earlier. For the March 2026 supply, the relevant financial year ended on 31 March 2026. The annual return was furnished on 5 November 2026, earlier than 30 November 2026. Since the credit note was issued on 12 November, the statutory cut-off had already passed. The fact that tax incidence was not passed on does not extend this time limit.

Where it goes wrong. Selecting 30 November automatically without applying the alternative annual-return filing date and the earlier-of test.

Authority. CGST Act, section 34(1); CGST Act, section 34(2)

Question 15 · 2 marks · Chapter 12 - E-Way Bill · hard

Scenario. Prisha Manufacturing Ltd., a registered supplier in Karnataka, dispatched a consignment to a registered buyer in the same State. A single invoice contained taxable machinery valued at ₹47,500 before GST and exempt accessories valued at ₹7,000. GST on the machinery was separately charged at the applicable rate of 18%. The goods were initially transported 42 km by road from the supplier's registered place of business to the transporter’s place of business for onward transportation. The transporter would subsequently carry the goods another 310 km to the buyer. The supplier had not generated an e-way bill before the first movement. No exemption other than the distance-related relaxation concerning Part B is applicable.

Which of the following correctly describes the e-way bill requirement and the information to be furnished in Part B for the initial movement of the consignment?

1. An e-way bill is required because the consignment value exceeds ₹50,000 after including GST on taxable goods and excluding the exempt accessories; however, Part B details need not be furnished for the initial 42 km movement within Karnataka to the transporter. (correct answer)
2. An e-way bill is not required because the taxable goods are valued below ₹50,000 before GST, and the exempt accessories are not relevant for determining the consignment value.
3. An e-way bill is required and complete Part B vehicle details must be furnished before the initial movement because the 50 km relaxation applies only to movements between two transporters.
4. An e-way bill is not required for the initial movement because the distance is below 50 km, but one must be generated when the goods commence the subsequent 310 km journey.

Answer: A — An e-way bill is required because the consignment value exceeds ₹50,000 after including GST on taxable goods and excluding the exempt accessories; however, Part B details need not be furnished for the initial 42 km movement within Karnataka to the transporter.

Working. Taxable goods value ₹47,500 + GST ₹8,550 = ₹56,050. Exempt accessories ₹7,000 excluded. Consignment value ₹56,050 > ₹50,000. E-way bill required before commencement of movement. Initial movement: 42 km within Karnataka from consignor to transporter. Part B relaxation applies for this leg. Vehicle details must be furnished for further movement.

Explanation. Under rule 138(1), an e-way bill is required where the consignment value exceeds ₹50,000. Rule 138 explains that consignment value includes applicable GST and cess but excludes the value of exempt supplies where the invoice contains both taxable and exempt goods. The relevant value is therefore ₹56,050 (₹47,500 + ₹8,550), exceeding the threshold. However, the third proviso to rule 138(3) relaxes the requirement of furnishing Part B details for movement up to 50 km within the State from the consignor's place of business to the transporter's place of business for further transportation. The relaxation does not remove the e-way bill requirement itself.

Where it goes wrong. Confusing the exemption from furnishing Part B details for a limited movement with exemption from generating the e-way bill itself.

Authority. CGST Act, section 68; CGST Rules, rule 138(1); CGST Rules, rule 138(3), third proviso; CGST Rules, rule 138, Explanation 2

Question 16 · 1 marks · Chapter 14 - Tax Deduction at Source and Collection of Tax at Source · medium

Scenario. A Government department registered in Karnataka entered into a contract with a registered supplier located in Maharashtra for taxable goods. The place of supply is Karnataka, which is also the State of registration of the recipient. The contract specifies a taxable value of ₹3,20,000, exclusive of GST and cess, payable in two equal instalments against separate invoices. The first invoice is for ₹1,60,000, exclusive of GST. The department proposes to deduct GST TDS while releasing the first instalment.

Determine the amount of GST TDS deductible by the Government department from the first instalment of ₹1,60,000, assuming the applicable statutory conditions are satisfied.

1. Nil, because transportation of passengers by a stage carriage in an air-conditioned bus is unconditionally exempt from GST under Notification No. 12/2017-Central Tax (Rate).
2. Nil, because the supplier and recipient are located in different States, irrespective of the place of supply.
3. ₹6,400, because TDS at 2% must be calculated on the entire contract value when the first instalment is released.
4. ₹3,200, because the contract value exceeds ₹2,50,000 and the supply attracts IGST TDS at 2% on the first instalment. (correct answer)

Answer: D — ₹3,200, because the contract value exceeds ₹2,50,000 and the supply attracts IGST TDS at 2% on the first instalment.

Working. Contract value excluding GST and cess = ₹3,20,000 > ₹2,50,000. Supplier location = Maharashtra. Place of supply = Karnataka. Recipient registration = Karnataka. IGST TDS rate = 2%. First instalment = ₹1,60,000. TDS = ₹1,60,000 × 2% = ₹3,200.

Explanation. Section 51 applies because the total taxable value under the contract exceeds ₹2,50,000, even though the individual instalment is only ₹1,60,000. The location of the supplier is Maharashtra and the place of supply is Karnataka, which is also the State of registration of the recipient. Therefore, the exception denying deduction where both supplier location and place of supply differ from the recipient's State of registration does not apply. Under section 20 of the IGST Act, TDS is deducted at 2%. Accordingly, ₹1,60,000 × 2% = ₹3,200.

Where it goes wrong. Testing the threshold against an individual invoice instead of the aggregate taxable value under the contract, and overlooking the cross-State exception's two-part condition.

Authority. CGST Act, section 51(1); CGST Act, section 51(1), first proviso; IGST Act, section 20