BBA 4th Semester Taxation and Laws Unit 3 MCQ

MCQs on Income from Salary under the Income Tax Act, 1961

1. Under which section of the Income Tax Act, 1961, is "Income from Salary" chargeable to tax?A) Section 14

B) Section 15

C) Section 16

D) Section 17

Answer: B) Section 15

Explanation: Section 15 specifies the conditions under which salary is taxable, including salary due, paid, or arrears of salary.

2. Which of the following is included in the definition of "Salary" under Section 17?A) Basic salary

B) Perquisites

C) Profits in lieu of salary

D) All of the above

Answer: D) All of the above

Explanation: Section 17 defines "Salary" to include wages, perquisites, and profits in lieu of salary, among other components.

3. What is the maximum exemption limit for House Rent Allowance (HRA) under Section 10(13A)?A) Actual HRA received

B) Rent paid minus 10% of salary

C) 50% of salary (for metro cities) or 40% (for non-metro cities)

D) Least of A, B, or C

Answer: D) Least of A, B, or C

Explanation: HRA exemption is calculated as the least of: actual HRA received, rent paid minus 10% of salary, or 50% (metro) / 40% (non-metro) of salary.

4. Which deduction is available under Section 16(ii) from salary income?A) Standard deduction

B) Entertainment allowance

C) Professional tax

D) Both B and C

Answer: B) Entertainment allowance

Explanation: Section 16(ii) allows a deduction for entertainment allowance (only for government employees), while standard deduction and professional tax are covered under Section 16(ia) and 16(iii), respectively.

5. What is the standard deduction amount for salaried individuals for the Assessment Year 2025-26?A) Rs. 40,000

B) Rs. 50,000

C) Rs. 75,000

D) Rs. 1,00,000

Answer: C) Rs. 75,000

Explanation: The standard deduction for salaried individuals was increased to Rs. 75,000 under the new tax regime for AY 2025-26 (Finance Act, 2024).

6. Which of the following is a tax-free perquisite under the Income Tax Act, 1961?A) Rent-free accommodation

B) Employer-provided training expenses

C) Company-provided car for personal use

D) Interest-free loan

Answer: B) Employer-provided training expenses

Explanation: Training expenses incurred by the employer for employees are tax-free perquisites. Other options are taxable under specific conditions.

7. The value of rent-free accommodation provided to a government employee is based on:A) 15% of salary

B) License fee fixed by the government

C) Market rental value

D) 10% of salary

Answer: B) License fee fixed by the government

Explanation: For government employees, the taxable value of rent-free accommodation is the license fee determined by the government.

8. Employer’s contribution to Recognized Provident Fund (RPF) is exempt up to:A) 10% of salary

B) 12% of salary

C) 15% of salary

D) 9% of salary

Answer: B) 12% of salary

Explanation: Employer’s contribution to RPF is exempt up to 12% of salary (basic + DA). Excess contributions are taxable.

9. Children’s education allowance is exempt for how many children?A) One

B) Two

C) Three

D) Four

Answer: B) Two

Explanation: Children’s education allowance is exempt up to Rs. 100 per month per child for a maximum of two children.

10. The exemption limit for gratuity under Section 10(10) for non-government employees covered under the Payment of Gratuity Act, 1972, is:A) Rs. 10,00,000

B) Rs. 20,00,000

C) Rs. 5,00,000

D) Rs. 3,00,000

Answer: B) Rs. 20,00,000

Explanation: The exemption limit for gratuity for non-government employees is Rs. 20,00,000, as per Section 10(10).

11. Which of the following is NOT considered a perquisite under Section 17?A) Free meals provided by the employer

B) Salary arrears

C) Club membership provided by the employer

D) Reimbursement of medical expenses

Answer: B) Salary arrears

Explanation: Salary arrears are part of taxable salary, not perquisites. Perquisites include non-monetary benefits like free meals or club memberships.

12. The exemption for leave encashment for non-government employees at retirement is limited to:A) Rs. 3,00,000

B) Rs. 5,00,000

C) Rs. 10,00,000

D) Rs. 25,00,000

Answer: A) Rs. 3,00,000

Explanation: Leave encashment exemption for non-government employees is capped at Rs. 3,00,000 under Section 10(10AA).

13. Interest credited to Recognized Provident Fund is exempt up to what rate?A) 6%

B) 7%

C) 9.5%

D) 12%

Answer: C) 9.5%

Explanation: Interest on RPF is exempt up to 9.5% per annum. Any excess interest is taxable.

14. Transport allowance is exempt for employees under Section 10(14) up to:A) Rs. 1,600 per month

B) Rs. 3,200 per month for differently-abled employees

C) Rs. 2,000 per month

D) Both A and B

Answer: B) Rs. 3,200 per month for differently-abled employees

Explanation: Transport allowance exemption is Rs. 3,200 per month for differently-abled employees under Section 10(14) read with Rule 2BB.

15. Which of the following allowances is fully taxable?A) House Rent Allowance

B) Dearness Allowance

C) Children Education Allowance

D) Hostel Expenditure Allowance

Answer: B) Dearness Allowance

Explanation: Dearness Allowance is fully taxable, while others are exempt subject to specific limits.

16. The taxable value of a concessional loan provided by the employer is determined based on the lending rates of:A) Reserve Bank of India (RBI)

B) State Bank of India (SBI)

C) Central Government

D) Employer’s discretion

Answer: B) State Bank of India (SBI)

Explanation: The taxable value of interest-free or concessional loans is calculated using SBI’s lending rates for similar loans.

17. Which section defines “perquisites” under the Income Tax Act, 1961?A) Section 15

B) Section 16

C) Section 17(2)

D) Section 10

Answer: C) Section 17(2)

Explanation: Section 17(2) provides the definition and valuation rules for perquisites.

18. The exemption for retrenchment compensation under Section 10(10B) is limited to:A) Rs. 3,00,000

B) Rs. 5,00,000

C) Rs. 10,00,000

D) Rs. 20,00,000

Answer: B) Rs. 5,00,000

Explanation: Retrenchment compensation is exempt up to Rs. 5,00,000 under Section 10(10B).

19. Salary received by an employee working in a foreign branch of an Indian company is taxable under:A) Income from Other Sources

B) Income from Salaries

C) Capital Gains

D) Profits and Gains of Business or Profession

Answer: B) Income from Salaries

Explanation: Salary paid by an Indian company, even for work abroad, is taxable under the head “Salaries.”

20. Which of the following is a taxable perquisite?A) Free education provided to employee’s children

B) Employer’s contribution to RPF up to 12%

C) Medical treatment provided in employer’s hospital

D) Scholarship to employee’s children

Answer: A) Free education provided to employee’s children

Explanation: Free education is taxable unless provided in an institution maintained by the employer (subject to limits). Other options are exempt.

21. The maximum exemption for medical reimbursement under Section 17(2) is:A) Rs. 10,000

B) Rs. 15,000

C) Rs. 25,000

D) No limit if treatment is in an approved hospital

Answer: D) No limit if treatment is in an approved hospital

Explanation: Medical reimbursement for treatment in approved hospitals is fully exempt.

22. The accumulated balance of Recognized Provident Fund is exempt if the employee has rendered continuous service of:A) 3 years

B) 5 years

C) 7 years

D) 10 years

Answer: B) 5 years

Explanation: The accumulated balance in RPF is exempt if the employee has served for 5 years or more.

23. Which allowance is exempt for government employees posted abroad?A) House Rent Allowance

B) Foreign Allowance

C) Dearness Allowance

D) City Compensatory Allowance

Answer: B) Foreign Allowance

Explanation: Foreign allowance paid to government employees posted abroad is fully exempt under Section 10(7).

24. The taxable value of a car provided by the employer for personal and official use (small car) is:A) Rs. 1,800 per month

B) Rs. 2,400 per month

C) Rs. 1,200 per month

D) Actual expenses incurred

Answer: A) Rs. 1,800 per month

Explanation: For a small car (up to 1.6 liters), the taxable value is Rs. 1,800 per month for both official and personal use.

25. Which of the following is deductible under Section 16(iii)?A) Entertainment allowance

B) Professional tax

C) Standard deduction

D) Medical reimbursement

Answer: B) Professional tax

Explanation: Professional tax paid by the employee or employer is deductible under Section 16(iii).

Additional MCQs on Income from Salary under the Income Tax Act, 1961

26. Which of the following is a condition for salary to be taxable under Section 15?A) Salary must be received in cash

B) There must be an employer-employee relationship

C) Salary must be paid in India

D) Salary must be earned in the previous year only

Answer: B) There must be an employer-employee relationship

Explanation: For income to be taxable under the head "Salaries," an employer-employee relationship is essential, as per Section 15.

27. The exemption for House Rent Allowance (HRA) is available to:A) Only government employees

B) Employees living in rented accommodation

C) All salaried employees

D) Employees in metro cities only

Answer: B) Employees living in rented accommodation

Explanation: HRA exemption under Section 10(13A) is available only to employees who pay rent for residential accommodation.

28. For calculating HRA exemption, “salary” includes:A) Basic salary and dearness allowance

B) Commission based on turnover

C) Perquisites

D) Both A and B

Answer: D) Both A and B

Explanation: For HRA exemption, “salary” includes basic salary, dearness allowance (if part of retirement benefits), and commission based on a fixed percentage of turnover.

29. The taxable value of rent-free accommodation for a non-government employee in a metro city is:A) 7.5% of salary

B) 10% of salary

C) 15% of salary

D) 20% of salary

Answer: C) 15% of salary

Explanation: For non-government employees in metro cities, the taxable value of rent-free accommodation is 15% of salary or the actual rent paid by the employer, whichever is lower.

30. Which of the following is fully exempt under Section 10(14)?A) Dearness allowance

B) Hostel expenditure allowance

C) City compensatory allowance

D) Overtime allowance

Answer: B) Hostel expenditure allowance

Explanation: Hostel expenditure allowance is exempt up to Rs. 300 per month per child for a maximum of two children under Section 10(14) and Rule 2BB.

31. The maximum exemption for gratuity for government employees under Section 10(10) is:A) Rs. 10,00,000

B) Rs. 20,00,000

C) No limit

D) Rs. 5,00,000

Answer: C) No limit

Explanation: Gratuity received by government employees is fully exempt under Section 10(10)(i).

32. Professional tax paid by the employer on behalf of the employee is:A) Exempt from tax

B) Taxable as a perquisite

C) Taxable as salary

D) Deductible under Section 16(iii)

Answer: B) Taxable as a perquisite

Explanation: Professional tax paid by the employer is treated as a taxable perquisite under Section 17(2), but the employee can claim a deduction for it under Section 16(iii).

33. The taxable value of a furnished accommodation includes:A) 10% of the cost of furniture

B) Actual rent of furniture

C) 15% of the cost of furniture

D) No additional value for furniture

Answer: A) 10% of the cost of furniture

Explanation: For furnished accommodation, 10% per annum of the cost of furniture (or actual hire charges) is added to the taxable value of the accommodation.

34. Leave travel concession (LTC) is exempt under which section?A) Section 10(5)

B) Section 10(10)

C) Section 10(13A)

D) Section 10(14)

Answer: A) Section 10(5)

Explanation: Leave travel concession is exempt under Section 10(5), subject to conditions like travel within India and limits on the number of journeys.

35. The taxable value of a motor car provided by the employer for personal use (large car) is:A) Rs. 1,800 per month

B) Rs. 2,400 per month

C) Rs. 3,200 per month

D) Actual expenses incurred

Answer: B) Rs. 2,400 per month

Explanation: For a large car (above 1.6 liters) used for both official and personal purposes, the taxable value is Rs. 2,400 per month.

36. Which of the following is NOT a component of “salary” for HRA exemption?A) Basic salary

B) Dearness allowance

C) Bonus

D) Commission (fixed percentage of turnover)

Answer: C) Bonus

Explanation: For HRA exemption, “salary” includes basic salary, dearness allowance (if part of retirement benefits), and commission based on a fixed percentage of turnover, but not bonus.

37. The exemption for pension received by a retired government employee is:A) Fully taxable

B) Fully exempt

C) Exempt up to Rs. 3,00,000

D) Exempt up to Rs. 5,00,000

Answer: B) Fully exempt

Explanation: Pension received by government employees is fully exempt under Section 10(10A) if it is a commuted pension.

38. The taxable value of free meals provided by the employer (costing above Rs. 50 per meal) is:A) Actual cost of meals

B) Cost of meals minus Rs. 50 per meal

C) Fully exempt

D) Rs. 50 per meal

Answer: B) Cost of meals minus Rs. 50 per meal

Explanation: Free meals costing more than Rs. 50 per meal are taxable to the extent of the cost above Rs. 50.

39. Which of the following is a “profit in lieu of salary” under Section 17(3)?A) Basic salary

B) Termination compensation

C) House rent allowance

D) Medical reimbursement

Answer: B) Termination compensation

Explanation: Payments like compensation on termination are treated as “profits in lieu of salary” under Section 17(3).

40. The exemption for voluntary retirement scheme (VRS) compensation under Section 10(10C) is limited to:A) Rs. 3,00,000

B) Rs. 5,00,000

C) Rs. 10,00,000

D) Rs. 20,00,000

Answer: B) Rs. 5,00,000

Explanation: VRS compensation is exempt up to Rs. 5,00,000 under Section 10(10C), subject to conditions.

41. Interest on a loan provided by the employer at 5% (SBI rate: 10%) is taxable as:A) Salary

B) Perquisite

C) Profit in lieu of salary

D) Exempt

Answer: B) Perquisite

Explanation: The difference between the SBI lending rate (10%) and the employer’s rate (5%) is taxable as a perquisite under Section 17(2).

42. The maximum exemption for children’s education allowance under Section 10(14) is:A) Rs. 50 per month per child

B) Rs. 100 per month per child

C) Rs. 200 per month per child

D) Rs. 300 per month per child

Answer: B) Rs. 100 per month per child

Explanation: Children’s education allowance is exempt up to Rs. 100 per month per child for a maximum of two children.

43. Which of the following is taxable as a perquisite?A) Employer’s contribution to RPF up to 12%

B) Free gas and electricity provided for personal use

C) Medical treatment in employer’s hospital

D) Reimbursement of relocation expenses

Answer: B) Free gas and electricity provided for personal use

Explanation: Free gas and electricity for personal use is a taxable perquisite, while the others are exempt under specific conditions.

44. The standard deduction under Section 16(ia) for AY 2025-26 is available to:A) Only government employees

B) Only private sector employees

C) All salaried individuals

D) Only self-employed individuals

Answer: C) All salaried individuals

Explanation: The standard deduction of Rs. 75,000 is available to all salaried individuals under the new tax regime for AY 2025-26.

45. The taxable value of a laptop provided by the employer for personal use is:A) 10% of the cost per annum

B) Actual cost of the laptop

C) Fully exempt

D) Rs. 5,000 per annum

Answer: C) Fully exempt

Explanation: Laptops and computers provided by the employer for personal use are fully exempt perquisites.

46. Commuted pension received by a non-government employee is exempt up to:A) 1/3rd of the pension (if gratuity received)

B) 1/2 of the pension (if gratuity not received)

C) Both A and B

D) Fully taxable

Answer: C) Both A and B

Explanation: Commuted pension for non-government employees is exempt up to 1/3rd (if gratuity received) or 1/2 (if gratuity not received) under Section 10(10A).

47. Which of the following allowances is exempt for judges of the High Court or Supreme Court?A) Dearness allowance

B) Sumptuary allowance

C) City compensatory allowance

D) Overtime allowance

Answer: B) Sumptuary allowance

Explanation: Sumptuary allowance paid to judges of the High Court or Supreme Court is fully exempt under Section 10(7).

48. The taxable value of a domestic servant provided by the employer is:A) Actual salary paid to the servant

B) 10% of the servant’s salary

C) Rs. 1,000 per month

D) Fully exempt

Answer: A) Actual salary paid to the servant

Explanation: The actual salary paid to the domestic servant by the employer is taxable as a perquisite.

49. Encashment of earned leave during service is:A) Fully exempt

B) Exempt up to Rs. 3,00,000

C) Fully taxable

D) Exempt up to Rs. 5,00,000

Answer: C) Fully taxable

Explanation: Leave encashment during service is fully taxable, unlike at retirement, where it is exempt up to Rs. 3,00,000 for non-government employees.

50. Which section allows a deduction for professional tax?A) Section 16(ia)

B) Section 16(ii)

C) Section 16(iii)

D) Section 10(14)

Answer: C) Section 16(iii)

Explanation: Professional tax paid by the employee or employer is deductible under Section 16(iii).

MCQs on Income from House Property under the Income Tax Act, 1961

1. Income from house property is chargeable to tax under which section of the Income Tax Act, 1961?A) Section 15

B) Section 22

C) Section 28

D) Section 56

Answer: B) Section 22

Explanation: Section 22 defines income from house property as the annual value of property used for any purpose other than business or profession.

2. Which of the following is a condition for income to be taxed under the head "House Property"?A) The property must be owned by the assessee

B) The property must be used for business purposes

C) The property must be let out

D) The property must be located in India only

Answer: A) The property must be owned by the assessee

Explanation: The property must be owned by the assessee and not used for business or profession to be taxable under this head.

3. The annual value of a self-occupied property is:A) Fair rent

B) Municipal valuation

C) Nil

D) Standard rent

Answer: C) Nil

Explanation: Under Section 23(2), the annual value of one self-occupied property is taken as Nil.

4. Which of the following deductions is allowed under Section 24 for a let-out property?A) Standard deduction of 30% of Net Annual Value (NAV)

B) Actual repairs and maintenance expenses

C) Municipal taxes paid by the tenant

D) Interest on loan up to Rs. 30,000

Answer: A) Standard deduction of 30% of Net Annual Value (NAV)

Explanation: Section 24(a) allows a standard deduction of 30% of NAV for repairs and maintenance, irrespective of actual expenses.

5. The maximum deduction for interest on a loan for a self-occupied property is:A) Rs. 30,000

B) Rs. 1,50,000

C) Rs. 2,00,000

D) Rs. 5,00,000

Answer: C) Rs. 2,00,000

Explanation: For a self-occupied property, the maximum deduction for interest on a housing loan is Rs. 2,00,000 under Section 24(b) (Finance Act, 2024).

6. The annual value of a house property is determined under:A) Section 22

B) Section 23

C) Section 24

D) Section 25

Answer: B) Section 23

Explanation: Section 23 provides the method to compute the annual value of a house property, whether let-out or self-occupied.

7. Municipal taxes are deductible from:A) Gross Annual Value (GAV)

B) Net Annual Value (NAV)

C) Fair rent

D) Standard rent

Answer: A) Gross Annual Value (GAV)

Explanation: Municipal taxes paid by the owner are deducted from GAV to arrive at NAV under Section 23.

8. Which of the following is NOT included in the computation of Gross Annual Value (GAV)?A) Fair rent

B) Municipal valuation

C) Actual rent received or receivable

D) Interest on loan

Answer: D) Interest on loan

Explanation: Interest on a loan is a deduction under Section 24(b), not part of GAV computation.

9. For a let-out property, the Gross Annual Value (GAV) is:A) Actual rent received

B) Higher of expected rent or actual rent received, adjusted for vacancy

C) Municipal valuation only

D) Standard rent only

Answer: B) Higher of expected rent or actual rent received, adjusted for vacancy

Explanation: GAV is the higher of expected rent (fair rent or municipal valuation, subject to standard rent) or actual rent, reduced by unrealized rent and vacancy loss.

10. Unrealized rent is deductible from:A) Net Annual Value

B) Gross Annual Value

C) Fair rent

D) Municipal taxes

Answer: B) Gross Annual Value

Explanation: Unrealized rent is deducted from actual rent received to compute GAV, subject to conditions under Rule 4.

11. Interest on a loan taken for repairs of a house property is deductible up to:A) Rs. 30,000

B) Rs. 2,00,000

C) No limit

D) Rs. 1,50,000

Answer: A) Rs. 30,000

Explanation: Interest on a loan for repairs or reconstruction is deductible up to Rs. 30,000 for both self-occupied and let-out properties.

12. Which property is considered “deemed let-out”?A) One self-occupied property

B) Second self-occupied property

C) Property used for business

D) Property under construction

Answer: B) Second self-occupied property

Explanation: If an assessee owns more than one self-occupied property, only one is treated as self-occupied (Nil annual value), and others are deemed let-out.

13. The deduction for interest on a loan for a let-out property is:A) Rs. 30,000

B) Rs. 2,00,000

C) No limit

D) Rs. 1,50,000

Answer: C) No limit

Explanation: For a let-out property, there is no upper limit on the deduction for interest on a housing loan under Section 24(b).

14. Loss from house property can be set off against:A) Income from salaries only

B) Income from any other head in the same year

C) Capital gains only

D) Business income only

Answer: B) Income from any other head in the same year

Explanation: Loss from house property can be set off against income from any other head up to Rs. 2,00,000 in the same year under Section 71.

15. Unabsorbed loss from house property can be carried forward for:A) 4 years

B) 8 years

C) 5 years

D) No carry forward allowed

Answer: B) 8 years

Explanation: Unabsorbed loss from house property can be carried forward for 8 years to be set off against house property income only.

16. Which of the following is taxable as income from house property?A) Rent from a shop

B) Rent from a residential house

C) Income from a factory building

D) Rent from agricultural land

Answer: B) Rent from a residential house

Explanation: Only income from buildings or land appurtenant thereto, not used for business or profession, is taxed under this head.

17. The standard deduction under Section 24(a) is allowed at:A) 20% of NAV

B) 30% of NAV

C) 40% of NAV

D) Actual repair expenses

Answer: B) 30% of NAV

Explanation: A flat 30% of NAV is allowed as a standard deduction for repairs and maintenance under Section 24(a) for let-out properties.

18. Income from a property owned by a charitable trust is:A) Fully taxable

B) Exempt under Section 10

C) Taxable only if let out

D) Exempt under Section 11

Answer: D) Exempt under Section 11

Explanation: Income from house property owned by a charitable trust is exempt under Section 11, subject to conditions.

19. The annual value of a property vacant for 3 months during the previous year is reduced by:A) Actual rent for 9 months

B) Proportionate annual value for 3 months

C) Full annual value

D) No reduction allowed

Answer: B) Proportionate annual value for 3 months

Explanation: For vacancy periods, the annual value is reduced proportionately under Section 23.

20. Interest on a pre-construction period loan is deductible:A) In the year of payment

B) Over 5 years after completion

C) In the year of completion

D) Not deductible

Answer: B) Over 5 years after completion

Explanation: Pre-construction interest is deductible in five equal installments starting from the year the property is acquired or constructed.

21. Which of the following is considered deemed ownership under Section 27?A) Property purchased under a power of attorney

B) Property leased for more than 12 years

C) Property gifted to a friend

D) Property used for business

Answer: B) Property leased for more than 12 years

Explanation: A lessee holding a property under a lease of 12 years or more is deemed the owner under Section 27.

22. The annual value of a property under construction is:A) Fair rent

B) Municipal valuation

C) Nil

D) Actual rent received

Answer: C) Nil

Explanation: A property under construction has no annual value until it is completed and ready for use.

23. Which section restricts the deduction of interest on a loan for a self-occupied property?A) Section 23

B) Section 24(b)

C) Section 25

D) Section 27

Answer: B) Section 24(b)

Explanation: Section 24(b) limits the interest deduction for a self-occupied property to Rs. 2,00,000.

24. Income from a house property used for the assessee’s own business is:A) Taxable under house property

B) Taxable under business income

C) Exempt from tax

D) Taxable under other sources

Answer: C) Exempt from tax

Explanation: Property used for the assessee’s own business is not taxable under the head "House Property."

25. The Gross Annual Value (GAV) of a property is Nil if:A) The property is let out

B) The property is self-occupied

C) The property is vacant for the entire year

D) Both B and C

Answer: D) Both B and C

Explanation: GAV is Nil for a self-occupied property (Section 23(2)) or a property vacant for the entire year with no rent receivable.

Additional MCQs on Income from House Property under the Income Tax Act, 1961

26. The annual value of a house property is computed under which section?A) Section 22

B) Section 23

C) Section 24

D) Section 27

Answer: B) Section 23

Explanation: Section 23 outlines the method to determine the annual value of a house property, whether let-out or self-occupied.

27. Which of the following is included in the computation of expected rent for GAV?A) Fair rent

B) Municipal valuation

C) Standard rent

D) All of the above

Answer: D) All of the above

Explanation: Expected rent is the higher of fair rent or municipal valuation, but not exceeding the standard rent (if applicable).

28. A house property has a fair rent of Rs. 1,20,000 and actual rent of Rs. 1,00,000. The GAV is:A) Rs. 1,20,000

B) Rs. 1,00,000

C) Rs. 1,10,000

D) Nil

Answer: A) Rs. 1,20,000

Explanation: GAV is the higher of expected rent (Rs. 1,20,000) or actual rent (Rs. 1,00,000), so GAV is Rs. 1,20,000.

29. Municipal taxes of Rs. 10,000 paid by the tenant are:A) Deductible from GAV

B) Deductible from NAV

C) Not deductible

D) Deductible under Section 24

Answer: C) Not deductible

Explanation: Only municipal taxes paid by the owner are deductible from GAV to compute NAV.

30. The standard deduction under Section 24(a) for a let-out property is:A) 20% of GAV

B) 30% of NAV

C) 40% of GAV

D) Actual repair expenses

Answer: B) 30% of NAV

Explanation: A standard deduction of 30% of NAV is allowed for repairs and maintenance under Section 24(a).

31. Interest on a loan for a self-occupied property is deductible up to:A) Rs. 30,000

B) Rs. 1,50,000

C) Rs. 2,00,000

D) Rs. 3,00,000

Answer: C) Rs. 2,00,000

Explanation: For a self-occupied property, interest on a housing loan is deductible up to Rs. 2,00,000 under Section 24(b) (Finance Act, 2024).

32. A property is let out for 9 months at Rs. 10,000 per month and vacant for 3 months. The GAV is:A) Rs. 1,20,000

B) Rs. 90,000

C) Rs. 1,00,000

D) Nil

Answer: B) Rs. 90,000

Explanation: GAV is the actual rent received (9 × Rs. 10,000 = Rs. 90,000), adjusted for vacancy, assuming expected rent is not higher.

33. Which of the following properties is exempt from tax under the head "House Property"?A) Property used for the owner’s business

B) Let-out residential property

C) Self-occupied property

D) Deemed let-out property

Answer: A) Property used for the owner’s business

Explanation: Property used for the owner’s business is taxed under "Profits and Gains of Business or Profession," not house property.

34. Interest on a loan taken for the purchase of a let-out property is:A) Deductible up to Rs. 2,00,000

B) Deductible without any limit

C) Not deductible

D) Deductible up to Rs. 30,000

Answer: B) Deductible without any limit

Explanation: For let-out properties, there is no upper limit on interest deduction under Section 24(b).

35. The Net Annual Value (NAV) of a property is calculated as:A) GAV minus municipal taxes paid by the owner

B) GAV minus standard deduction

C) GAV minus interest on loan

D) GAV minus unrealized rent

Answer: A) GAV minus municipal taxes paid by the owner

Explanation: NAV is computed by deducting municipal taxes paid by the owner from GAV.

36. A property has a GAV of Rs. 2,00,000 and municipal taxes of Rs. 20,000 paid by the owner. The NAV is:A) Rs. 2,00,000

B) Rs. 1,80,000

C) Rs. 1,40,000

D) Rs. 1,60,000

Answer: B) Rs. 1,80,000

Explanation: NAV = GAV (Rs. 2,00,000) – Municipal taxes (Rs. 20,000) = Rs. 1,80,000.

37. Which section defines deemed ownership for house property?A) Section 22

B) Section 23

C) Section 24

D) Section 27

Answer: D) Section 27

Explanation: Section 27 specifies cases of deemed ownership, such as property transferred to a spouse or held under a long-term lease.

38. Loss from house property can be set off against other heads up to:A) Rs. 1,00,000

B) Rs. 2,00,000

C) Rs. 3,00,000

D) No limit

Answer: B) Rs. 2,00,000

Explanation: Loss from house property can be set off against income from other heads up to Rs. 2,00,000 in the same year under Section 71.

39. The annual value of a second self-occupied property is:A) Nil

B) Fair rent

C) Deemed let-out

D) Actual rent received

Answer: C) Deemed let-out

Explanation: If an assessee owns more than one self-occupied property, only one is treated as self-occupied (Nil annual value), and others are deemed let-out.

40. Interest on a pre-construction loan is deductible:A) In the year of payment

B) Over 5 years after completion

C) In the year of completion

D) Not deductible

Answer: B) Over 5 years after completion

Explanation: Pre-construction interest is deductible in five equal installments starting from the year the property is acquired or constructed.

41. A property with a GAV of Rs. 3,00,000, municipal taxes of Rs. 30,000, and interest on loan of Rs. 1,00,000 has a taxable income of:A) Rs. 1,70,000

B) Rs. 1,40,000

C) Rs. 1,10,000

D) Rs. 2,00,000

Answer: C) Rs. 1,10,000

Explanation: NAV = Rs. 3,00,000 – Rs. 30,000 = Rs. 2,70,000. Standard deduction = 30% of Rs. 2,70,000 = Rs. 81,000. Taxable income = Rs. 2,70,000 – Rs. 81,000 – Rs. 1,00,000 = Rs. 1,10,000.

42. Which of the following is NOT deductible under Section 24?A) Standard deduction

B) Interest on loan

C) Municipal taxes

D) Pre-construction interest

Answer: C) Municipal taxes

Explanation: Municipal taxes are deducted from GAV to compute NAV, not under Section 24. Standard deduction and interest are deductible under Section 24.

43. Income from a property owned by a local authority is:A) Fully taxable

B) Exempt under Section 10(20)

C) Taxable only if let out

D) Exempt under Section 24

Answer: B) Exempt under Section 10(20)

Explanation: Income from house property owned by a local authority is exempt under Section 10(20).

44. The annual value of a property vacant for the entire year is:A) Fair rent

B) Municipal valuation

C) Nil

D) Standard rent

Answer: C) Nil

Explanation: If a property is vacant for the entire year and no rent is receivable, the annual value is Nil.

45. Unrealized rent is deductible from GAV if:A) It is paid by the tenant later

B) Conditions of Rule 4 are satisfied

C) It is approved by the municipal authority

D) It is for a self-occupied property

Answer: B) Conditions of Rule 4 are satisfied

Explanation: Unrealized rent is deductible from actual rent received for GAV computation if conditions under Rule 4 (e.g., tenant default, legal action) are met.

46. A house property is transferred to a spouse without consideration. Who is taxed?A) Transferor

B) Transferee

C) Both equally

D) Neither

Answer: A) Transferor

Explanation: Under Section 27(i), income from a property transferred to a spouse without adequate consideration is taxed in the hands of the transferor.

47. The deduction for interest on a loan for repairs of a self-occupied property is limited to:A) Rs. 30,000

B) Rs. 1,50,000

C) Rs. 2,00,000

D) No limit

Answer: A) Rs. 30,000

Explanation: Interest on a loan for repairs or reconstruction is deductible up to Rs. 30,000 for self-occupied properties.

48. A property has a fair rent of Rs. 1,50,000, municipal valuation of Rs. 1,40,000, and standard rent of Rs. 1,30,000. The expected rent is:A) Rs. 1,50,000

B) Rs. 1,40,000

C) Rs. 1,30,000

D) Rs. 1,45,000

Answer: C) Rs. 1,30,000

Explanation: Expected rent is the higher of fair rent (Rs. 1,50,000) or municipal valuation (Rs. 1,40,000), but not exceeding standard rent (Rs. 1,30,000).

49. Which section prohibits certain deductions from house property income?A) Section 23

B) Section 24

C) Section 25

D) Section 27

Answer: C) Section 25

Explanation: Section 25 lists amounts not deductible, such as interest on unpaid interest or certain penalties.

50. A let-out property has a NAV of Rs. 2,00,000 and interest on loan of Rs. 80,000. The taxable income is:A) Rs. 1,20,000

B) Rs. 80,000

C) Rs. 60,000

D) Rs. 1,40,000

Answer: B) Rs. 80,000

Explanation: Taxable income = NAV (Rs. 2,00,000) – Standard deduction (30% of Rs. 2,00,000 = Rs. 60,000) – Interest (Rs. 80,000) = Rs. 80,000.

MCQs on Profits and Gains of Business or Profession under the Income Tax Act, 1961

1. Income from business or profession is chargeable to tax under which section?A) Section 15

B) Section 22

C) Section 28

D) Section 56

Answer: C) Section 28

Explanation: Section 28 defines the scope of income taxable under the head "Profits and Gains of Business or Profession."

2. Which of the following is taxable as business income under Section 28?A) Salary received by a partner from the firm

B) Rent from house property

C) Compensation received for loss of business

D) Interest on securities

Answer: C) Compensation received for loss of business

Explanation: Compensation for loss of business is taxable under Section 28(ii), while partner’s salary is treated differently, and other options fall under other heads.

3. Which section allows deduction for rent, rates, taxes, repairs, and insurance for business premises?A) Section 30

B) Section 31

C) Section 32

D) Section 37

Answer: A) Section 30

Explanation: Section 30 allows deductions for rent, rates, taxes, repairs, and insurance of premises used for business or profession.

4. Depreciation on machinery is allowed under which section?A) Section 30

B) Section 32

C) Section 36

D) Section 37

Answer: B) Section 32

Explanation: Section 32 provides for depreciation on tangible and intangible assets used for business or profession.

5. The maximum rate of depreciation for a block of machinery is:A) 10%

B) 15%

C) 40%

D) 50%

Answer: C) 40%

Explanation: Under Section 32, the depreciation rate for machinery and plant is generally 15%, but certain assets (e.g., energy-saving devices) may qualify for up to 40% (Income Tax Rules).

6. Which of the following expenses is NOT deductible under Section 37?A) Business advertisement expenses

B) Fines paid for breach of law

C) Travelling expenses for business

D) Legal expenses for business contracts

Answer: B) Fines paid for breach of law

Explanation: Section 37 allows deductions for expenses wholly and exclusively for business, but fines or penalties for legal violations are disallowed.

7. The presumptive taxation scheme for professionals is available under which section?A) Section 44AB

B) Section 44AD

C) Section 44ADA

D) Section 44AE

Answer: C) Section 44ADA

Explanation: Section 44ADA provides a presumptive taxation scheme for professionals with gross receipts up to Rs. 75 lakh (AY 2025-26), taxing 50% of receipts as income.

8. Under Section 44AD, the presumptive income for eligible businesses is:A) 6% of turnover (digital receipts)

B) 8% of turnover (non-digital receipts)

C) Either A or B, depending on receipt type

D) 10% of turnover

Answer: C) Either A or B, depending on receipt type

Explanation: Section 44AD allows 6% of turnover for digital receipts and 8% for non-digital receipts as presumptive income for businesses with turnover up to Rs. 3 crore (AY 2025-26).

9. Bad debts written off are deductible under:A) Section 30

B) Section 36(1)(vii)

C) Section 37

D) Section 40

Answer: B) Section 36(1)(vii)

Explanation: Bad debts written off are deductible under Section 36(1)(vii), provided they were previously included in income.

10. Which of the following is a condition for claiming depreciation under Section 32?A) Asset must be owned by the assessee

B) Asset must be used for personal purposes

C) Asset must be fully depreciated in one year

D) Asset must be sold within the year

Answer: A) Asset must be owned by the assessee

Explanation: Depreciation is allowed on assets owned and used for business or profession by the assessee.

11. Interest on capital borrowed for business is deductible under:A) Section 30

B) Section 36(1)(iii)

C) Section 37

D) Section 40A

Answer: B) Section 36(1)(iii)

Explanation: Interest on capital borrowed for business purposes is deductible under Section 36(1)(iii).

12. A business incurs an expense of Rs. 10,000 in cash. The maximum amount deductible is:A) Rs. 10,000

B) Rs. 10,500

C) Nil

D) Rs. 5,000

Answer: C) Nil

Explanation: Under Section 40A(3), cash payments exceeding Rs. 10,000 for business expenses are disallowed, except in specified cases.

13. The Written Down Value (WDV) of an asset is:A) Original cost minus depreciation claimed

B) Market value of the asset

C) Original cost plus depreciation

D) Fair value minus repairs

Answer: A) Original cost minus depreciation claimed

Explanation: WDV is the original cost of an asset reduced by depreciation allowed in previous years under Section 32.

14. Which section disallows expenses for non-compliance with TDS provisions?A) Section 37

B) Section 40(a)

C) Section 43B

D) Section 44AB

Answer: B) Section 40(a)

Explanation: Section 40(a) disallows expenses if TDS is not deducted or paid as required.

15. A professional with gross receipts of Rs. 60 lakh opts for Section 44ADA. The taxable income is:A) Rs. 30 lakh

B) Rs. 24 lakh

C) Rs. 36 lakh

D) Rs. 60 lakh

Answer: A) Rs. 30 lakh

Explanation: Under Section 44ADA, 50% of gross receipts (50% of Rs. 60 lakh = Rs. 30 lakh) is deemed as taxable income.

16. Which of the following is NOT allowed as a deduction under Section 36?A) Insurance premium for business assets

B) Bad debts written off

C) Personal expenses of the proprietor

D) Employer’s contribution to provident fund

Answer: C) Personal expenses of the proprietor

Explanation: Personal expenses are not deductible, as they are not incurred for business purposes.

17. The maximum turnover limit for presumptive taxation under Section 44AD for AY 2025-26 is:A) Rs. 1 crore

B) Rs. 2 crore

C) Rs. 3 crore

D) Rs. 5 crore

Answer: C) Rs. 3 crore

Explanation: The Finance Act, 2024, increased the turnover limit for Section 44AD to Rs. 3 crore for eligible businesses.

18. Expenditure on scientific research is deductible under:A) Section 32

B) Section 35

C) Section 36

D) Section 37

Answer: B) Section 35

Explanation: Section 35 allows deductions for expenditure on scientific research, including revenue and capital expenses.

19. A business pays Rs. 15,000 in cash for repairs. The deductible amount is:A) Rs. 15,000

B) Rs. 10,000

C) Nil

D) Rs. 7,500

Answer: C) Nil

Explanation: Cash payments exceeding Rs. 10,000 are disallowed under Section 40A(3), so the entire Rs. 15,000 is not deductible.

20. Which section requires certain payments to be made by the due date to claim a deduction?A) Section 36

B) Section 37

C) Section 43B

D) Section 44AB

Answer: C) Section 43B

Explanation: Section 43B disallows deductions for certain expenses (e.g., taxes, interest) unless paid by the due date of filing the return.

21. A block of assets has a WDV of Rs. 5,00,000, and depreciation at 15% is:A) Rs. 75,000

B) Rs. 50,000

C) Rs. 1,00,000

D) Rs. 25,000

Answer: A) Rs. 75,000

Explanation: Depreciation = 15% of Rs. 5,00,000 = Rs. 75,000.

22. Which of the following is taxable as business income?A) Rent from a house property

B) Profit on sale of a business asset

C) Interest on personal savings

D) Dividend income

Answer: B) Profit on sale of a business asset

Explanation: Profit on the sale of a business asset is taxable as business income under Section 28, unless it qualifies as capital gains.

23. The deduction for employer’s contribution to an approved superannuation fund is allowed under:A) Section 36(1)(iv)

B) Section 36(1)(vii)

C) Section 37

D) Section 40A

Answer: A) Section 36(1)(iv)

Explanation: Employer’s contribution to an approved superannuation fund is deductible under Section 36(1)(iv).

24. Which section mandates tax audit for businesses with turnover exceeding Rs. 10 crore?A) Section 44AA

B) Section 44AB

C) Section 44AD

D) Section 44AE

Answer: B) Section 44AB

Explanation: Section 44AB requires a tax audit for businesses with turnover exceeding Rs. 10 crore (or lower limits if cash receipts exceed 5%).

25. Preliminary expenses under Section 35D can be amortized over:A) 3 years

B) 5 years

C) 7 years

D) 10 years

Answer: B) 5 years

Explanation: Preliminary expenses for setting up a business are deductible under Section 35D over 5 years in equal installments.

Additional MCQs on Profits and Gains of Business or Profession under the Income Tax Act, 1961

26. Which of the following is taxable under the head "Profits and Gains of Business or Profession"?A) Rent from a residential house

B) Profit from the sale of machinery used in business

C) Interest on personal fixed deposits

D) Dividend from shares

Answer: B) Profit from the sale of machinery used in business

Explanation: Profit from the sale of business assets (e.g., machinery) is taxable under this head, subject to depreciation adjustments. Other options fall under different heads.

27. Repairs to machinery used in business are deductible under:A) Section 30

B) Section 31

C) Section 32

D) Section 37

Answer: B) Section 31

Explanation: Section 31 allows deductions for repairs and insurance of machinery, plant, or furniture used for business or profession.

28. A business has a turnover of Rs. 2.5 crore, with 90% digital receipts. The presumptive income under Section 44AD is:A) Rs. 15 lakh

B) Rs. 20 lakh

C) Rs. 16.5 lakh

D) Rs. 18 lakh

Answer: C) Rs. 16.5 lakh

Explanation: Under Section 44AD, presumptive income is 6% for digital receipts (90% of Rs. 2.5 crore = Rs. 2.25 crore × 6% = Rs. 13.5 lakh) + 8% for non-digital receipts (10% of Rs. 2.5 crore = Rs. 25 lakh × 8% = Rs. 2 lakh), totaling Rs. 15.5 lakh + Rs. 1 lakh = Rs. 16.5 lakh.

29. Which expense is disallowed under Section 40A(2)?A) Reasonable payments to unrelated parties

B) Excessive payments to related parties

C) Cash payments below Rs. 10,000

D) Interest on business loans

Answer: B) Excessive payments to related parties

Explanation: Section 40A(2) disallows excessive or unreasonable payments to related parties if not justified for business purposes.

30. The depreciation rate for a block of intangible assets (e.g., patents) is:A) 15%

B) 25%

C) 40%

D) 50%

Answer: B) 25%

Explanation: Under Section 32 and Income Tax Rules, intangible assets like patents and trademarks are depreciated at 25%.

31. Which section allows a weighted deduction for in-house scientific research?A) Section 35(2AB)

B) Section 36(1)(iii)

C) Section 37

D) Section 43B

Answer: A) Section 35(2AB)

Explanation: Section 35(2AB) allows a weighted deduction of 100% (reduced from 150% pre-2021) for in-house scientific research expenditure by specified companies.

32. A business incurs an advertisement expense of Rs. 50,000. The amount deductible is:A) Rs. 50,000

B) Rs. 25,000

C) Nil

D) Rs. 40,000

Answer: A) Rs. 50,000

Explanation: Advertisement expenses wholly and exclusively for business are fully deductible under Section 37, provided they are not capital in nature.

33. The maximum gross receipts limit for professionals under Section 44ADA for AY 2025-26 is:A) Rs. 50 lakh

B) Rs. 75 lakh

C) Rs. 1 crore

D) Rs. 2 crore

Answer: B) Rs. 75 lakh

Explanation: The Finance Act, 2024, sets the gross receipts limit for professionals under Section 44ADA at Rs. 75 lakh for presumptive taxation.

34. Which of the following is deductible under Section 36(1)(i)?A) Rent of business premises

B) Insurance premium for business stock

C) Legal expenses for business

D) Donation to charity

Answer: B) Insurance premium for business stock

Explanation: Section 36(1)(i) allows deductions for insurance premiums on stock or stores used in business.

35. A business pays Rs. 12,000 in cash for goods purchased. The deductible amount is:A) Rs. 12,000

B) Rs. 10,000

C) Nil

D) Rs. 6,000

Answer: C) Nil

Explanation: Cash payments exceeding Rs. 10,000 for business expenses are disallowed under Section 40A(3).

36. The Written Down Value (WDV) of a block of assets is Rs. 10,00,000, with a depreciation rate of 15%. The depreciation is:A) Rs. 1,50,000

B) Rs. 1,00,000

C) Rs. 2,00,000

D) Rs. 50,000

Answer: A) Rs. 1,50,000

Explanation: Depreciation = 15% of Rs. 10,00,000 = Rs. 1,50,000.

37. Which section requires books of accounts to be maintained by professionals?A) Section 44AA

B) Section 44AB

C) Section 44AD

D) Section 44AE

Answer: A) Section 44AA

Explanation: Section 44AA mandates maintenance of books of accounts for professionals with gross receipts exceeding specified limits.

38. Interest on a loan taken for acquiring a capital asset is deductible:A) Fully in the year of payment

B) After the asset is put to use

C) Not deductible

D) Over 5 years

Answer: B) After the asset is put to use

Explanation: Under Section 36(1)(iii), interest on a loan for acquiring a capital asset is deductible only after the asset is put to use in the business.

39. A professional with gross receipts of Rs. 40 lakh opts for Section 44ADA. The taxable income is:A) Rs. 20 lakh

B) Rs. 16 lakh

C) Rs. 24 lakh

D) Rs. 40 lakh

Answer: A) Rs. 20 lakh

Explanation: Under Section 44ADA, 50% of gross receipts (50% of Rs. 40 lakh = Rs. 20 lakh) is deemed as taxable income.

40. Which of the following is disallowed under Section 43B if not paid by the due date?A) Salary to employees

B) Rent for premises

C) Sales tax payable

D) Advertisement expenses

Answer: C) Sales tax payable

Explanation: Section 43B disallows deductions for certain payments (e.g., taxes, duties) unless paid by the due date of filing the return.

41. The depreciation rate for a block of buildings is:A) 10%

B) 15%

C) 25%

D) 40%

Answer: A) 10%

Explanation: Under Section 32 and Income Tax Rules, the depreciation rate for buildings is generally 10%.

42. Which of the following is NOT a condition for claiming bad debts under Section 36(1)(vii)?A) Debt must be written off

B) Debt must relate to business income

C) Debt must be paid in cash

D) Debt must be irrecoverable

Answer: C) Debt must be paid in cash

Explanation: Bad debts must be written off, related to business income, and irrecoverable, but there’s no requirement for cash payment.

43. A business sells a machine for Rs. 2,00,000 with a WDV of Rs. 1,50,000. The taxable amount is:A) Rs. 50,000

B) Rs. 2,00,000

C) Rs. 1,50,000

D) Nil

Answer: A) Rs. 50,000

Explanation: Profit on sale of a depreciable asset (Rs. 2,00,000 – Rs. 1,50,000 = Rs. 50,000) is taxable as business income under Section 41(2).

44. The tax audit threshold under Section 44AB for businesses with cash receipts less than 5% is:A) Rs. 1 crore

B) Rs. 3 crore

C) Rs. 10 crore

D) Rs. 5 crore

Answer: C) Rs. 10 crore

Explanation: For businesses with cash receipts/payments less than 5% of total receipts/payments, the tax audit threshold is Rs. 10 crore (Section 44AB, AY 2025-26).

45. Preliminary expenses of Rs. 50,000 are deductible under Section 35D over:A) 3 years

B) 5 years

C) 7 years

D) 10 years

Answer: B) 5 years

Explanation: Preliminary expenses are amortized over 5 years in equal installments under Section 35D.

46. Which expense is deductible under Section 37(1)?A) Penalty for tax evasion

B) Donation to a political party

C) General business expenses

D) Personal expenses

Answer: C) General business expenses

Explanation: Section 37(1) allows deductions for expenses wholly and exclusively for business, not being capital or personal in nature.

47. A business incurs Rs. 8,000 for repairs to machinery. The deductible amount is:A) Rs. 8,000

B) Rs. 4,000

C) Nil

D) Rs. 10,000

Answer: A) Rs. 8,000

Explanation: Repairs to machinery are fully deductible under Section 31, as the amount is below the cash payment limit of Rs. 10,000.

48. The presumptive taxation scheme for goods carriage under Section 44AE applies to:A) Ownership of up to 10 vehicles

B) Ownership of up to 15 vehicles

C) Ownership of any number of vehicles

D) Only heavy vehicles

Answer: A) Ownership of up to 10 vehicles

Explanation: Section 44AE applies to taxpayers owning up to 10 goods vehicles, with presumptive income per vehicle.

49. A business pays Rs. 20,000 as interest on a loan in cash. The deductible amount is:A) Rs. 20,000

B) Rs. 10,000

C) Nil

D) Rs. 15,000

Answer: C) Nil

Explanation: Cash payments exceeding Rs. 10,000 for expenses like interest are disallowed under Section 40A(3).

50. Expenditure on acquiring a patent is deductible as:A) Revenue expense under Section 37

B) Depreciation under Section 32

C) Amortization under Section 35D

D) Not deductible

Answer: B) Depreciation under Section 32

Explanation: Patents are intangible assets, and their cost is depreciated at 25% under Section 32.

MCQs on Income from Capital Gains under the Income Tax Act, 1961

1. Income from capital gains is chargeable to tax under which section?A) Section 28

B) Section 45

C) Section 56

D) Section 80

Answer: B) Section 45

Explanation: Section 45 defines the scope of income taxable under the head "Capital Gains" arising from the transfer of a capital asset.

2. A capital asset held for more than 36 months is classified as:A) Short-term capital asset

B) Long-term capital asset

C) Exempt asset

D) Business asset

Answer: B) Long-term capital asset

Explanation: Assets held for more than 36 months (24 months for immovable property and 12 months for listed securities) are long-term capital assets under Section 2(29A).

3. The tax rate for long-term capital gains on listed equity shares under Section 112A is:A) 10%

B) 12.5%

C) 20%

D) 15%

Answer: B) 12.5%

Explanation: As per the Finance Act, 2024, long-term capital gains (LTCG) on listed equity shares exceeding Rs. 1.25 lakh are taxed at 12.5% under Section 112A.

4. Which of the following is NOT a capital asset under Section 2(14)?A) Jewellery

B) Personal car

C) Stock-in-trade

D) Agricultural land outside specified limits

Answer: C) Stock-in-trade

Explanation: Stock-in-trade is not a capital asset, as it is held for business purposes. Other options qualify as capital assets.

5. The cost of acquisition for computing capital gains is determined under:A) Section 45

B) Section 48

C) Section 50

D) Section 55

Answer: D) Section 55

Explanation: Section 55 defines the cost of acquisition and cost of improvement for computing capital gains.

6. Short-term capital gains on the sale of a house property are taxed at:A) 12.5%

B) 20%

C) Slab rates

D) 30%

Answer: C) Slab rates

Explanation: Short-term capital gains (STCG) are taxed at the assessee’s applicable slab rates under Section 48.

7. The exemption for capital gains from the sale of a residential house is available under:A) Section 54

B) Section 54B

C) Section 54D

D) Section 54F

Answer: A) Section 54

Explanation: Section 54 provides an exemption for long-term capital gains from the sale of a residential house if invested in another residential house.

8. A house property purchased in 2010 for Rs. 10 lakh is sold in 2024 for Rs. 50 lakh. The indexed cost of acquisition (CII 2024-25: 363, 2010-11: 167) is:A) Rs. 21,73,653

B) Rs. 10,00,000

C) Rs. 50,00,000

D) Rs. 15,00,000

Answer: A) Rs. 21,73,653

Explanation: Indexed cost = Cost of acquisition × (CII of year of sale / CII of year of acquisition) = Rs. 10,00,000 × (363 / 167) = Rs. 21,73,653.

9. Which section provides an exemption for capital gains from the sale of agricultural land?A) Section 54

B) Section 54B

C) Section 54EC

D) Section 54F

Answer: B) Section 54B

Explanation: Section 54B allows an exemption for capital gains from the sale of agricultural land if invested in another agricultural land.

10. The holding period for listed equity shares to qualify as a long-term capital asset is:A) 12 months

B) 24 months

C) 36 months

D) 48 months

Answer: A) 12 months

Explanation: Listed equity shares qualify as long-term capital assets if held for more than 12 months (Section 2(29A)).

11. The maximum exemption limit for long-term capital gains under Section 54EC is:A) Rs. 50 lakh

B) Rs. 1 crore

C) Rs. 2 crore

D) No limit

Answer: A) Rs. 50 lakh

Explanation: Capital gains invested in specified bonds (e.g., NHAI, REC) are exempt up to Rs. 50 lakh under Section 54EC.

12. Which of the following expenses is deductible while computing capital gains?A) Cost of acquisition

B) Cost of improvement

C) Transfer expenses

D) All of the above

Answer: D) All of the above

Explanation: Section 48 allows deductions for cost of acquisition, cost of improvement, and expenses incurred on transfer.

13. Capital gains from the sale of depreciable assets are treated as:A) Long-term capital gains

B) Short-term capital gains

C) Exempt income

D) Business income

Answer: B) Short-term capital gains

Explanation: Gains from depreciable assets are treated as short-term capital gains under Section 50, regardless of the holding period.

14. The cost of acquisition for a capital asset acquired before April 1, 2001, is:A) Actual cost only

B) Fair market value as on April 1, 2001, or actual cost, whichever is higher

C) Fair market value as on April 1, 2001, or actual cost, whichever is lower

D) Nil

Answer: B) Fair market value as on April 1, 2001, or actual cost, whichever is higher

Explanation: For assets acquired before April 1, 2001, the cost of acquisition is the higher of actual cost or fair market value as on April 1, 2001 (Section 55).

15. A plot of land is sold for Rs. 20 lakh (cost Rs. 5 lakh, CII 363/200). The indexed cost is:A) Rs. 9,06,500

B) Rs. 5,00,000

C) Rs. 20,00,000

D) Rs. 10,00,000

Answer: A) Rs. 9,06,500

Explanation: Indexed cost = Rs. 5,00,000 × (363 / 200) = Rs. 9,06,500.

16. Which section exempts capital gains from the sale of any long-term capital asset if invested in a residential house?A) Section 54

B) Section 54B

C) Section 54EC

D) Section 54F

Answer: D) Section 54F

Explanation: Section 54F provides an exemption for long-term capital gains from any asset (other than a residential house) if invested in a residential house, subject to conditions.

17. The tax rate for short-term capital gains on unlisted shares is:A) 12.5%

B) 20%

C) Slab rates

D) 30%

Answer: C) Slab rates

Explanation: Short-term capital gains on unlisted shares are taxed at the assessee’s applicable slab rates under Section 48.

18. The holding period for unlisted shares to qualify as a long-term capital asset is:A) 12 months

B) 24 months

C) 36 months

D) 48 months

Answer: B) 24 months

Explanation: Unlisted shares qualify as long-term capital assets if held for more than 24 months (Section 2(29A)).

19. Capital gains from the sale of a capital asset are computed under:A) Section 45

B) Section 48

C) Section 50

D) Section 54

Answer: B) Section 48

Explanation: Section 48 provides the method for computing capital gains (full value of consideration minus cost of acquisition, improvement, and transfer expenses).

20. The exemption under Section 54 requires the new residential house to be purchased within:A) 1 year before or 2 years after the sale

B) 2 years before or 1 year after the sale

C) 1 year before or 1 year after the sale

D) 3 years after the sale

Answer: A) 1 year before or 2 years after the sale

Explanation: Under Section 54, the new residential house must be purchased 1 year before or 2 years after the sale, or constructed within 3 years.

21. A machine (depreciable asset) with a WDV of Rs. 3,00,000 is sold for Rs. 4,00,000. The capital gain is:A) Rs. 1,00,000 (short-term)

B) Rs. 1,00,000 (long-term)

C) Rs. 4,00,000

D) Nil

Answer: A) Rs. 1,00,000 (short-term)

Explanation: For depreciable assets, gain (Rs. 4,00,000 – Rs. 3,00,000 = Rs. 1,00,000) is treated as short-term capital gain under Section 50.

22. Which of the following is eligible for indexation benefit?A) Listed equity shares

B) Unlisted shares

C) Short-term capital assets

D) Depreciable assets

Answer: B) Unlisted shares

Explanation: Indexation benefit is available for long-term capital assets like unlisted shares under Section 48, but not for listed equity shares (Section 112A) or depreciable assets.

23. The Cost Inflation Index (CII) is notified by:A) Reserve Bank of India

B) Central Board of Direct Taxes (CBDT)

C) Ministry of Finance

D) Income Tax Appellate Tribunal

Answer: B) Central Board of Direct Taxes (CBDT)

Explanation: The CBDT notifies the CII annually for indexation of long-term capital gains.

24. Capital gains from the sale of bonds under Section 54EC must be invested within:A) 3 months

B) 6 months

C) 1 year

D) 2 years

Answer: B) 6 months

Explanation: To claim exemption under Section 54EC, capital gains must be invested in specified bonds within 6 months from the date of transfer.

25. Transfer of a capital asset includes:A) Sale of the asset

B) Exchange of the asset

C) Relinquishment of the asset

D) All of the above

Answer: D) All of the above

Explanation: Section 2(47) defines "transfer" to include sale, exchange, relinquishment, or extinguishment of rights in a capital asset.

Additional MCQs on Income from Capital Gains under the Income Tax Act, 1961

26. The transfer of a capital asset is defined under which section?A) Section 2(14)

B) Section 2(47)

C) Section 45

D) Section 48

Answer: B) Section 2(47)

Explanation: Section 2(47) defines "transfer" to include sale, exchange, relinquishment, or extinguishment of rights in a capital asset.

27. The holding period for immovable property to qualify as a long-term capital asset is:A) 12 months

B) 24 months

C) 36 months

D) 48 months

Answer: B) 24 months

Explanation: Immovable property (e.g., land, house) qualifies as a long-term capital asset if held for more than 24 months (Section 2(29A)).

28. A residential house purchased in 2015 for Rs. 20 lakh is sold in 2024 for Rs. 60 lakh. The indexed cost (CII 2024-25: 363, 2015-16: 254) is:A) Rs. 28,58,267

B) Rs. 20,00,000

C) Rs. 60,00,000

D) Rs. 35,00,000

Answer: A) Rs. 28,58,267

Explanation: Indexed cost = Cost of acquisition × (CII of year of sale / CII of year of acquisition) = Rs. 20,00,000 × (363 / 254) = Rs. 28,58,267.

29. Long-term capital gains on unlisted shares are taxed at:A) 12.5%

B) 20% with indexation

C) Slab rates

D) 10% without indexation

Answer: B) 20% with indexation

Explanation: LTCG on unlisted shares are taxed at 20% with indexation benefit under Section 112 (Finance Act, 2024).

30. The exemption under Section 54F is available for capital gains from:A) Sale of a residential house

B) Sale of agricultural land

C) Sale of any long-term capital asset (except residential house)

D) Sale of depreciable assets

Answer: C) Sale of any long-term capital asset (except residential house)

Explanation: Section 54F provides an exemption for LTCG from any asset (other than a residential house) if invested in a residential house, subject to conditions.

31. The cost of improvement for an asset acquired before April 1, 2001, is:A) Ignored

B) Actual cost incurred after April 1, 2001

C) Actual cost incurred at any time

D) Indexed cost only

Answer: B) Actual cost incurred after April 1, 2001

Explanation: Under Section 55, only improvements made after April 1, 2001, are considered for indexation in capital gains computation.

32. A plot of land is sold for Rs. 30 lakh (cost Rs. 8 lakh, CII 363/200). The LTCG is:A) Rs. 22,00,000

B) Rs. 15,44,000

C) Rs. 30,00,000

D) Rs. 18,56,000

Answer: B) Rs. 15,44,000

Explanation: Indexed cost = Rs. 8,00,000 × (363 / 200) = Rs. 14,56,000. LTCG = Rs. 30,00,000 – Rs. 14,56,000 = Rs. 15,44,000.

33. Which section provides an exemption for capital gains from compulsory acquisition of industrial land?A) Section 54

B) Section 54B

C) Section 54D

D) Section 54EC

Answer: C) Section 54D

Explanation: Section 54D allows an exemption for capital gains from compulsory acquisition of industrial land if invested in another industrial land.

34. Short-term capital gains on listed equity shares (held for less than 12 months) are taxed at:A) 12.5%

B) 15%

C) 20%

D) Slab rates

Answer: B) 15%

Explanation: STCG on listed equity shares (subject to STT) are taxed at 15% under Section 111A (Finance Act, 2024).

35. The fair market value of an asset as on April 1, 2001, is used for:A) Short-term capital assets

B) Assets acquired before April 1, 2001

C) Depreciable assets

D) Listed equity shares

Answer: B) Assets acquired before April 1, 2001

Explanation: For assets acquired before April 1, 2001, the cost of acquisition is the higher of actual cost or fair market value as on April 1, 2001 (Section 55).

36. The exemption under Section 54 requires the new residential house to be constructed within:A) 1 year

B) 2 years

C) 3 years

D) 5 years

Answer: C) 3 years

Explanation: Under Section 54, the new residential house must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years.

37. A machine (depreciable asset) with a WDV of Rs. 5,00,000 is sold for Rs. 7,00,000. The capital gain is:A) Rs. 2,00,000 (short-term)

B) Rs. 2,00,000 (long-term)

C) Rs. 7,00,000

D) Nil

Answer: A) Rs. 2,00,000 (short-term)

Explanation: For depreciable assets, gain (Rs. 7,00,000 – Rs. 5,00,000 = Rs. 2,00,000) is treated as STCG under Section 50.

38. Which of the following is NOT eligible for indexation benefit?A) Unlisted shares

B) Residential house

C) Listed equity shares

D) Land

Answer: C) Listed equity shares

Explanation: Indexation is not available for LTCG on listed equity shares under Section 112A, but it applies to other long-term assets like unlisted shares and immovable property.

39. The threshold for tax-free LTCG on listed equity shares under Section 112A is:A) Rs. 1 lakh

B) Rs. 1.25 lakh

C) Rs. 2 lakh

D) Rs. 50,000

Answer: B) Rs. 1.25 lakh

Explanation: LTCG on listed equity shares up to Rs. 1.25 lakh is exempt under Section 112A (Finance Act, 2024).

40. Capital gains from the sale of a capital asset transferred to a spouse without consideration are taxed in the hands of:A) Transferee

B) Transferor

C) Both equally

D) Neither

Answer: B) Transferor

Explanation: Under Section 64(1)(iv), capital gains from an asset transferred to a spouse without adequate consideration are taxed in the transferor’s hands.

41. A share purchased for Rs. 2,000 in 2018 (CII 280) is sold for Rs. 5,000 in 2024 (CII 363). The indexed cost is:A) Rs. 2,592

B) Rs. 2,000

C) Rs. 5,000

D) Rs. 3,000

Answer: A) Rs. 2,592

Explanation: Indexed cost = Rs. 2,000 × (363 / 280) = Rs. 2,592.

42. Which section exempts capital gains from the sale of a small-scale industrial unit shifted to a SEZ?A) Section 54B

B) Section 54D

C) Section 54G

D) Section 54GA

Answer: D) Section 54GA

Explanation: Section 54GA provides an exemption for capital gains from shifting an industrial unit to a Special Economic Zone (SEZ).

43. The cost of acquisition for inherited property is:A) Nil

B) Cost to the previous owner

C) Fair market value on the date of inheritance

D) Market value on the date of sale

Answer: B) Cost to the previous owner

Explanation: Under Section 49, the cost of acquisition for inherited property is the cost to the previous owner, with indexation from the year of acquisition.

44. A residential house is sold for Rs. 1 crore (indexed cost Rs. 60 lakh). The LTCG is fully exempt under Section 54 if:A) Rs. 60 lakh is invested in a new house

B) Rs. 1 crore is invested in a new house

C) Rs. 50 lakh is invested in bonds

D) No investment is required

Answer: B) Rs. 1 crore is invested in a new house

Explanation: Under Section 54, the entire sale proceeds (Rs. 1 crore) must be invested in a new residential house for full exemption of LTCG (Rs. 40 lakh).

45. The tax rate for LTCG on immovable property is:A) 12.5%

B) 20% with indexation

C) 15%

D) Slab rates

Answer: B) 20% with indexation

Explanation: LTCG on immovable property is taxed at 20% with indexation benefit under Section 112.

46. Which of the following is considered a transfer under Section 2(47)?A) Gift of a capital asset

B) Will or inheritance

C) Personal use of an asset

D) Holding an asset

Answer: A) Gift of a capital asset

Explanation: Gift is considered a transfer under Section 2(47), while inheritance is not.

47. A debenture sold for Rs. 10,000 (cost Rs. 4,000, CII 363/240) has an LTCG of:A) Rs. 6,000

B) Rs. 3,950

C) Rs. 10,000

D) Rs. 4,050

Answer: B) Rs. 3,950

Explanation: Indexed cost = Rs. 4,000 × (363 / 240) = Rs. 6,050. LTCG = Rs. 10,000 – Rs. 6,050 = Rs. 3,950.

48. The exemption under Section 54EC requires investment in:A) Residential house

B) Agricultural land

C) Specified bonds

D) Equity shares

Answer: C) Specified bonds

Explanation: Section 54EC exempts LTCG if invested in specified bonds (e.g., NHAI, REC) within 6 months, up to Rs. 50 lakh.

49. Capital gains from the sale of personal effects are:A) Taxable as STCG

B) Taxable as LTCG

C) Exempt

D) Taxable under other sources

Answer: C) Exempt

Explanation: Personal effects (e.g., personal car, clothes) are not capital assets under Section 2(14), so gains are exempt.

50. The period for depositing capital gains in the Capital Gains Account Scheme for Section 54 is:A) By the due date of filing the return

B) Within 6 months of sale

C) Within 1 year of sale

D) Within 3 years of sale

Answer: A) By the due date of filing the return

Explanation: Unutilized capital gains must be deposited in the Capital Gains Account Scheme by the due date of filing the return to claim exemptions under Section 54.

MCQs on Income from Other Sources under the Income Tax Act, 1961

1. Income from other sources is chargeable to tax under which section?A) Section 28

B) Section 45

C) Section 56

D) Section 80

Answer: C) Section 56

Explanation: Section 56 defines incomes taxable under the head "Income from Other Sources" when not covered under other heads.

2. Which of the following is taxable under "Income from Other Sources"?A) Salary from employment

B) Dividend from a domestic company

C) Rent from house property

D) Profit from business

Answer: B) Dividend from a domestic company

Explanation: Dividends are taxable under Section 56(2)(i), while other options fall under specific heads (Salary, House Property, Business).

3. The tax rate for winnings from lotteries under Section 115BB is:A) 12.5%

B) 20%

C) 30%

D) Slab rates

Answer: C) 30%

Explanation: Winnings from lotteries, horse races, or gambling are taxed at a flat rate of 30% under Section 115BB (Finance Act, 2024).

4. Interest on securities is taxable under:A) Income from Capital Gains

B) Income from Other Sources

C) Income from Business or Profession

D) Exempt income

Answer: B) Income from Other Sources

Explanation: Interest on securities is taxable under Section 56(2)(id), unless it is business income.

5. The deduction for expenses incurred to earn interest on securities is allowed under:A) Section 56

B) Section 57

C) Section 58

D) Section 59

Answer: B) Section 57

Explanation: Section 57 allows deductions for expenses incurred to earn income taxable under "Other Sources," such as interest on securities.

6. Winnings from a lottery of Rs. 50,000 are subject to tax of:A) Rs. 15,000

B) Rs. 6,250

C) Rs. 10,000

D) Nil

Answer: A) Rs. 15,000

Explanation: Lottery winnings are taxed at 30% under Section 115BB. Tax = Rs. 50,000 × 30% = Rs. 15,000 (plus cess).

7. Which of the following gifts is taxable under Section 56(2)(x)?A) Gift of Rs. 40,000 from a friend

B) Gift of Rs. 60,000 from a non-relative

C) Gift from a spouse

D) Gift received on marriage

Answer: B) Gift of Rs. 60,000 from a non-relative

Explanation: Gifts exceeding Rs. 50,000 from non-relatives are taxable under Section 56(2)(x), unless exempted (e.g., from spouse or on marriage).

8. Family pension received by a widow is taxable under:A) Income from Salaries

B) Income from Other Sources

C) Exempt income

D) Income from House Property

Answer: B) Income from Other Sources

Explanation: Family pension is taxable under Section 56(2)(ia) as income from other sources.

9. The deduction for family pension under Section 57 is:A) Rs. 15,000 or 1/3rd of pension, whichever is lower

B) Rs. 25,000 or 1/2 of pension, whichever is lower

C) Rs. 15,000 or 1/2 of pension, whichever is higher

D) Full amount of pension

Answer: A) Rs. 15,000 or 1/3rd of pension, whichever is lower

Explanation: Section 57(iia) allows a deduction of Rs. 15,000 or 1/3rd of family pension, whichever is lower.

10. Interest on a savings bank account is:A) Fully exempt

B) Taxable under Section 56

C) Exempt up to Rs. 10,000

D) Exempt up to Rs. 50,000

Answer: B) Taxable under Section 56

Explanation: Interest on a savings bank account is taxable under Section 56, but a deduction up to Rs. 10,000 is available under Section 80TTA for individuals (not senior citizens).

11. A gift of Rs. 1,00,000 received from a cousin is:

A) Fully taxable

B) Fully exempt

C) Taxable to the extent of Rs. 50,000

D) Exempt up to Rs. 75,000

Answer: B) Fully exempt

Explanation: Gifts from specified relatives, including cousins, are fully exempt under Section 56(2)(x).

12. Which section disallows certain expenses under "Income from Other Sources"?A) Section 56

B) Section 57

C) Section 58

D) Section 59

Answer: C) Section 58

Explanation: Section 58 lists amounts not deductible, such as personal expenses or penalties, under this head.

13. Interest received on fixed deposits of Rs. 20,000 is taxed at:A) 10%

B) 12.5%

C) Slab rates

D) 30%

Answer: C) Slab rates

Explanation: Interest on fixed deposits is taxable at the assessee’s applicable slab rates under Section 56.

14. A family pension of Rs. 60,000 is received. The deductible amount under Section 57 is:A) Rs. 15,000

B) Rs. 20,000

C) Rs. 30,000

D) Rs. 60,000

Answer: A) Rs. 15,000

Explanation: Deduction = Lower of Rs. 15,000 or 1/3rd of Rs. 60,000 (Rs. 20,000) = Rs. 15,000.

15. Winnings from a horse race of Rs. 1,00,000 are taxed at:A) Rs. 30,000

B) Rs. 12,500

C) Rs. 15,000

D) Slab rates

Answer: A) Rs. 30,000

Explanation: Winnings from horse races are taxed at 30% under Section 115BB. Tax = Rs. 1,00,000 × 30% = Rs. 30,000 (plus cess).

16. Which of the following is exempt under Section 56(2)(x)?A) Cash gift of Rs. 60,000 from a friend

B) Gift of a car worth Rs. 2 lakh from a non-relative

C) Cash gift of Rs. 50,000 from a father-in-law

D) Property gift worth Rs. 1 lakh from a non-relative

Answer: C) Cash gift of Rs. 50,000 from a father-in-law

Explanation: Gifts from specified relatives (e.g., father-in-law) are exempt under Section 56(2)(x).

17. Dividend received from a foreign company is:A) Fully exempt

B) Taxable under Section 56

C) Exempt up to Rs. 10,000

D) Taxable under Capital Gains

Answer: B) Taxable under Section 56

Explanation: Dividends from foreign companies are taxable under "Income from Other Sources" at slab rates.

18. The deduction under Section 80TTA for interest on savings accounts is available to:A) Senior citizens only

B) Individuals and HUFs (except senior citizens)

C) Companies

D) All taxpayers

Answer: B) Individuals and HUFs (except senior citizens)

Explanation: Section 80TTA allows a deduction up to Rs. 10,000 for interest on savings accounts for individuals and HUFs (except senior citizens, who claim under Section 80TTB).

19. Interest on securities of Rs. 25,000 with collection charges of Rs. 5,000 has a taxable income of:A) Rs. 25,000

B) Rs. 20,000

C) Rs. 15,000

D) Rs. 30,000

Answer: B) Rs. 20,000

Explanation: Taxable income = Interest (Rs. 25,000) – Deduction for collection charges (Rs. 5,000) = Rs. 20,000 under Section 57.

20. Which of the following is NOT taxable under "Income from Other Sources"?A) Royalty income

B) Income from sub-letting

C) Salary from a partnership firm

D) Casual income like lottery winnings

Answer: C) Salary from a partnership firm

Explanation: Salary from a partnership firm is treated as business income, not under "Other Sources."

21. A cash gift of Rs. 75,000 from a non-relative is taxable to the extent of:A) Rs. 75,000

B) Rs. 25,000

C) Rs. 50,000

D) Nil

Answer: A) Rs. 75,000

Explanation: Gifts exceeding Rs. 50,000 from non-relatives are fully taxable under Section 56(2)(x).

22. The deduction under Section 80TTB for senior citizens on interest income is up to:A) Rs. 10,000

B) Rs. 25,000

C) Rs. 50,000

D) Rs. 1,00,000

Answer: C) Rs. 50,000

Explanation: Section 80TTB allows senior citizens a deduction up to Rs. 50,000 on interest from deposits.

23. Income from letting out machinery (not part of business) is taxable under:A) Income from Business or Profession

B) Income from Other Sources

C) Income from Capital Gains

D) Exempt income

Answer: B) Income from Other Sources

Explanation: Income from letting out machinery (not business-related) is taxable under Section 56(2)(ii).

24. A lottery prize of Rs. 2,00,000 (net after TDS) is grossed up to:A) Rs. 2,00,000

B) Rs. 2,85,714

C) Rs. 2,50,000

D) Rs. 3,00,000

Answer: B) Rs. 2,85,714

Explanation: Gross amount = Net amount / (1 – TDS rate) = Rs. 2,00,000 / (1 – 0.3) = Rs. 2,85,714 (TDS at 30%).

25. Which section taxes income from undisclosed sources?A) Section 56

B) Section 57

C) Section 68

D) Section 115BB

Answer: C) Section 68

Explanation: Section 68 taxes cash credits or unexplained investments as income from other sources if not satisfactorily explained.

Additional MCQs on Income from Other Sources under the Income Tax Act, 1961

26. Which of the following incomes is taxable under Section 56(2)?A) Income from sub-letting a house

B) Salary from a partnership firm

C) Rent from a residential house

D) Profit from the sale of machinery

Answer: A) Income from sub-letting a house

Explanation: Income from sub-letting is taxable under Section 56(2)(iii) as "Income from Other Sources," while other options fall under different heads.

27. A family pension of Rs. 90,000 is received. The deductible amount under Section 57(iia) is:A) Rs. 15,000

B) Rs. 30,000

C) Rs. 45,000

D) Rs. 90,000

Answer: A) Rs. 15,000

Explanation: Deduction for family pension is the lower of Rs. 15,000 or 1/3rd of pension (1/3 × Rs. 90,000 = Rs. 30,000), so Rs. 15,000.

28. Winnings from a crossword puzzle of Rs. 20,000 are taxed at:A) 12.5%

B) 20%

C) 30%

D) Slab rates

Answer: C) 30%

Explanation: Winnings from crossword puzzles are taxed at 30% under Section 115BB (Finance Act, 2024).

29. Interest on fixed deposits of Rs. 50,000 incurred bank charges of Rs. 5,000. The taxable income is:A) Rs. 50,000

B) Rs. 45,000

C) Rs. 40,000

D) Rs. 55,000

Answer: B) Rs. 45,000

Explanation: Taxable income = Interest (Rs. 50,000) – Bank charges (Rs. 5,000) = Rs. 45,000 under Section 57.

30. A cash gift of Rs. 40,000 from a non-relative is:A) Fully taxable

B) Fully exempt

C) Taxable to the extent of Rs. 10,000

D) Taxable to the extent of Rs. 20,000

Answer: B) Fully exempt

Explanation: Gifts from non-relatives are taxable under Section 56(2)(x) only if they exceed Rs. 50,000 in aggregate.

31. Dividend received from a domestic company is taxed at:A) 10%

B) 12.5%

C) Slab rates

D) 30%

Answer: C) Slab rates

Explanation: Dividends from domestic companies are taxable at the assessee’s slab rates under Section 56(2)(i).

32. Which of the following is exempt under Section 56(2)(x)?A) Cash gift of Rs. 60,000 from a friend

B) Gift of jewellery worth Rs. 1 lakh from a brother

C) Property worth Rs. 2 lakh from a non-relative

D) Cash gift of Rs. 75,000 from a colleague

Answer: B) Gift of jewellery worth Rs. 1 lakh from a brother

Explanation: Gifts from specified relatives (e.g., brother) are fully exempt under Section 56(2)(x).

33. The deduction under Section 80TTB for senior citizens applies to:A) Interest on savings accounts only

B) Interest on fixed deposits and savings accounts

C) Dividend income

D) Winnings from lotteries

Answer: B) Interest on fixed deposits and savings accounts

Explanation: Section 80TTB allows a deduction up to Rs. 50,000 for senior citizens on interest from deposits (savings and fixed).

34. A lottery prize of Rs. 1,00,000 (net after 30% TDS) is grossed up to:A) Rs. 1,00,000

B) Rs. 1,42,857

C) Rs. 1,30,000

D) Rs. 1,50,000

Answer: B) Rs. 1,42,857

Explanation: Gross amount = Net amount / (1 – TDS rate) = Rs. 1,00,000 / (1 – 0.3) = Rs. 1,42,857.

35. Income from letting out a godown (not part of business) is taxable under:A) Income from House Property

B) Income from Other Sources

C) Income from Business or Profession

D) Exempt income

Answer: B) Income from Other Sources

Explanation: Income from letting out property (not house property or business-related) is taxable under Section 56(2)(iii).

36. A gift of a car worth Rs. 3,00,000 from a non-relative is taxable to the extent of:A) Rs. 3,00,000

B) Rs. 2,50,000

C) Rs. 50,000

D) Nil

Answer: A) Rs. 3,00,000

Explanation: The entire value of a movable property gift exceeding Rs. 50,000 from a non-relative is taxable under Section 56(2)(x).

37. Interest on a savings account of Rs. 12,000 for an individual is eligible for a deduction of:A) Rs. 10,000

B) Rs. 12,000

C) Rs. 5,000

D) Nil

Answer: A) Rs. 10,000

Explanation: Under Section 80TTA, interest on savings accounts is deductible up to Rs. 10,000 for individuals (except senior citizens).

38. Which of the following is taxable as income from other sources?A) Income from sub-letting

B) Rent from a business property

C) Salary from employment

D) Capital gains from shares

Answer: A) Income from sub-letting

Explanation: Income from sub-letting is taxable under Section 56(2)(iii), while other options fall under different heads.

39. A family pension of Rs. 36,000 has a taxable income of:A) Rs. 36,000

B) Rs. 24,000

C) Rs. 21,000

D) Rs. 12,000

Answer: B) Rs. 24,000

Explanation: Deduction = Lower of Rs. 15,000 or 1/3rd of Rs. 36,000 (Rs. 12,000) = Rs. 12,000. Taxable income = Rs. 36,000 – Rs. 12,000 = Rs. 24,000.

40. Winnings from a card game of Rs. 15,000 are taxed at:A) Rs. 4,500

B) Rs. 1,875

C) Rs. 3,000

D) Slab rates

Answer: A) Rs. 4,500

Explanation: Winnings from card games are taxed at 30% under Section 115BB. Tax = Rs. 15,000 × 30% = Rs. 4,500 (plus cess).

41. A gift of Rs. 30,000 each from two non-relatives is:A) Fully exempt

B) Fully taxable

C) Taxable to the extent of Rs. 10,000

D) Taxable to the extent of Rs. 60,000

Answer: A) Fully exempt

Explanation: Gifts are taxable only if the aggregate value from non-relatives exceeds Rs. 50,000. Here, 2 × Rs. 30,000 = Rs. 60,000, but individual gifts are below the threshold, so exempt.

42. Interest on securities of Rs. 40,000 with collection charges of Rs. 8,000 has a taxable income of:A) Rs. 40,000

B) Rs. 32,000

C) Rs. 48,000

D) Rs. 30,000

Answer: B) Rs. 32,000

Explanation: Taxable income = Interest (Rs. 40,000) – Collection charges (Rs. 8,000) = Rs. 32,000 under Section 57.

43. Which section taxes unexplained cash credits?A) Section 56

B) Section 57

C) Section 68

D) Section 115BB

Answer: C) Section 68

Explanation: Section 68 taxes unexplained cash credits as income from other sources if not satisfactorily explained.

44. Dividend from a cooperative bank is taxable under:A) Income from Other Sources

B) Income from Business or Profession

C) Exempt income

D) Income from Capital Gains

Answer: A) Income from Other Sources

Explanation: Dividends from cooperative banks are taxable under Section 56(2)(i) at slab rates.

45. A senior citizen receives Rs. 60,000 as interest on fixed deposits. The deduction under Section 80TTB is:A) Rs. 10,000

B) Rs. 50,000

C) Rs. 60,000

D) Nil

Answer: B) Rs. 50,000

Explanation: Section 80TTB allows a deduction up to Rs. 50,000 for senior citizens on interest from deposits.

46. Income from letting out furniture (not part of business) is taxable under:A) Income from House Property

B) Income from Other Sources

C) Income from Business or Profession

D) Exempt income

Answer: B) Income from Other Sources

Explanation: Income from letting out furniture is taxable under Section 56(2)(iii) if not part of a business.

47. A gift of a painting worth Rs. 80,000 from a non-relative is taxable to the extent of:A) Rs. 80,000

B) Rs. 30,000

C) Rs. 50,000

D) Nil

Answer: A) Rs. 80,000

Explanation: The entire value of a movable property gift exceeding Rs. 50,000 from a non-relative is taxable under Section 56(2)(x).

48. Winnings from a TV game show of Rs. 50,000 (net after TDS) are grossed up to:A) Rs. 50,000

B) Rs. 71,429

C) Rs. 65,000

D) Rs. 75,000

Answer: B) Rs. 71,429

Explanation: Gross amount = Rs. 50,000 / (1 – 0.3) = Rs. 71,429 (TDS at 30% under Section 115BB).

49. Which expense is NOT deductible under Section 58?A) Collection charges for interest

B) Personal expenses

C) Repairs to let-out machinery

D) Commission for earning dividends

Answer: B) Personal expenses

Explanation: Personal expenses are disallowed under Section 58, while other expenses are deductible under Section 57.

50. Interest on a post office savings account of Rs. 15,000 for a non-senior citizen is deductible up to:A) Rs. 10,000

B) Rs. 15,000

C) Rs. 50,000

D) Nil

Answer: A) Rs. 10,000

Explanation: Under Section 80TTA, interest on post office savings accounts is deductible up to Rs. 10,000 for non-senior citizens.