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SAMPLE MCQ'S ON TAX LAW -UNIT 3

Which of the following is not a required for charging

income tax on capital gains?
(a) There must be a gain arising on transfer of capital asset.
(b) Capital gains should not be exempt u/s 54
(c) Transfer must be of a capital asset.
(d) The transfer must have been effected in relevant AY
As per general rule, capital gain from transfer of capital
asset is taxable in which year
(a) PY in which transfer took place (b) Assessment year
(c) PY next to year of transfer (d) None of the above

Capital gains is calculated when ___.

(a) Any asset is transferred
(b) any capital asset is transferred
(c) any asset is transferred or not transferred
(d) any capital asset is transferred or not transferred
Listed securities (except bonds & units) are treated
as LTCA, if they are held for more than ____ months .
(a) 12 (b) 6 (c) 24 (d) 48

Where capital asset became the property of the

assessee in any mode given u/s 49(1), COA shall be:
(a) FMV of asset on the date of acquisition by the assessee
(b) Cost of acquisition in the hands of previous owner
(c) Price which is decided by transferor & transferee
(d) Nil

While computing indexed cost of improvement, it

shall be divided by
(a) CII for the year in which improvement took place
(b) CII for year in which asset was transferred by assessee
(c) CII for the year being 1.4.2001
(d) CII for the year in which asset was held by the assessed

Cost of improvement means capital expenditure done

on the value addition of capital asset. It shall be considered
for calculation of capital gains &
(a) It is always taken as Nil
(b) always considered irrespective of period when it was
incurred
(c) considered when incurred on or after 1.4.2001
(d) considered when incurred before 1.4.2001
Brokerage paid on sale of shares ___ from the sale
consideration.
(a) Shall be reduced (b) May be reduced
(c) Shall not be reduced (d) Shall be added
While computing indexed cost of acquisition, COA
shall be divided by
(a) CII for the year in which asset was held by the assessee
(b) CII for the year in which asset was transferred
(c) CII for the year being 1.4.2001
(d) CII for the year being later of (a) or (c)
Amount deducted from sale consideration in LTCG is:
(a) COA & COI (b) Indexed COA & Indexed COI
(c) Market value as on 1.4.1981 of capital asset
(d) only cost of improvement

Cost of Improvement shall be indexed if ___.

(a) Improvement is done before 36 months from date of transfer
(b) Improvement is done before 24 months from date of transfer
(c) Improvement is done before 12 months from date of transfer
(d) If the asset is LTCA.

When capital asset is converted into STOCK INTRADE then for

purpose of capital gain, the sale consideration shall be
(a) FMV of the asset on the date of sale of such asset
(b) FMV of the asset on the date of conversion of such asset
(c) The price for which it is sold
(d) The price for which it was acquired

U/s 54EC, capital gains on transfer of land or

building or both are exempted if invested in the bonds
issued by NHAI & RECL or other notified bond—
(a) within 6 months from the date of transfer of the asset
(b) within 6 months from the end of the relevant PY
(c) within 6 months from the end of PY or due date for filing
the return of income u/s 139(1), whichever is earlier
(d) At any time before the end of the relevant PY

The charging section of the income under the head capital gains is :
A. Section 15
B. Section 17
C. Section 10
D. Section 45 (2)

The following shall be regarded as capital asset:

A. Jewellery
B. Sculptures
C. Archaeological Collections
D. All of the above

Mr. Ram owns a house property. He lent it to Laxman at ` 10,000 p.m. Laxman sublet
it to Mr. Maruti on monthly rent of ` 20,000 p.m. Rental income of Ram is taxable
under the head ………………………………...
A) Income from Salary B) Income from Other Sources
C) Income from House Property D) Income from Business
.A sum equal to …………… is allowed as deduction from the annual value.
A) 15% B) 20% C) 25% D) 30%
Income from let out of vacant land, it will be taxable under the head ………
a. Income from House Property
b. Income from Business or Profession
c. Income from Other Sources
d. Income from Capital gain.

The house property is used in own business and profession income will be taxable under
…….
a. Income from House Property
b. Income from Business or Profession
c. Income from Other Sources
d. Income from Capital gain.

If Income is from sale house property, it will be taxable under the head ……..
a. Income from House Property
b. Income from Business or Profession
c. Income from Other Sources
d. Income from Capital gain

Mr. X has two house properties, both are self-occupied. The Gross Annual Value for
A.Y. 2020-21:
a. One House will be Nil
b. Both House will be Nil
c. No House will be Nil
d. None of the above

The Fair Rented value of a house is Rs.1,50,000, Standard Rent 1,20,000, Actual Rent
Rs.1,30,000. The Gross Annual Value will be.
a. 1, 50,000,
b. 1, 20,000,
c. 1, 30,000
d. None of the above

Compute the GAV of the house whose municipal value is 3,36,000, fair rent 3, 35,000,
Standard rent 3,30,000 and Actual rent received/receivable is 3,38,000.
a. 3, 36,000
b. 3, 35,000
c. 3, 38,000
d. 3, 30,000

The fair rental value is 3,50,000, actual rent 3,30,000, Standard rent 3,20, 000.Municipal
tax paid during the previous year for the last 7 years is 3,40,000. The net annual value
will be:
a. Loss 10,000
b. 10,000
c. 3,30,000
d. Loss 3,30,000

Unrealized rent is equal to ………

a. Amount of rent payable but not paid by a tenant.
b. Amount of rent payable and paid by a tenant.
c. Amount of rent payable neither payable nor paid by tenant.
d. None of the above.
If the municipal tax is due but not paid, in this case ………
a. Will be allowed
b. Is not allowed
c. May be allowed
d. May not be allowed.

During the year municipality has levied taxes Rs. 24,500, but the assesses has paid Rs.
20,500. What amount of deduction will be allowed to the assesses?
a. 24,500
b. 20,500
c. 4,000
d. Nil

. NAV of house is 5, 00,000 and actual expenditure incurred on repairs is Rs. 60,000. What
amount of deduction is allowed under section 24(a).?
a. 3,50,000
b. 1,50,000
c. 4,40,000.
d. 2,90,000

The deductions which will be allowed in the case of one self-occupied house property
whose annual value is nil.:
a. 30% of net annual value
b. Insurance Premium
c. Annual Charge
d. Interest on money borrowed 30.000 or 2, 00,000 as the case may be

Where the amount of an expenditure claimed as deduction exceeds Rs. 10,000 and it is not made
by account payee cheque/ draft
(a) 20% of such payment shall be disallowed
(b) 100% of such payment shall be disallowed
(c) 20% of the excess over Rs. 10,000 of such payments shall be disallowed
(d) None of above
Profit on transfer of Duty Entitlement Pass Book is
a) Exempt from tax b) Taxed as income from other sources
c) taxed as profits and gains of business d) Taxes as capital gains
Section 35D provides for the amortization of preliminary expenses incurred by
a) Indian companies b) Any taxpayers
c) Indian companies and other resident non-corporate taxpayers d) Companies

Samrat estimates that his business is going to incur loss in next year due to adverse market condition. Therefore, he
creates a provision for anticipated loss and debited Rs.10 lakhs in P&L. Account such provisions would be

a) Disallowed as it is anticipated loss

b) Allowed as an expense
c) Allowed as an expense in computation of IFOS
d) None of the above

Profession involves an occupation requiring

A)Purely intellectual skill

B) Manual skill based on special learning
C) Both (a) and (b)
D) None of the above
Which principle is incorrect for allowability of an expenditure in computation income under head PGBP ?

A) Expenditure should be incurred during the previous year

B) Expenditure should be incurred for business purpose
C) Expenses incurred before the setting up of business are allowed
D) No deduction is allowable in respect of discontinued business

Income from adventure or concern in the nature of trade, commerce or manufacture is taxable under which of the
following heads of Income ?

A Profits and gains of business or profession

B Capital gains
C Salaries
D Income from other source

Which of the following activities are taxable under the head “Profits and gains of business or profession’?

A Business
B Profession
C Vocation
D All of the above

In computing income under the head “Profits and Gains of Business or Profession”, income from which of the following
business is taxable ?

A Legal business
B. Illegal business
C. Both legal and illegal business
D. None of the above

Which expenses are expressly allowed as deductions against profit and gains of a
business or profession.
a) Rent, rates, taxes, repairs and insurance on buildings
b) Repairs and insurance on plant machinery furniture
c) Both a and b

As per Income Tax rules, depreciation is chargeable to block of assets which may be-----
-----------------------.
a) Tangible Assets
b) Intangible Assets
c) Both a and b

As per Income Tax rules, depreciation chargeable to Intangible block of assets like;
know – how, patents, copyrights, trademarks, license etc can be charged at ----------------
percentage.
a) 20%
b) 25%
c) 15%

The following expenditure cannot be claimed under the head Income from business and
profession
a) Illegal expenses
b) Personal expenses of the owner
c) Both a and b
While computing income from business and profession, inadmissible expenses need to
be------------------------ to the net profits.
a) Added back to the net profit
b) Deducted from the net profit
c) None of the above

XYZ company paid Rs500000/- as salary to the foreign staff, without deducting TDS.
The entire amount was shown as expenditure in the profit and loss account. Comment
how much is admissible?
a) Entire amount is not admissible
b) Entire amount is admissible
c) Rs350000/- is admissible

Tax on profit is charged on:

a) Gross Receipts
b) Gross Receipts less disallowed expenses
c) Gross Receipts less allowed expenses
d) All of the above

Income from enhanced compensation shall be considered as

income……………
a) In the year it is received
b) In the year in which it is deemed to be received
c) In any year at the option of the assessee
d) If the income received is exempt

Transaction in which a contract for the purchase or sale of any commodity

including stocks and shares is periodically of ultimately settled otherwise
than by the actual delivery or transfer of the commodity or scrips is known
as:
a) Wagering Transaction
b) Speculative Transaction
c) Deemed Speculative Transaction
d) Either A or C

Under the Income Tax Act 1961, Depreciation on machinery is charged on :

a) Purchase Price of the machinery
b) Market Price of the Machine
c) Written Down value
d) A or B which is less

Assessee is having stock existing in the business. Valuation of the stock will
be at :
a) Cost
b) Market Price
c) Cost or MRP whichever is less
d) Cost or MRP whichever is high

Business has been defined under section....

A) 2(14)
B) 2(13)
C) 2(10)
D) None of the above
D

A
D

D
C

A
B

C
C

C
A