M4 Tax Plannin Quest Bank

Tax Planning Source: HTML FILE: C:\WINDOWS\TEMP\quiz-apr-tax1.html 1. Deduction under section 80C to 80U is allowed from: a) gross total income b) gross total income exclusive of long-term capital gain c) gross total income exclusive of long-term capital gain as well as short-term capital gain d) gross total income exclusive of long-term capital gain from any asset and short-term capital from the transfer of shares and units through a recognised stock exchange 2. Deduction under section 80C to 80U is allowed from: a) income from long-term capital gain as well as short-term capital gain b) short-term capital gain other than short-term capital gain from shares transferred through a recognised stock exchange c) long-term capital gain d) neither from income from long-term or short-term capital gain 3. Deduction under section 80C shall be allowed: a) from the gross total income of the individual or HUF b) from the income from long-term capital gain c) from the gross total income other than long-term capital gain from any asset and short-term capital gain on shares sold through recognised stock exchange d) from the gross total income other than long-term capital gain 4. Deduction under section 80-IC is allowed to the extent of: a) 100% of profits and gains for ten assessment years b) 100% of profits and gains for ten assessment years in case of any undertaking or enterprise in the States of Sikkim or North Eastern Region and 50% in case of undertaking in Uttaranchal and Himachal Pradesh c) 100% of profits and gains for ten assessment years in case of an undertaking or enterprise in the States of Sikkim or North Eastern States and 100% of profits and gains for the first 5 assessment years and 25% (30% in case of companies) for next 5 assessment years. 5. Deduction u/s 80U in case of permanent physical disability (including blindness) allowed to: a) an individual who is citizen of India b) an individual who is resident in India c) any individual assessee 6. The quantum of deduction allowed u/s 80U is: a) Rs. 40,000 b) Rs. 50,000 c) Rs. 60,000

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7. R is provided with a rent-free accommodation owned by his employer in Delhi. The income to be presumed under section 44AF shall be: a) 8% of total turnover b) 10% of total turnover c) 5% of total turnover 8. What will be your answer if the accommodation is provided in a city having population of 3,00,000 as per 1991 census? (Refer to the question above) a) b) c) d) e)

20% of salary 15% of salary 20% of salary plus excess of FRV over 50% of salary 20% of salary plus excess of FRV over 60% of salary 10% of salary

9. What will be your answer if tea and snacks are provided in the office after office hours? a) Nil b) Nil, if it is upto Rs. 50 per meal c) Actual amount spent by the employer 10. What will be your answer if instead of tea and snacks; meal is provided in the office or factory? (Refer to the question above) a) Nil b) Nil, if it is upto Rs. 50 per meal c) Actual amount spent by the employer 11. If the assessee opts for presumptive income scheme under section 44AD or 44 AF or 44AE, then the assessee shall: a) not be entitled to any deduction under sections 30 to 37 b) be entitled to deduction under sections 30 to 37 c) not be entitled to deduction under sections 30 to 37 except for interest on capital or loan from partner and remuneration to a working partner subject to conditions laid down under section 40(b) 12. If a video camera is given for the personal use of employer or any member of his household, the value of this perquisite shall be: a) Nil b) 10% p.a. of the cost of the asset c) 10% p.a. of the W.D.V. of the asset 13. In case an assessee is engaged in the business of plying hiring or leasing goods carriage, presumption income scheme under section 44AE is applicable if the assessee is the owner of maximum of: a) 8 goods carriages b) 10 goods carriages c) 12 goods carriages

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14. As per presumptive income scheme under section 44AE, the presumed income shall be: a) Rs. 3,000 p.m. per goods carriage b) Rs. 3,500 p.m. per heavy goods vehicle and Rs. 3,150 p.m. per vehicle other than heavy goods vehicle c) Rs. 3,500 p.m. per heavy goods vehicle Rs. 3,150 p.m. for medium goods vehicle and Rs. 2,000 p.m. per light commercial vehicle. 15. For claiming exemption under section 54G, such land, building or Plant and Machinery must have been used by the industrial undertaking: a) for atleast 2 years immediately preceding the date of transfer b) any period of 2 years c) none of these 16. Long-term capital gain from the sale of units of equity-oriented fund shall be a) exempt if sold through a recognised stock exchange and securities transaction tax is paid b) exempt if sold through a recognised stock exchange or to mutual fund and securities transaction tax is paid 17. Short-term capital gain arising for the transfer of equity shares and units of equity oriented fund shall be taxable a) b) c) d)

at the normal rate at the rate of 20% at the rate of 10% if transferred on or after 1-10-2004 at the rate of 10% if transferred on or after 1-10-2004 through a recognised stock exchange & such transaction is chargeable to securities transaction tax

18. In case of non-resident, who is carrying on shipping business, his Indian income shall be presumed to be: a) 5% of certain amount received b) 7.5% of certain amount received c) 10% of certain amount received 19. In case of compulsory acquisition, the period for investment in specified assets under section 54, 54B, 54D and 54F shall be reckoned from: a) the date of transfer b) the date when the part or full compensation is received c) the date as and when any compensation is received 20. If no system of accounting is followed, interest on securities is taxable on: a) due basis b) receipts basis c) due or receipt basis at the option of the assessee 21. The legal heir of the deceased who receives family pension is allowed a standard deduction from such family pension received to the extent of: a) 1/3rd of such pension subject to maximum of Rs. 20,000 b) 1/3rd of such pension or Rs. 15,000 whichever is less c) 1/3rd of such pension or Rs. 12,000 whichever is less

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22. If any income has to be clubbed under section 64, it will be clubbed under the: a) head income from other sources b) relevant head to which it belongs c) none of these two 23. Loss of a closely held company cannot be carried and set off unless on the last day of the previous year in which the loss was incurred and as on the last day of the previous year in which such loss is set off, at least: a) 51% of shares are beneficially held by the same persons b) 50% of the shares are beneficially held by the same persons c) 49% of the shares are beneficially held by the same persons 24. Where the business of manufacturing or producing is done or in any notified specified areas in the State of Sikkim, Himachal Pradesh, Uttaranchal or the North Eastern States then for claiming deduction under section 80-IC, such business of manufacturing or producing should be: a) of any article or thing b) of any article or thing not being an article or thing mentioned in Schedule XIII of the Income-tax Act c) of any article or thing mentioned in Schedule XIV of the Income-tax Act 25. In the above case, if manufacturing or producing, etc. is done in any area other than a notified area in the aforesaid States, such business of manufacturing or producing an article or thing or for an operation should be for: a) any article or thing b) any article or thing other than mentioned in Schedule XIII c) any article or thing or an operation mentioned in Schedule XIV of the Income Tax Act 26. Deduction under section 80QQB is allowed in respect of royalty income to: a) an individual who is an author of a book b) an individual who is resident in India and who is an author of a book c) an individual who is resident in India who is either an author of a book or a joint author of the book 27. Deduction under section 80QQB is allowed to an author of a book provided such book is of: a) b) c) d) e) f)

literary nature scientific nature artistic nature literary or scientific nature scientific or artistic nature literary, artistic or scientific nature

28. Deduction under section 80QQB is allowed to an author of a book of literary or artistic or scientific nature who is resident in India to the extent of: a) b) c) d)

Tax Planning

100% of royalty income or Rs. 5,00,000 whichever is less 100% of royalty income or Rs. 3,00,000 whichever is less 50% of royalty income or Rs. 5,00,000 whichever is less 50% of royalty income or Rs. 3,00,000 whichever is less

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29. The income of a non-resident from shipping business under section 44B shall be presumed to be 71/2% of: a) the amount paid or payable whether in India or out of India to the assessee on account of carriage of passengers, livestock, mail or goods shipped at any port in India b) the amount received or deemed to be received in India on account of carriage of passengers, livestock, mail or goods shipped it any port outside India c) both the amount mentioned in (a) & (b) above 30. Deduction under section 80RRB in respect of royalty on patents shall be allowed to: a) an individual b) an individual who is resident in India c) an individual who is resident in India and is a patentee or copatentee 31. Deduction under section 80RRB is allowed to the extent of: a) b) c) d)

50% of royalty or Rs. 3,00,000 whichever is less 100% of royalty or Rs. 3,00,000 whichever is less 100% of royalty or Rs. 2,00,000 whichever is less 100% royalty or Rs. 5,00,000 whichever is less

32. Deduction u/s 80U shall be allowed only when the assessee is suffering from a permanent disability: a) at the beginning of the previous year b) any time during the previous year c) at the end of the previous year 33. Where the return of income is filed after the due date specified u/s 139(1): a) all deductions under Chapter VIA i.e. 80C to 80U will be allowable b) all deductions under Chapter VIA i.e. 80C to 80U will not be allowable c) all deductions under Chapter VIA i.e. 80C to 80U excepting 80-IA, 80-IAB, 80-IB, 80-IC will be allowable d) all deductions under Chapter VIA i.e. 80C to 80U except 80-IA will be allowable 34. Where in respect of any assessment year there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be a) assessed as AOP b) so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration made by such firm to any partner shall be allowed in computing the income of the firm chargeable under the head Business or Profession. c) assessed in the hands of partners individually.

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35. A firm is required to file return of income as per section 139(1): a) if its total income exceeds Rs. 1,00,000 b) if its total income exceeds the maximum amount which is not chargeable to tax which in case of a firm is Nil c) in all cases, whether it has any income/loss or not 36. Where the AOP/BOI has paid tax on its income @ 30% or at a higher rate, the share of the profit which a member gets from the AOP/BOI: a) shall be included in the total income of a member b) shall be included in the total income of a member but a rebate of income-tax at the average rate will be allowed as per section 86 c) shall not be included in the total income of the member 37. Where the AOP/BOI has paid tax on its income at the rate applicable to individuals, the share of the profit which a member gets from the AOP/BOI a) shall be included in the total income of a member b) shall be included in the total income of a member but a rebate of income-tax at the average rate will be allowed as per section 86 c) shall not be included in the total income of the member 38. In case of non-resident, who is engaged in the business of operation of aircraft, his income shall be presumed to be a) 7.5% of certain amount b) 5% of certain amount c) 10% of certain amount 39. Long-term capital gain which is exempt u/s 10(38) (relating to long-term capital gain on sale of shares through stock exchange) shall a) not be included for computing book profits u/s 115JB b) be included for computing book profits u/s 115JB 40. Choose the amount of final tax liability of R for the assessment year 2007-08: Share of profit from PFAAs Income from salary (Computed) Receipt of accumulated balance in PPF Lottery income (gross) a) b) c) d)

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Rs.40,000 Rs. 2,00,000 Rs 80,000 Rs 7,000

17100 17442 15700 16014

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41. Kapil is employed by SIDBI. He receives the following emoluments/facilities during 2006-07: Basic Salary Rs.1,40,000 DA (forming part of salary) Rs.9,000 Sale of computer to him by employer sale price Rs.20,000 (Cost of computer Rs. 2,00,000 used by employee for 3 years and 9 months) Rent free accommodation, the F.R.V. of which is Rs. 24,000 p.a. His taxable income for the assessment year 2007-08 shall be: a) b) c) d)

211600 183800 178800 174800

42. R purchased a house property for Rs. 26,000 on 10-5-1962. He gets the first floor of the house constructed in 1967-68 by spending Rs. 40,000. He died on 12-9-1978. The property is transferred to Mrs. R by his will. Mrs. R spends Rs. 30,000 and Rs. 26,700 during 1979-80 and 1985-86 respectively for renewals/reconstruction of the property. Mrs. R sells the house property for Rs. 11,50,000 on 15-3-2007, brokerage paid by Mrs. R is Rs. 11,500. The fair market value of the house on 1-4-1981 was Rs. 1,60,000. Find out the amount of capital gain chargeable to tax for the assessment year 2007-08. a) b) c) d)

308100 215410 169527 203910

43. The year in which unrecognized provident fund is converted in recognized provident fund: a) the employers contribution till date and interest thereon shall be taxable b) the employers contribution till date shall be taxable c) it will be assumed as if the provident fund was recognized right from beginning and excess amount of employers contribution and interest thereon shall be chargeable to tax 44. The employer had purchased a car for Rs. 3,00,000 which was being used for official purposes. After 2 year 6 months of its use, the car is sold to R, the employee, for Rs. 1,20,000. The value of this perquisite shall be a) b) c) d) e)

Rs. 72,000 Rs. 60,000 Nil Rs. 1,23,000 Rs. 1,20,000

45. What will be your answer if instead of car; the asset purchased is a computer? (Refer to the question above) a) b) c) d) e)

Tax Planning

Rs. 72,000 Rs. 60,000 Nil Rs. 1,23,000 Rs. 1,20,000

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46. What will be the answer if the asset is neither car nor any computer? (Refer to the question above) a) b) c) d) e)

Rs. 72,000 Rs. 60,000 Nil Rs. 1,23,000 Rs. 1,20,000

47. An assessee was allowed deduction of unrealized rent to the extent of Rs. 40,000 in the past although the total unrealized rent was Rs. 60,000. He is able to recover from the tenant Rs.45,000 during the previous year on account of such unrealized rent. He shall be liable to tax to the extent of: a) Rs. 45,000 b) Nil c) Rs. 25,000 48. If an assessee is engaged in the business of civil construction and he had opted for presumptive income scheme under section 44 AD, the assessee shall: a) be entitled to deduction under section 30 to 37 b) not be entitled to any deduction under section 30 to 37 c) not be entitled to deduction under section 30 to 37 except on account of interest on capital and loan from a partner and remuneration to working partner as per section 40(b) 49. The expenditure incurred on payment under voluntary retirement scheme shall be allowed as deduction in a) the previous year it is paid b) equal instalments in 5 assessment years starting from the assessment year in which it is paid c) Not allowed at all 50. Total income for assessment year 2007-08 of an individual including long-term capital gain of Rs. 60,000 is Rs. 1,40,000. The tax on total income shall be: a) Rs. 8,800 b) Rs. 8,160 c) Rs. 7,000 51. Total income of an individual including long-term capital gain of Rs. 50,000 is Rs. 1,10,000, the tax on total income shall be: a) Rs. 1,020 b) Rs. 2,040 c) Rs. 2,244 52. Income derived from rubber plantation in Singapore but received in India shall be treated as: a) agricultural income and hence exempt b) agricultural income but taxable under the head income from other source c) exempt as earned outside India.

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53. Dividend received by a shareholder from an Indian company the whole of whose income is agricultural income shall be treated as: a) agricultural income in the hands of shareholder and thus exempt b) agricultural income and thus exempt but it will be subject to partial integration c) exempt under section 10(34) but taxable in the hands of the company d) income taxable under the head income from other sources 54. If a firm is not evidenced by an instrument or if the partners shares are not determinate or if the partnership deed is not submitted alongwith the return of income then such firm shall be a) assessed as firm but firm shall not be entitled to deduction on account of any interest or remuneration to partners. b) assessed as individual. c) assessed in the hands of its partners by including the share of profits in their income. d) assessed as AOP. 55. In case of AOP where the share of the members are known but none of the members has taxable income exceeding maximum exemption limit, but one or more member is taxable at a rate higher than the maximum marginal rate, the tax shall be charged: a) at the rate applicable to individuals b) on that portion of income of AOP which is relatable to the member taxable at higher rate, at the rate applicable to such member and the balance taxable income at the rate applicable to individuals c) on that portion of income of AOP which is relatable to the member taxable at higher rate, at the rate applicable to such member and the balance taxable income at the maximum marginal rate 56. Which of the following taxes are allowed as deduction while computing the business income a) b) c) d)

Wealth tax Banking cash transaction tax (BCTT) Fringe benefit tax (FBT) Income-tax

57. For claiming exemption u/s 54G, the assessee shall acquire the new asset within: a) b) c) d)

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2 years from the date of transfer 3 years from the date of transfer one year before or 2 years after the date of transfer one year before or 3 years from the date of transfer

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Source: C:\WINDOWS\TEMP\quiz-apr-tax2.html same as C:\WINDOWS\TEMP\quiz-junetax1.html 58. Employees Provident Fund is applicable to firms employing over _______________ employees a) b) c) d)

20 15 10 25

59. Real returns is defined as____________________. a) Nominal returns adjusted for inflation. b) Nominal returns adjusted for time value of money. 60. The UTI Retirement Benefit Plan offers an avenue to provide for post retirement needs of individuals. What is the maximum permissible age for an investor to enter the scheme without lump sum premium? a) b) c) d)

42 years 52 years 58 years 60 years

61. Pension received from a former employer is classified under the head _________. a) b) c) d)

Capital Gains Gratuity Income from other sources Salaries

62. Rita would like to enhance her contribution and make an additional monthly contribution of Rs. 5000. Is there a limit to the amount of voluntary contribution Rita can make? a) The maximum limit is 100% of her mandatory contribution. b) The maximum limit is 80% of her total emoluments. c) The maximum limit is the value of her total emoluments per month. d) There is no minimum or maximum limits. 63. Mohan has been an employee of a public sector undertaking for the past 25 years and is retiring after one year. He is eligible for gratuity as per the provisions of the Payment of Gratuity Act, 1972. His monthly salary at retirement is expected to be Rs. 20,000. The amount of gratuity that he will receive on retirement will be ________. a) b) c) d)

Tax Planning

Rs. 2,88,461 Rs. 3,00,000 Rs. 3,40,909 Rs. 3,75,000

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64. Mr. Roy has been an employee of a public sector undertaking for the past 25 years and is retiring the next year. He is eligible for gratuity as per the provisions of the Payment of Gratuity Act, 1972. He hopes to invest the proceeds along with the PF proceeds, in order to fund his retirement. Prior to his wedding, Mr. Roy had nominated his mother to receive his gratuity, in the event of his death. Is his wife eligible to receive the gratuity proceeds in the event of his death? a) All nominations made prior to the employee acquiring a family are invalid once an employee has acquired a family. b) As long as a valid nomination is in place, the payment of gratuity will be made only to such nominees. c) The payment of gratuity will always be according to the registered will, irrespective of the nominations. d) The information is not sufficient for giving an answer. 65. Sunder is eligible for gratuity as per the provisions of the Payment of Gratuity Act, 1972. He has been in service only for 6 years in this company, and has taken a total leave of 1 year and 2 months, because he needed prolonged medical attention after a major accident. Which of the following is true about his gratuity entitlement? a) Sundar is eligible for gratuity, as absence on medical grounds is not added for computing continuous service for payment of gratuity. b) Sundar is eligible for gratuity as long as he has worked for 240 days in the year preceding the year in which computation of continuous service is being made. c) Sundar is not eligible for gratuity if has not put in continuous service of 5 years. d) Sundar is not eligible for gratuity if his service is interrupted by leave and does not add up to 5 years. 66. Mr. Prasad is a small-scale trader in nuts. He has a welfare scheme for his few employees, for whom he runs a small provident fund, which is yet to be recognized. He also contributes to this fund as an employer and matches the employee's contribution. He has encouraged his employees also to open PPF accounts to save tax and set aside funds for the future. Mr. Prasad has called you to take a look at what he has been doing and advise him on the choice of products for providing retirement benefits to himself and his employees. Can Mr. Prasad open joint PPF accounts with his employees? a) A PPF account cannot be opened in joint names. b) No, joint accounts can be held only by members of the same family or HUFs. c) Yes, it can be opened, but the proceeds cannot be made payable to either or survivor. d) Yes, provided the employee is the first holder. 67. How would you classify the two retirement plans, the unrecognized provident fund and the PPF account? a) Both are defined benefit plans. b) Both are defined contribution plans. c) The provident fund is a defined benefit plan; the PPF is a defined contribution plan. d) The provident fund is a defined contribution plan; the PPF is a defined benefit plan.

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68. Which is not the condition for getting superannuation fund approved? a) b) c) d)

All the benefits should be payable only in India Employee should be contributor to the fund Employer should be contributor to fund Funds have to be invested as per income tax rules1962

69. An employee can contribute beyond ________ of his salary towards EPF but he will get tax benefits u/s 88 only upto _________. a) b) c) d)

11.33, 11.33 10, 10 12, 12 8.33, 8.33

70. Which one of the following is a common actuarial assumption used in determining the plan contributions needed to fund the benefits of a defined-benefit plan? 1. Investment performance 2. Employee turnover rate 3. Salary scale 4. Ratio of single versus married applicants a) b) c) d)

1 and 3 only 1, 2 & 3 only 2 and 4 only 4 only

71. As an employee Rajesh has come to you with his questions on superannuation plans/ Annuity Plans to get more educated with current scenario. What is the maximum limit on contribution to approved superannuation fund? a) b) c) d)

2% 10 % 27% less contribution to Provident Fund No Limit

72. Under the Employees Pension Scheme, 1995, the superannuation pension is decided on the basis of the following: a) b) c) d)

The actual service and the actual salary The eligible service and the eligible salary The pensionable service and the pensionable salary The pre-decided service and the pre-fixed salary

73. Money has time value. It derives this value due to existence of several conditions. Which one of the following is not one of the conditions contributing to the existence of this value? a) b) c) d)

Tax Planning

The fees and commission sources of the firm Possibility of increase in tax rates over time. Ability to buy/ rent assets generating revenue Cost of foregoing present consumptions

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74. You have term deposits of Rs.4,00,000 with a bank. In order to meet sudden requirements for liquidity and short-term credit, you are applying for an overdraft facility with the bank. What is the rate of interest you will pay on this facility? a) The bank will apply a flat rate of interest on the amount of overdraft allowed to actually utilize. b) The bank will apply a flat rate of interest on the amount of overdraft allowed to you. c) The bank will apply rate of interest linked to the term deposit rate, on the amount of overdraft utilized. d) The bank will apply rate of interest linked to the term deposit rate, on the average amount of overdraft remaining unutilized from the OD limit. 75. The Nifty has doubled since the last time you advised your client to reduce his equity exposure. The client is annoyed. What might be the most appropriate action to take immediately? a) b) c) d)

Apologize for wrongly forecasting the market Change his asset allocation by increasing his equity exposure Help the client understand the logic of his asset allocation Rebalance his asset allocation by reducing equity investments

76. A professional indemnity policy protects the insured from risk arising out of _____________. a) b) c) d)

Intentional misconduct Misrepresentation of professional competence Negligence Undisclosed conflict of interest

77. Protector International is a financial services firm that specializes in investment advisory services. In its brochure for Financial Planning services, it may state _____________. a) It can offer superior investment returns on customer portfolios and talk of the arrangements to offer advice in other areas b) It has the competence to take care of all financial advisory requirements of the customer c) Its competence in investment advisory services and the arrangements to offer advice in other areas d) Its Financial Planning services are the best available in the market in light of its investment advisory capabilities and arrangements to offer advice in other areas 78. Which of the following is a concurrent indicator of the phase of the business cycle? a) b) c) d)

Wholesale price Index Index of Industrial production Labor costs and capacity utilization Order levels in the manufacturing sector

79. What is the main difference between the personal Financial Planning needs of the employed and the self-employed? a) b) c) d)

Tax Planning

Attitude to risk/Risk appetite Need to fund children's education Need to fund retirement The extent of any employer-provided pension benefits

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80. Contributions to an Unrecognized Provident Fund will result in: A. Taxing of Interest Income earned by the employee on employer contributions B. Employer cannot treat the PF Contribution as a deductible business expense. C. Deduction u/s 80 C. a) b) c) d)

A, B & C A B B&C

81. Immunization protects bondholders from which of the following risk/s: 1) Interest rate risk 2) Reinvestment rate risk 3) Maturity risk a) b) c) d)

1 only 2 only 1 & 2 only 1, 2 & 3

82. The modern portfolio theory suggests that the portfolio returns can be optimized by _______. a) b) c) d)

Investing in diversified equity funds. Investing in treasury bills and equities. Laddering the bond portfolio. Moving closer to the efficient frontier in terms of the risk return equation.

83. The economy is going through a phase of expansion and growth. Industrial production and profitability are high. Your client has a portfolio that is heavily invested in bonds. Which of the following fears of the client is well founded? a) Higher rates of growth will increase demand for funds and interest rates will firm up, leading to fall in bond prices. b) Higher rates of growth will require higher imports and expenses. The government deficits will go up. c) The central bank will try to reduce rates to make funding of business cheaper and reduce costs. That will depress returns on bonds. d) The currency will become convertible and interest rates will rise as a consequence. 84. Ram is a Financial Planner in a large firm. His wife has some large investments in the shares of a few companies. Ram is required to offer views on almost all of these holdings to clients. Under the Code of Ethics and Rules of Professional Conduct _______ a) Ram must disclose the fact to his client(s) so as to make them aware of any potential conflict of interest b) Ram has to disclose these holdings only to his employers, if required by the firm's internal compliance rules c) Ram need not follow any code of ethics and rules of professional conduct. d) Ram will not violate the Code and the Rules if he does not disclose his wife's holdings

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85. How are financing costs included in NPV and IRR calculations? a) b) c) d)

By including them in the interest payments. By considering the interest rate in the setting of the discount rate As a tax deduction By including them in the earnings

86. Which of the following are common actuarial assumptions used in determining the plan contributions needed to fund the benefits of a defined benefit plan? 1 Investment performance. 3 Salary scale. a) b) c) d)

2 Employee turnover rate. 4 Ratio of single to married participants. 1, 2, and 3 only. 1 and 3 only. 2 and 4 only. 4 only.

87. The investment portfolio for a defined-benefit retirement plan has declined in value during a year in which most financial market investments have incurred losses. Which one of the following entities would be impacted most by this decline in portfolio value? a) b) c) d)

Individual participants in the plan. Company sponsoring the plan. Investment banker handling the plan. Plan underwriters.

88. What is the present value of an investment that will be worth RS.10,000 in 10 years based on an inflation rate of 4% per annum? a) b) c) d)

Rs. 3,855 Rs. 5,584 Rs. 6,756 Rs. 8,203

89. Retirement planning requires meeting the diversified needs of today’s retiree and must be approached from several perspectives. What is the most essential retirement objective? a) b) c) d)

Achieving financial freedom Maintaining pre-retirement standard of living Retiring early Improving retirement lifestyle

90. Which of the following statements concerning retirement planning for an individual are correct? i. The individuals disposable income can fall by the amount being saved for retirement, thus increasing the individuals current standard of living ii. A replacement ratio of 70 to 90 percent of the average salary for the last 3 years before retirement is typically used. iii. Retirement needs would have been overestimated if actual retirement occurs after the planned retirement date a) b) c) d)

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i, ii i, iii ii, iii i, ii, iii

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91. __________% of Gratuity received on retirement by a Central Government employee is taxable. a) b) c) d)

Ten Nil Twenty-Five Twenty

92. The following ways to help clients overcome inadequate retirement resources are correct EXCEPT a) b) c) d)

Relocating to a less expensive home Sub-letting vacant rooms in their residence Continue to work after retirement age Increasing the assumed EPF rate of return

93. Vinay has been an employee of a public sector undertaking for the past 15 (completed) years and is retiring on 1st December next year. His firm is not covered under the provisions of the Payment of Gratuity Act, 1972. Amit's employer has agreed to pay him a gratuity amount of Rs. 5,00,000 on retirement. What is the tax status of this amount? a) The gratuity paid is exempt from Income Tax only to the extent of Rs. 3,50,000. b) The amount of gratuity payable to him cannot exceed Rs.3,50,000. c) The Income Tax Act will only allow a maximum exemption upto 15 day's wages per completed year of service. The rest is taxable. 94. What will be the effect in terms of buying power on today’s Rs.50000 after 15 years if inflation is 8% p.a? a) b) c) d)

It will be worth Rs. 14584.00 It will be worth Rs. 16412.00 It will be worth Rs. 14921.00 It will be worth Rs. 15762.00

95. If the inflation rate is 4.9% and tax rate is 30%. The required rate of return to maintain the value of an investment is___________. a) b) c) d)

8% 9% 7% 10%

96. Manish estimates his opportunity cost on investments to be 12% compounded annually. Which one of the following is the best investment opportunity for Manish? a) To receive Rs, 50000 today b) To receive Rs. 250000 at the end of 14 years. c) To receive Rs. 40000 at the end of four years and Rs. 120000 eight years later (at the end of the 12th year). d) To receive Rs. 5000 at the beginning of each six-month period for nine years compounded semiannually.

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97. Sachin has been investing Rs. 3500 into a mutual fund at the end of each month for the last 10 years and has been earning a compound return of 12%, consisting entirely of capital appreciation. Does Sachin have enough money, after selling his investments to purchase his dream home for Rs.800000? a) No because he has Rs. 563595 after sale of investment and after paying long term capital gains tax b) No because he has Rs. 644108 after sale of investment and after paying long term capital gains tax c) No because he has Rs. 724622 after sale of investment and after paying long term capital gains tax d) Yes because he has Rs. 805135 after sale of investment 98. Sahil, age 43, can refinance Rs. 114042 at a 20-year rate for 7% and will incur closing cost of 3% of the mortgage amount to be financed in the new mortgage balance. What will be his new EMI on the mortgage under the circumstances to achieve his objective of no debt at retirement (age 60)? a) b) c) d)

Rs. 781.49 Rs. 957.56 Rs. 980.57 Rs. 986.29

99. Which of the following statement is true? a) Under the Chilean Model, pension is paid to the widow of the worker on his death. b) Under the Chilean Model, pension is paid to the worker on retirement. c) Under the Chilean Model, pension is payable to the dependant children of the deceased worker. d) All the above. 100. An auditor of an Exempted Provident Fund can be: a) b) c) d)

A member of FPSB India A practicing Chartered Accountant An employee of the Employee Provident Fund Organization The auditor of the company, which is having the exempted provident fund

101. Consider a portfolio of two investments viz. A & B. The sum total of volatility of A and B respectively, represented by standard deviation of the two investments, will be equal to the volatility of the portfolio as a whole if _________________. a) b) c) d)

A and B have a correlation of Zero A and B have a correlation of 1 The portfolio is equally divided between A and B The return on the portfolio is equal to the sum of returns of A and B

102. Gratuity is categorized as a__________ Plan. a) Defined Benefit b) Defined Contribution c) Combination of Defined Benefit and Defined Contribution

Tax Planning

17

103. Which of the following is a correct interpretation of the Rules of Conduct pertaining to the Ethic of Confidentiality? a) A Member must when requested by the client, provide to a person authorized by the client, all original documents prepared or received by the Member in undertaking the advisory task b) A Member owes to the Member's partners or co-owners a responsibility to act in good faith (expectations of confidentiality) only while in business together, not thereafter c) The Member shall maintain the same standards of confidentiality to employers as to clients d) Under no circumstance, will any Member divulge any information or knowledge regarding the FPSB India or its members that they may know or be exposed to 104. Mr. Rajan's investment portfolio comprises Rs.2 lakh in equity, Rs.5 lakh in debt and Rs. 1 lakh in his bank current account. Over one year the returns on equity and debt are 5% and 12%. At the end of the year to maintain his current asset allocation, he needs to _____________. a) Do nothing. b) He needs to move Rs, 10000/- from equity and Rs. 60000/- from debt to cash. c) He needs move Rs.7500/- to equity from debt and Rs. 8750/-to cash from debt d) He needs to invest Rs. 70000/- in debt and equity. 105. A 10 year 8.0% bond (Face Value- Rs.1000, interest payable semi-annually) maturing 6 years from today is available at a yield to maturity of 6.0%. It is likely to be priced at _______________. a) b) c) d)

Rs. 1100 Rs. 1149 Rs. 1168 Rs. 1498

106. Raykar is an accomplished Financial Planner and is also an expert on derivatives and high yielding bonds. He understands client requirements well and is able to come up with appropriate portfolio restructuring ideas for clients. He believes in quickly moving clients from one investment to another through a dynamic process of research and recommendations. What according to the Rules relating to the Code of Ethics is the most applicable in this case? a) He does not violate the Rules if he explains to the client the reasons and is able to show that the moves are appropriate to the client b) He does not violate the Rules since he conducts and has access to research and advises on products relevant to clients based on an understanding of their requirements c) He does not violate the Rules since he is an acknowledged expert and knows what is best for his clients d) He violates the Rules as it amounts to active churning of client portfolios

Tax Planning

18

107. Mrs. & Mr. Arora are aged 55 and 58 years respectively. Both expect to work till they turn 65. Their only goal is to fund their retirement. Which of the following is likely to be an appropriate asset allocation strategy for them? a) 10% Sectoral equity, 20% diversified equity, 30% long-term debt, and 40% medium term debt b) 20% Sectoral equity, 60% diversified equity, 20% long-term debt c) 30% Sectoral equity, 30% diversified equity, 40% cash/ liquid investments. d) 80% long-term debt, 20% medium term debt 108. To determine the amount of life insurance coverage that provides a surviving spouse with a monthly income of a given purchasing power, it is necessary to consider which of the following? i. life expectancy iii. inflation rate

ii. interest rate iv. taxation a) b) c) d)

i, ii, iii i, ii, iv ii, iii, iv i, ii, iii, iv

109. All the following statements concerning the inflation-adjusted interest rate are correct EXCEPT a) It is computed by subtracting the assumed inflation rate from the assumed interest rate. b) It is used to calculate the capital required to provide a constant realdollar c) All else being equal, it is prudent to assume a higher inflation rate than a lower rate. d) It can be negative. 110. Which of the following is not needed to calculate the client’s target retirement fund? a) Average annual earnings in the last 3 years before retirement b) Estimated pension benefits during retirement c) Costs of self-maintenance d) Capitalization rate 111. As a client approaches retirement, he becomes less growth-oriented in his investment approach because of the following reasons EXCEPT: a) b) c) d)

Less time to recover investment losses Sufficiency of income to maintain pre-retirement standard of living A decline in his risk tolerance level Additional personal financial responsibilities

112. Ahmad opens a savings account on 15 April 2000 with a deposit of RS.2,000. Thereafter, Ahmad deposits RS.80 into the account fortnightly. The account earns interest of 8.3% per annum, compounded fortnightly. How much will the account have on 15 April 2005? a) b) c) d)

Tax Planning

RS.13,933 RS.14,933 RS.15,933 RS.16,933

19

Solution: Calculate FV of RS.2,000 PV = RS.2,000, r = 8.3%/26, n = 5 x 26yrs. Therefore, FV = RS.3,026.7402 Calculate FV of payments Pmt = RS.80, n = 26 x 5yrs, r = 8.3%/26. Therefore, FV = RS.12,906.2474 Total = RS.3,026.7402 + RS.12,906.2474 = RS.15,932.9876 113. In an inflationary period which of the following statement holds true: a) Nominal interest rates are lower than real interest rates. b) Nominal interest rates are higher than real interest rates. c) Nominal interest rates are equal to real interest rates. 114. Salil’s father has given him general power of attorney. What does this mean? a) He has given Salil the right to appoint himself as the sole beneficiary of his estate b) He has given Salil the immediate right to make decisions in all matters and take action on his behalf c) He has given Salil the right to make decisions in all matters and take action on his behalf should he become incompetent d) He has disinherited Salil, but Salil has the right to decide who will inherit his estate 115. Mrs. Shah retired from Ace Manufacturing Co.Ltd. Mumbai on 31/12/2003. Ace is covered under the Payment of Gratuity Act, 1972. She served for 30 years and 9 months. Ace paid her a Gratuity of Rs.400000. Her monthly basic salary at the time of retirement was Rs.9000 p.m.and Dearness Allowance was Rs.4000 p.m. House Rent Allowance was Rs.1500 p.m. Mrs.Shah lives in an ownership flat. Compute: Taxable amount of Gratuity & Taxable amount of HRA a) b) c) d)

Gratuity: Rs. 160000; HRA: Rs.20000 Gratuity: Rs. 157500; HRA: Rs.16000 Gratuity: Rs. 170000; HRA: Rs.18000 Gratuity: Rs. 167500; HRA: Rs.18000

Solution: Gratuity: Rs. 167500; HRA: Rs.18000 Taxable amount of Gratuity: Least of: 1) Actual amount received 2) Rs.350000 and 3) 15 days salary for each year of completed service. Therefore the taxable amount of gratuity amounts to Rs. 167500 (400000-232500) Exempt amount of HRA: Least of 1) Rent paid over 10% of salary 2) 50% of salary 3) Actual amount received. Since rent paid is NIL, the entire amount of HRA viz.Rs.18000 per annum will be taxable 116. Mr. Sachin, aged 30, wants to retire at 45. He wants to maintain his present living standard. He spends Rs.500000 a year. He is expected to live upto 75. Inflation is to be assumed at 5% and expected returns are 7% p.a. What is the real rate of return? a) b) c) d)

1.75 1.90 2.05 2.15

Solution: Nominal return (N) = 7%; Inflation (I) = 5 %; Real Rate = {(1+ N)/ (1+ I)} - 1 = 1.90 %

Tax Planning

20

117. Aditi is 30 years old. She deposits 25000 at the beginning of each year in deferred annuity scheme as a part of her retirement planning. How much will be in the account after 25 years if it earns 9.5% compound annual interest? a) b) c) d)

2474985 2487216 2414854 2497857

Solution: Use FV function; PMT = 25000 Type = 1; n = 25; r = 9.5 %; Hence FV = Rs. 2497857 118. Sumeet, aged 25 plans to retire at age 55. His life expectancy is 75. His current annual expenditure is Rs.250000. He estimates no reduction in his expenses post-retirement. If interest rate is expected to be 8.5% and inflation is 5% p.a. estimate how much will he have to save per annum in order to achieve his target, provided he does not wish to leave an estate. a) b) c) d)

Rs .119568 Rs. 125054 Rs. 117154 Rs. 120963

Solution: In order to find the quantum of saving per annum we need to find (1) The future value of current expenditure (2) The Present Value of the corpus required in order to fund such expenditure postretirement (3) The actual quantum of savings required (PMT). (1) Future Value of Current Expenditure : Rs.10,80,4.86; where the PV = Rs.250000 r = 5% n = 30 (2) Find the Present value of Annuity Due for the next 20 years. Use inflation adjusted return. Hence PV (AD) = Rs.16, 114,541; where inflation adjusted return = 3.33 %, n = 20 years and PMT = Rs.1080486. (3) Now find the quantum to be saved per annum upto the year of retirement i.e. PMT. Hence PMT = Rs.119568; where FV = Rs.16114541; r = 8.5%; n = 30 years. 119. Mira aged 30, is interested in planning for retirement. She saves Rs. 15000 per year (at the year end) in a bank fixed deposit earning 8.25% p.a. compounded annually until she retires at age 58. Her life expectancy is 80 years. What will be her corpus on the date of retirement? What is the fixed annual amount she can withdraw at the beginning of each year until age 80, in case she wishes to exhaust her corpus completely? a) b) c) d)

1348974, 87498 1424894, 89458 1491655, 137767 1491655, 91613

Solution: Retirement corpus after 28 years, with an annual savings @ 8.25 % will be Rs 14,91,655, Post retirement, annuity due for 22 years will Rs 1,37,767

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21

120. Ms. Rekha is 45 years old and plans to retire at 50. Her life expectancy is 70 years. Ms. Sushma her Financial Planner, estimates that her client will require Rs.45000 in the first month after retirement. Inflation rate is 4% p.a. and the rate of return is 6% p.a. What will be the savings per year required in order to meet this? a) b) c) d)

1245879 1478951 1589420 1689745

Solution: Rate of return after inflation adjustment is 1.923077 (((1.06/1.04)-1)*100) Retirement corpus at age 50 will be Rs 89,59,710.45 Annual savings @6% for the retirement corpus will be Rs 15,89,420 121. Mr. Ramesh retired from PTC Ltd after completing service of 29 years and 9 months. His salary at the time of retirement was Rs 10,500 per month while the average salary drawn for the preceding 10 months worked out to Rs 9,800 per month. The actual amount of gratuity received by him at the time of retirement was Rs 3,25,000. Calculate the amount of gratuity exempt from tax assuming that the provisions of Payment of Gratuity Act, 1972, cover him? a) b) c) d)

Rs. 1,81,730 Rs. 175,673 Rs. 2,94,000 Rs. 3,15,000

122. Mr. Thapar has just retired from Govt. service with a lump sum of Rs 25,85,650 as retirement benefits in total. Currently he is 59 and life expectancy for him is 76 years. He intends to take a world trip after 4 years, which would entail an amount of Rs 4 lakhs at current prices and wants to buy a new car of Rs 3 lakhs immediately. Calculate what amount will be available to him for post retirement living expenses in the beginning of every month, considering inflation @ 4.25 % and rate of return is 7.5 % p.a? a) b) c) d)

Rs 11,889 Rs 12,999 Rs 8,616 Rs 12,486

Solution: Net Retirement corpus available is Rs 18,85,650 after deducting Rs 7 lakhs (4lakhs + 3 lakhs) Inflation adjusted rate of return is 3.12 %. Monthly amount, at the beginning for next 17 years will Rs 11,889 123. Sunil is a young professional ageing 27 years, who has started investing in a ULIP of a Insurance company. His annual contribution is Rs 60,000 in the beginning of the year. He has opted for balanced fund looking at the bear phase of the market. He is optimistic and believes that the market will rise and like wise interested in moving to growth fund, say after 2 years and is considering to a protector fund option 5 years before retirement, which as per his company’s policy is 58 years. Considering rate of return for growth fund be 12 %, balanced fund be 8 % and protector fund be 6 %, what will be the accumulated value of the ULIP if initially, investable amount of the contribution is 70 %, increasing by 10 % for subsequent years? a) b) c) d)

Tax Planning

Rs 1,71,06,852 Rs 76,20,539 Rs 1,69,56,625 Rs 1,29,10,277

22

Solution: Investable amount for first, second & third years would be Rs 42,000, Rs 48,000 & Rs 54,000 respectively. Rate of return for first two years would be 8 %, next 23 years would be 12 % and for last five years would be 6 % Total accumulated amount at the retirement would be Rs 1,29,10,277 124. Pensions received from an employer are classified under ______________. a) Income from other sources b) Profits in Lieu of salary c) Income from Salaries 125. ABC Ltd. is willing to prepay your Cumulative Fixed Deposit with them, without any penalty and with all the accumulated interest (compounded half yearly). You had invested Rs. 4000 with them 3.5 years back. If they are giving you back Rs. 4985, what is the annualized rate of interest you have earned? a) b) c) d)

6.40% 3.2%. 6.5%. 7.2%.

Solution: (((((4985/4000)^(1/7))-1)*100)* 126. Which of the following is a tort of negligence? a) Mr. Joy was playing golf. He swings a new golf club on the fairway and the head of the club flies off, and hit another golfer who was standing 20 feet away. b) Mr. Vishal takes medication that he knows makes him drowsy and then proceeds to drive. He gets into an accident injuring the passengers in another car. c) Mrs. Jaya locks Ms. Rani in a room to prevent him from leaving the building d) Mrs. Priti experienced a sudden surge of chest pain while driving, which causes her to lose control of her car and hit another car. 127. Any possible occurrence which may have a negative financial implication, can be plotted on a graph with X axis measuring the frequency (low-high) and Y axis measuring the financial impact (low-high). You can view the classification in four quadrants.    

Quadrant Quadrant Quadrant Quadrant

I - Low frequency, Low Impact II - Low frequency, High Impact III - High frequency, High Impact IV - High frequency, Low Impact

It would not be practical to purchase insurance for events falling in _________________. a) b) c) d)

Tax Planning

Quadrant I & IV Quadrant I, II & IV Quadrant I, III & IV Quadrant III

23

128. A client is concerned about the impact that inflation will have on her retirement income. The client currently earns Rs.40,000 per year. Assuming that inflation averages 5.5% for the first five years, 4% for the next five years and 3½% for the remaining time until retirement, what amount must her first-year retirement income be when she retires thirteen years from now if she wants it to equal the purchasing power of her current earnings? a) b) c) d)

Rs.62,550. Rs.68,841. Rs.70,520. Rs.80,231.

Solution: Year 1 - 5 PV = Rs.40,000 i = 5.5 N= 5 FV = Rs.52,278.40 Year 6 - 10 PV = Rs.52,278.40 i = 4.0 N= 5 FV = (Rs.63,604.67) Year 10 - 13 PV = Rs.63,604.67 i = 3.5 N= 3 FV = (Rs.70,519.63) 129. A person aged 35 today needs RS.2 million at the age of 55 to fund his retirement expenses. If he starts saving today, using an annual stepped-up savings method, calculate how much he needs to save in the first year to ensure that his investment plan corresponds with his salary growth? (Assume that the investment rate of return is 8% per annum, inflation rate is 4% per annum and salary growth rate is 10% per annum). a) b) c) d)

RS.29,992 RS.40,467 RS.24,048 RS.17,922

Solution: Annual Step Up Investment: FV = RS.2,000,000, r = 8%, n= 20, find PV. PV = RS.429,096.4148 Next, find Pmt. PV = RS.429,096.4148, eff. rate = (8-10/1.10) = -1.8181, n = 20 Pmt = 17,922.2211 130. Ram, a 45 year old executive, earns a salary of RS.68,000 per annum. He will retire at the age of 55, and his life expectancy is 76 years. He expects his current salary to grow by 6% per annum. The inflation rate is expected to be 4% per annum throughout his lifetime and the expected return on investment is 5% per annum during retirement. If Ram’s Target Replacement Ratio (TRR) is 70% of his last drawn salary, calculate how much he needs as his retirement fund. (Assume that salary increments are given at the beginning of each year) a) b) c) d)

Tax Planning

RS.1,613,980 RS.1,629,499 RS.1,973,210 RS.1,992,183

24

Solution: FV of salary = RS.68,000x (1.06^10) = RS.121,777.6434 Expected expenses = 70% of RS.121,777.64 = RS.85,244.3504 Capital required for retirement : Pmt = RS.85,244.3504 i = (5% - 4%) / 1+0.04 = 0.9615 n = 21 PV = RS.1,629,499.2989 131. While determining the taxability of Gratuity, the term Salary usually includes

___________.

a) Basic + House Rent Allowance b) Basic + Dearness Allowance c) Basic + Uniform Allowance 132. Leave Salary received during the tenure of employment is_________________. a) Fully exempt b) Exempt up to a certain ceiling c) Fully taxable

C:\WINDOWS\TEMP\quiz-aug-tax1.html is same as Source: C:\WINDOWS\TEMP\quiz-aprtax2.html Source: C:\WINDOWS\TEMP\quiz-aug-tax2.html (same as Sim 1) 133. Your client is unsure of the meaning of the term. codicil.. A codicil is: a. b. c. d.

A document use to make an alteration to a will A gift of land or real estate in a will A term used to cover grants of probate to the legal personal representative The statement made at the end of a will that it has been duly attested

134. Mr. Yadav owns a small business worth Rs. 4 crore. How should life insurance be held if Mr. Yadav is trying to benefit his minor grandson with the insurance policy? a. b. c. d.

A revocable life insurance trust should be established for the grandchild An irrevocable trust should be set up with the grandchild as beneficiary Mr.Yadav's spouse should be the owner. The grandson should be the owner.

135. What are parties to Power of Attorney called? 1. Donor and Donee 2. Debtor and Receiver 3. Client and Attorney a. b. c. d.

Tax Planning

1 only 3 only 1 & 3 only None of the above

25

136. In the case of a Recognized Provident Fund, employer's contribution in excess of what percent is taxable? a. b. c. d.

12% 8% 10% It is not taxable at all

137. A Resident and Ordinarily Resident Assessee is subject to tax on ______________. a. b. c. d.

Incomes received in India Incomes deemed to be received in India Incomes earned outside India All of the above

138. Immunization protects bondholders from which of the following risk/s: 1) Interest rate risk 2) Reinvestment rate risk 3) Maturity risk a. b. c. d.

1 only 2 only 1 & 2 only 1, 2 & 3

139. Contribution to Medical Insurance Premium enjoys a deduction upto INR _____ u/s 80 D. a. b. c. d.

14000 10000 11000 12000

140. Which of the following is subject to tax? a. Interest on PPF b. Interest on Recognised EPF. c. Interest on Bank Deposits

141. _____________ is a specified employee. a. b. c. d.

Director Assessee earning over INR 50000 p.a. as Salary Income Person owning more than 20% voting rights All of the above

142. Since October 1, 2004, Capital Gains on the transfer of _________ are exempt from Long Term Capital Gains .Tax subject to certain conditions. a. b. c. d.

Tax Planning

Property Equity Shares Gold Debt Mutual Funds

26

143. A Testamentary Trust is affected after the ________ a. b. c. d.

Death of the Trustee Retirement of the Owner Beneficiaries attaining the age of 18 Death of the owner

144. Your client Mr. Saxena expressed his intention to write his will in his own handwriting. Such a will which is wholly in the handwriting of the testator is known as: a. Holograph Will b. Nuncupative Will c. A handwritten Will is not allowed as establishing the authenticity of a handwritten document is difficult in the court of law. d. Lithographic Will 145. Since October 1 2004, long term capital loss on sale of equity shares can be set off against long term capital gains to the extent of_______________. a. b. c. d.

NIL 10 % 20 % 30 %

146. If a person inherits a house from his relative, the date of acquisition of the house for the purpose of capital gains will be_________________. a. the date when the relative purchased/constructed the house b. the date when he received the gift c. any of the above, whichever is beneficial. 147. In the case of rented property, a covenant may be imposed by the___________. A. Tenant B. Landlord a. b. c. d.

A B A&B Neither A nor B

148. Money has time value. It derives this value due to existence of several conditions. Which one of the following is not one of the conditions contributing to the existence of this value? a. b. c. d.

The fees and commission sources of the firm Possibility of increase in tax rates over time. Ability to buy/ rent assets generating revenue Cost of foregoing present consumptions

149. An investor holds shares in a company that is not listed. Such shares would qualify as longterm assets if held for ________. a. b. c. d.

Tax Planning

More than 24 months 36 months or more More than 12 months More than 36 months

27

150. R transferred his house property to his wife under an agreement to live apart. Income from such house property shall be taxable in the hands of: a) b)

R as deemed owner R. However, it will be computed first as Mrs. R income & thereafter clubbed in the hands of R Mrs. R.

c)

151. Incomes that accrue or arise outside India but are received directly into India are taxable in case of: a) resident only b) both ordinarily resident and not ordinarily resident c) non-resident d) all the assesses 152. Salary, bonus, commission or remuneration due to or received by a working partner from the firm is taxable under the head a) Income from salaries b) Income from other sources c) Business & Profession 153. Gratuity shall be fully exempt in the case of: (a) Central and State Government employee (b) Central and State Government employees and employees of local authorities (c) Central and State Government employee, employee of local authorities and employee of statuary corporation 154. R traced a missing person and was awarded a sum of Rs. 1,00,000 although there was no stipulation to that effect. Such receipt shall be: a) casual income and fully taxable b) casual income and exempt upto Rs. 5,000 c) fully exempt 155. An employee availed the exemption of leave encashment of Rs. 1,00,000 in the past. He received from the second employer a sum of Rs. 2,50,000 as encashment of leave. He will be entitled to exemption to the extent of: a) b) c) d)

Tax Planning

Nil Rs. 2,50,000 Rs. 2,00,000 Rs. 1,40,000

28

156. Compensation received on voluntary retirement is exempt under 10(10C) to the maximum extent of: a) Rs. 2,40,000 b) Rs. 3,50,000 c) Rs. 5,00,000 157. Long-term capital gains tax rate on units of a debt-based Mutual Fund scheme is ________. a) 10% at all times b) 10% on sale value minus cost or 20% of sale value minus indexed cost whichever is lower c) 20% on indexed capital gains d) Nil 158. If rent is paid for a house situated in Delhi, the house rent allowance shall be exempt to the maximum extent of: a) 40% of salary b) 50% of Salary c) 60% of Salary 159. Vinod invests Rs. 1,50,000 in an equity oriented scheme on 1st December 2005 and receives a dividend of Rs. 25,000 on 31st March 2006, the record date. The investment is sold on 2nd June 2006 for Rs. 1,20,000. How much short-term loss, if any, arising out of this investment is allowable for set-off in FY 06-07? a) b) c) d)

It is a case of long-term Capital loss and not short-term loss Nil Rs. 30,000 Rs. 5,000, since provisions of Sec. 94(7) will apply

160. In an unfortunate incident, Mr. Charan's plant catches fire and the machinery gets destroyed. Luckily, Mr. Charan had insured the factory against fire. The WDV of the machinery was Rs. 2,68,000 and the replacement cost Rs. 5,00,000. The Insurance Company has paid compensation of Rs. 3 lakhs. What is the taxable amount? a) b) c) d)

Rs. 32,000 as capital gains. Rs. 32,000 as normal income. Rs. 2,00,000 as capital loss. Nil.

161. Harish.s father has given him general power of attorney. What does that mean? a) He has disinherited Harish, but Harish has the right to decide who will inherit his father’s estate b) He has given Harish the immediate right to make decisions in all matters and take action on his behalf c) He has given Harish the right to appoint himself as the sole beneficiary of estate d) He has given Harish the right to make decision in all matters and take action on his behalf should he become incompetent

Tax Planning

29

162. On 1st November 2006, Mr. Kapil, a professional cricketer, got an award of Rs. 40,000 from his sports club for his fine performance during the season. His other taxable income is above Rs. 4 lakhs. How much amount of the award would be taxable in Kapil's hands? a) b) c) d)

Rs. 15000 Rs. 35000 Rs. 40000 Nil.

163. Mohit purchased equity shares of M Ltd. on a recognized stock exchange on 14th of April 2006. The cost of the shares was Rs. 50,000. The Securities Transaction Tax that Mohit would be liable to pay would be _______. a) b) c) d)

Rs. 37.50 Rs. 50 Rs. 75 Nil

164. Mohan purchased units of an open-ended equity oriented scheme from the Mutual Fund paying a total of Rs. 1,00,000. The Securities Transaction Tax that Mohan would be liable to pay would be _______. a) Rs. 100 b) Rs. 200 c) Rs. 50 d) Nil 165. Mr. Shah is an Indian Resident who earns some business from Mauritius. This income is________. A. taxable subject to credit given for tax already paid in Mauritius B. fully Taxable C. not taxable because India has a Double tax Avoidance treaty with Mauritius a) b) c) d)

A B C None of them

166. __________ may become members of a society. A. Individuals B. Co-operative Societies C. Central Government a) b) c) d)

A B C A, B & C

167. Mr. Shyam leaves India for the first time on 15th April 2006 in order to take up employment in China. He comes back to India on a personal visit on 10th June 2006 and stays for 150 days in India Determine his residential status for AY 2007-08: a. b. c. d.

Tax Planning

Resident Non Resident Resident but not Ordinarily Resident Resident and Ordinarily Resident

30

168. Mr. Billimoria, a chief executive of a company, finds that he had to undertake foreign tours for the company’s work so often that he has remained out of India for as many as 300 days in FY 06-07. His residential status for previous year 06-07 would be ________. a) b) c) d)

Foreigner Resident but not Ordinarily Resident Resident in India Resident Outside India

169. Vishal submits the following information for AY 2007-08. (a) Net income from salary Rs. 2,50,000 (b) Loss from house property Rs. 10,000 (c) Bank interest Rs. 60,000. Calculate his gross total income after taking into consideration the eligible set-off of losses. a) b) c) d)

Rs.2,50,000 Rs.3,10,000 Rs.2,60,000 Rs.3,00,000

170. Mr. Rao, an American Citizen has parents were both born in Canada and whose paternal grandfather was born in Karachi in 1933. On 17th July 2006, he came to India to attend a nephew.s marriage. He left India for the USA on 13th January 2007. His stay in India during the last few years was: 2005-06 102 days, 2004-05 95 days, 2003-04 130 days, 2002-2003 40 days. What is the residential status of Mr. Rao for A.Y. 2007-08? a) Non Resident b) Resident and Ordinarily Resident c) Resident but not Ordinarily Resident 171. Consider a portfolio of two investments viz. A & B. The sum total of volatility of A and B respectively, represented by standard deviation of the two investments, will be equal to the volatility of the portfolio as a whole if _________________. a) b) c) d)

A and B have a correlation of Zero A and B have a correlation of 1 The portfolio is equally divided between A and B The return on the portfolio is equal to the sum of returns of A and B

172. Which of the following is a correct interpretation of the Rules of Conduct pertaining to the Ethic of Confidentiality? REPEATED EARLIER a) A Member must when requested by the client, provide to a person authorized by the client, all original documents prepared or received by the Member in undertaking the advisory task b) A Member owes to the Member’s partners or co-owners a responsibility to act in good faith (expectations of confidentiality) only while in business together, not thereafter c) The Member shall maintain the same standards of confidentiality to employers as to clients d) Under no circumstance, will any Member divulge any information or knowledge regarding the FPSB India or its members that they may know or be exposed to

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Source Practice Test 173. Mr. Rajan a student pursuing graduation conducted home tuitions for school going students and earned an income of Rs.108,000 in P.Y.=2007-08 and no tax or any other sum is due from him. a) Mr. Rajan is a “person” but not an “assessee” b) Mr. Rajan is a “person” as well as an “assessee” c) Mr. Rajan is deemed to be an assessee. Source: C:\WINDOWS\TEMP\quiz-aug-tax2.html (same as Sim 1) contd 174. A 10 year 8.0% bond (Face Value- Rs.1000, interest payable semi-annually) maturing 6 years from today is available at a yield to maturity of 6.0%. It is likely to be priced at _______. a) b) c) d)

Rs. 1100 Rs. 1149 Rs. 1168 Rs. 1498

175. Karan wants to withdraw Rs. 1200/- at the end of each month for the next 5 years. He expects to earn 10% interest compounded monthly on his investments. What lump sum should he deposit now? a) b) c) d)

Rs. 56949 Rs. 58630 Rs. 56478 Rs. 59119

176. 5. Mr. Shyam has two house properties, Both are Self Occupied. The annual value_____ a) Of both houses shall be NIL b) Of one house shall be NIL as per Shyam choice c) Of one house shall be NIL as per the Income Tax Officer choice. 177. R Ltd., pays a salary of Rs. 1,50,000 to his employee G and undertakes to pay the Income Tax amounting to Rs. 5,100 during the previous year 2006-07 on behalf of G. The gross Salary of G shall be: a) Rs. 1,50,000 b) Rs. 1,55,100 c) Rs. 1,55,600 178. What is the main benefit of estate planning? a) b) c) d)

Peace of mind To avoid probate To ensure property passes to intended person To plan health care treatment

179. An assessee has paid life insurance premium of Rs. 25,000 during the previous year for a policy of Rs. 1,00,000. He shall:a. not be allowed any deduction under section 80C b. be allowed deduction under section 80C to the extent of 20% of the capital sum assured i.e. Rs. 20,000 c. be allowed deduction for the entire premium as per the provisions of section 80C

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180. X purchased equity shares in Y Ltd a constituent of BSE-500 Index on Mumbai Stock Exchange on March 1, 2005. He sold these shares on March 4,2007 at a loss of Rs 10,000. He wants to set off the loss against other long-term capital gains of Rs 15000 during the year. Both purchase and sale transactions were entered into on a recognized stock exchange. Whether such set-off is permissible? a) b) c) d)

Yes, upto the extent of Rs 5,000 Yes, upto the extent of Rs 10,000 Yes, upto the extent of Rs 15,000 No

Solution: Loss under the head . Capital gains (i.e. short term or long term capital loss)(Sec 74) 181. Mr. Navnit is working as a manager in private sector bank. His remuneration consists of a consolidated salary of Rs25, 000 per month plus an HRA of Rs10, 000 per month. He stays in a rented accommodation paying a rent of Rs 6, 000 per month. Calculate the amount of HRA exempt from tax _______. a) b) c) d)

Rs.1, 20,000 Rs.42, 000 Rs.48, 000 Rs.72, 000

Solution: Least of the following will be exempt u/s 10(13A): a. 40%/ 50%( as the case may be ) of Salary of the employee (Salary=Basic + D.A +commission based on fixed percentage on turnover achieved) b. H.R.A - Rent for the period for which house is taken on rent 182. X, a lady received the following gifts during the year ending march 31,2007: Rs 30,000 from her elder sister, Rs 50,000 from the daughter of her elder sister on 01-Feb-2007 and Rs 1,25,000 from various friends on the occasion of her marriage on 10-March-2007. Calculate the amount of gift taxable in the hands of X. a. b. c. d.

Rs 30,000 Rs 1,25,000 Rs 1,75,000 Rs 50,000

Solution: For P.Y 2006-07,Sum of money received without consideration on or after September 1, 2004 is not taxable upto Rs 25,000, provided it has been received by a relative defined u/s 56(2)(v) 183. Within two years of purchase of his flat, Vaibhav entered into an agreement to sell the same to Mihir for Rs. 8,00,000. Vaibhav had bought the flat for Rs. 5,50,000. Mihir pays Vaibhav earnest money of Rs. 50,000 in respect of the transaction with the balance money payable within a month. However, for some unavoidable reason, Mihir could not make the rest of the payment and in terms of the agreement between the two, Vaibhav forfeited the earnest money paid. Subsequently, within a month Vaibhav sold the flat to another buyer for Rs. 9,00,000. Compute Vaibhav's taxable income under capital gains. a) b) c) d)

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Long-term capital gains of Rs. 4,00,000 Short-term capital gains of Rs. 4,00,000 Short-term capital gains of Rs. 4,50,000 Short-term capital gains of Rs. 5,00,000

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Solution: In computing cost of acquisition, where any capital asset was, on any previous occasion, subject to negotiations for its transfer, any advance or other money received and forfeited by the assessee in respect of such negotiation is to be deducted from the cost for which the asset was acquired [Sec 51]. 184. Ram has a house property whose Municipal Valuation is Rs.140000 whereas the fair rent of the house is Rs.160000 and Standard Rent is Rs.145000. Rakesh has paid municipal taxes of Rs.14000. Based on the above data, answer the following: If actual rent receivable is Rs.180000, find the Gross Annual Value of the property is a) b) c) d)

180000 145000 140000 166000

185. Ram has a house property whose Municipal Valuation is Rs.140000 whereas the fair rent of the house is Rs.160000 and Standard Rent is Rs.145000. Rakesh has paid municipal taxes of Rs.14000. Based on the above data, answer the following: If actual rent receivable is Rs.130000, the GAV is _______________. a) b) c) d)

145000 130000 129000 114000

186. Ram has a house property whose Municipal Valuation is Rs.140000 whereas the fair rent of the house is Rs.160000 and Standard Rent is Rs.145000. Rakesh has paid municipal taxes of Rs.14000. Based on the above data, answer the following: If the annual rent of property is Rs.180000 and Unrealized Rent is Rs.60000, the GAV is_____________. a) b) c) d)

145000 180000 120000 131000

187. For the Previous Year 05-06, XYZ Ltd., a domestic company, pays an interim dividend in October 2006 of 15% and a final dividend of 40%. The distribution tax is payable on _________. a) b) c) d)

Both interim and final dividend On neither the interim nor the final dividend Only the final dividend Only the interim dividend

188. Munir borrowed Rs.20,00,000 @ 9% p.a. on 1/10/1998 for construction of a house property which was completed on 30/09/2003. The loan is still not repaid in full. What is the amount of deduction on account of pre-construction interest for AY 2004-05 that he can avail of Rs. ______ a) b) c) d)

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162000 810000 30000 1,80,000

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189. Munir borrowed Rs.20,00,000 @ 9% p.a. on 1/10/1998 for renovation of a house property which was completed on 30/09/2003. The loan is still not repaid in full. If this property was self occupied then deduction on interest paid on borrowed capital is restricted to Rs.____________. a) b) c) d)

150000 30000 162000 810000

190. Munir borrowed Rs.20, 00,000 @ 9% p.a. on 1/10/1998 for construction of a house property which was completed on 30/09/2003. The loan is still not repaid in full. If the property was let out, the deduction on borrowed capital for AY 2004-05 would be__________. a) b) c) d)

150000 30000 342000 810000

191. ABC Ltd. is willing to prepay your Cumulative Fixed Deposit with them, without any penalty and with all the accumulated interest (compounded half yearly). You had invested Rs. 4000 with them 3.5 years back. If they are giving you back Rs. 4985, what is the annualized rate of interest you have earned? a) b) c) d)

6.40% 3.2%. 6.5%. 7.2%.

Solution: (a) (((((4985/4000)^(1/7))-1)*100)*2) 192. Foreign income is tax-free in the hands of _________. a) b) c) d)

None of the above Non-Residents & Resident but not ordinarily residents Non-Residents only Residents and ordinarily residents

193. Mr. Das is an NRI working for a company in Dubai. The company desires to credit his monthly salary to his NRE account in India. Then such salary ________. a) b) c) d)

Would be taxable in India since it is received in India. Would not be taxable in India since it is credited to the NRE account. Would not be taxable in India since it is earned by an NRI. Would not be taxable in India since it is earned from a foreign source.

194. Speculation loss can be carried forward for the maximum of: a. 8 years b. 10 years c. 4 years

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195. In case an assessee is engaged in the business of retail trade, presumptive income scheme is applicable if the total turnover of such retail trade of goods does not exceed: a. b. c. d.

Rs. 10 lakhs Rs. 30 lakhs Rs. 40 lakhs Rs. 50 lakhs

196. A house property whose fair rent is Rs. 1,20,000 is neither let out nor self occupied throughout the previous year. Its annual value shall be: a. Rs. 1,20,000 b. Nil 197. Unrealized rent is a deduction from: a. gross annual value b. net annual value c. income from the head house property 198. In case of an individual, any income by way of interest on any money standing to his credit in a Non-Resident (External) Account in any bank in India shall be— a. exempt b. fully taxable c. exempt upto Rs. 13,000 199. R is entitled to a watchman allowance of Rs. 600 p.m. for the security of his residence. He pays Rs. 500 p.m. to the watchman employed by him. The taxable allowance shall be: a. Rs. 120 p.m. b. Rs. 100 p.m. c. Rs. 600 p.m 200. R is provided with a rent free accommodation owned by his employer in Delhi. The value of this perquisite shall be: a. b. c. d. e.

20% of salary 15% of salary 20% of salary plus excess of FRV over 50% of salary 20% of salary plus excess of FRV over 60% of salary 10% of salary

201. Where after depositing the amount under capital gain scheme, the individual assessee has died, the amount lying in the capital gain scheme: a. shall be taxable in the hands of legal heir b. should be utilised by the legal heir for the specified purpose c. shall be exempt in the hands of legal heir

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202. Long-term capital gain on sale of equity shares and units of an equal oriented fund shall be: a. b. c. d.

taxable @ 10% without indexation exempt exempt if sold on or after 1-10-2004 exempt if sold on or after 1-10-2004 through a recognised stock exchange in India and such transaction is chargeable to securities transaction tax

203. Where the total income of the AOP/BOI, whose none of the members has income exceeding maximum exemption limit nor any member is taxable at a rate higher than maximum marginal rate, is less than Rs. 1,00,000: a. the AOP/BOI shall not be liable to pay any tax and the share of the profit of the member from AOP/BOI shall not be included in their respective total income b. the AOP/BOI shall not be liable to pay any tax and the share of the profit of the member from AOP/BOI shall be included in their respective total income c. the AOP/BOI will be liable to tax at the maximum marginal rate C:\WINDOWS\TEMP\quiz-tax-campus-tax1.html 204 If the asset of a particular block is acquired and put to use during the previous year for less than 180 days, the assessee shall be entitled to depreciation: a. at normal rate b. at 50% of normal rate 205. What will be your answer in the above case if the asset is acquired by the electricity company which is claiming depreciation on straight line method? a. at normal rate b. at 50% of normal rate c. proportionate period for which it is put to use. 206. Where a part of block of assets is sold for a price more than the opening W.D.V plus cost of asset acquired during the year, if any, the assessee shall be subject to: a. balancing charge b. short-term capital gain c. short-term or long-term capital gain depending upon the period after which the block is transferred 207. Where a part of the block of asset is sold for a price less than the opening W.D.V. plus cost of assets, if any, acquired during the year, the balance amount shall be treated as: a. short-term capital loss b. terminal/balancing depreciation c. written down value for purpose of charging current year depreciation 208. Where the entire block is sold for a price less than the opening W.D.V. and cost of asset, if any, acquired during the previous year, the balance amount shall be treated as: a. b. c. d.

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terminal/balancing depreciation short-term capital loss written down value short-term or long-term capital loss depending on the period

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209 Transfer of capital asset in the scheme of demerger shall not be regarded as transfer for the purpose of capital gain if: a. the demerged company is an Indian company b. the resulting company is an Indian company c. demerged and resulting company should be an Indian company 210. Securities transaction tax paid by the seller of shares and units shall a. be allowed as deduction as expenses of transfer b. not be allowed as deduction 211. Securities transaction tax paid by the purchaser of shares/units shall a. form part of the cost of such shares and units not form part of the cost of such shares and units 212. Where the capital asset became the property of the assessee in any mode given under section 49(1), the cost of acquisition of such assets shall be: a. the market value of the asset as on the date of acquisition by the assessee b. cost for which the previous owner of the property acquired it c. nil 213 If the shares are acquired on conversion of debentures, the cost of acquisition of such share shall be: a. market value of the shares on the date of conversion b. market value of the debentures on the date of conversion c. cost of acquisition of the debentures 214. If the goodwill of a business, right to manufacture or produce, tenancy rights, route permit or loom hours is acquired before 1-4-1981, the cost of acquisition of such asset shall be: a. cost for which it was acquired by the assessee b. market value as on 1-4-1981 c. nil 215. As per the I.T.Act, the cost of acquisition of Bonus Shares acquired before 01-4-1981 may be taken as _________ a) Nil b) Nil or Market value of the shares as on 01-04-1981 c) Nil or Market value of the shares as on the date of allotment d) Nil or Face value of the shares as on the date of allotment e) None of the above 216. If the bonus shares are acquired on or after 1-4-1981, the cost of acquisition of such shares shall be: a. market value of such shares on the date of allotment b. nil c. none of these two

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217. The cost of acquisition of the right shares to a person who purchased the right to acquire the share from the existing shareholder shall be: a. market value of right share on the date of allotment b. price at which these shares are offered c. price at which these shares are offered plus the amount paid to the person renouncing the right. 218. If any advance money received by the assessee in any earlier occasion of transfer, which could not materialize, is forfeited, such money shall: a. be taxable in the year it is forfeited b. be deducted from the cost of acquisition of such asset c. not be taxable. 219. If advance money forfeited is more than the cost of acquisition of the assets, the excess amount shall: a. be taxable as capital gain in the year of forfeiture of money b. be taxable as capital gain in the previous year in which the asset against which advance money was received is transferred c. be treated as capital receipt and hence not taxable. 220. If there is a transfer of asset which is not revocable during the life time of the transferee, income arising from such asset shall be included in the income of: a. transferor b. transferee c. transferee till his death and thereafter in the hands of the transferor 221. Where an individual has substantial interest in a concern, there shall be included in his total income any remuneration paid by such concern to: a. the wife of such individual b. the husband of such individual c. the spouse of such individual 222. For amount subscribed to National Saving Scheme 1992, the individual shall be allowed deduction u/s 80C for amount deposited: a. in his name only b. his name or in the name of the spouse c. his name, in the name of spouse or in the name of any child. 223. For claiming deduction u/s 80C, the individual shall make the payment for Jeevan Dhara or Jeevan Akshay Scheme in: a. his own name b. his own name or in the name of his spouse c. in his own name, in the name of spouse or in the name of any child 224. If the assessee is engaged in the business of growing and manufacturing of rubber, the agricultural income in that case shall be: a. 40% of the income from such business b. 60% of the income from such business c. 65% of the income from such business

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225. If the assessee is engaged in the business of growing and curing of coffee, the agricultural income in that case shall be: a. 60% of the income from such business b. 75% of the income from such business c. 65% of the income from such business 226. A firm assessed as firm shall be entitled to deduction on account of interest on capital or loan paid to the partner a. to the extent of 18% p.a. b. the extent what is mentioned in the partnership deed c. to the extent of 15% p.a. or what is mentioned in partnership deed whichever is more d. to the extent of 12% or lower rate as is mentioned in the partnership deed 227. The deduction of interest & remuneration subject to restriction u/s 40(b) shall be allowed to the firm if the partnership is a. evidenced by an instrument b. oral c. oral or evidenced by an instrument 228. A co-operative society is although an body of individual but taxable at: a. the same rate as are applicable to individual b. the special rates given in Schedule I of the Income-tax Act c. the maximum marginal rate of 30% 229. In case of AOP/BOI, any interest paid to the member shall: a. be allowed as deduction to the AOP/BOI while computing its income b. be allowed as deduction to the AOP/BOI while computing its income subject to maximum of 12% p.a. c. not be allowed as deduction 230. As per section 139(1), an individual other than a senior citizen or a woman shall have to file return of income if: a. b. c. d.

his total income exceeds Rs. 1,00,000 his total income exceeds Rs. 1,85,000 his total income exceeds Rs. 1,35,000 his total income exclusive of deduction u/s 80C to 80U and section 10A, 10B and 10BA exceeds Rs. 1,00,000 e. his gross total income exceeds Rs. 1,00,000 231. Deduction under section 80C shall be allowed for: a. any education fee b. tution fee exclusive of any payment towards any development fee or donation or payment of similar nature c. tution fee and annual charges

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232. Deduction under section 80C for tution fee shall be allowed if such fee is paid to: a. any university, college, school or other educational institution situated within India or outside b. any university, college, school or other educational institution situated within India 233. Deduction under section 80C for tution fee shall be allowed for the purposes of: a. b. c. d.

any full time education any full or part time education full time education in a college full time education in a school

234. Deduction under section 80C in respect of tution fee is allowed to: a. an individual only b. an individual or HUF c. any assessee 235. Deduction under section 80C in respect of term deposit shall be allowed if the term deposit is for a period: a. not less than 3 years b. not less than 5 years c. not less than 7 years 236. W.D.V. of block of 15% as on 1-4-2006 is Rs. 5,00,000. An asset amounting to Rs. 1,00,000 was acquired on 1-11-2006 and put to use on 1-12-2006. During the previous year 2006-07 a part of the block (other than the new asset) is sold for Rs. 5,40,000. The depreciation to be allowed for this block shall be: a. Rs. 9,000 b. Rs. 4,500 c. Rs. 5,000 237. If in the above case, this part of the block is sold for Rs. 4,80,000 instead of Rs. 5,40,000, the depreciation allowed shall be: a. Rs. 10,500 b. Rs, 18,000 c. Rs. 9,000 238. What will be your answer in case of (i) above if the part of the block sold includes the new asset acquired during the year. a. Rs. 9,000 b. Rs. 4,500 c. Rs. 5,000

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239.Where a shareholder of an amalgamating company gets the shares of the amalgamated company in lieu of the shares held by him in an amalgamating company, the cost of acquisition of such shares shall be: a. market value of the shares of an amalgamating company as on the date of amalgamation b. cost of the shares held in amalgamating company c. market value of the share of the amalgamated company as on the date of amalgamation. 240. If an assessee discontinues the life policy before the premium of 2 years have been paid then: a. no deduction shall be allowed in respect of the payment made in the year of termination b. besides what is mentioned in (a) the aggregate amount of the deduction from income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year. 241. If a member, participating in the ULIP Plan, terminates his participation or ceases to participate by reason of non payment of his contribution, before making deduction for 5 years, then: a. no deduction shall be allowed in respect of the amount paid in the previous year of termination b. besides what is mentioned in (a), the aggregate deduction allowed in the past years shall be deemed to be the income in the previous year in which membership is terminated c. besides what is mentioned in (a), the cases of the past years in which deduction was allowed shall be reopened and tax shall be recomputed and the balance tax payable shall be so payable for these relevant years 242. An employee who was not entitled to gratuity, got 30% of his total pension commuted in the past. He wishes to commute another 25% of his total pension in the previous year. He shall be allowed exemption to the extent of: a. Nil b. 20% c. 25% 243. Municipal valuation of the house is Rs. 1,00,000 whereas the fair rent of house property Rs. 1,20,000 and standard rent is Rs. 1,10,000; actual rent received or receivable is Rs. 1,40,000; municipal taxes paid 10%. The annual value in this case shall be: a. Rs. 90,000 b. Rs. 1,00,000 c. Rs. 1,30,000

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244. An asset which was acquired for Rs. 5,00,000 was earlier used for scientific research. After the research was completed, the machinery was brought into the business of the assessee. The actual cost of the asset for the purpose of inclusion in the block of asset shall be: a. Rs. 5,00,000 b. nil c. market value of the asset on the date it was brought into business 245. R had been using an asset for his business and its W.D.V. as on 1-4-2006 was Rs. 3,50,000. He sold this asset to G for Rs. 5,00,000 and G leased back this asset to R. The market value of this asset on the date of sale was Rs. 4,00,000; in this case, the actual cost of this asset to G for charging depreciation shall be. a. Rs. 5,00,000 b. Rs. 3,50,000 c. Rs. 4,00,000 246. During the previous year an assessee has incurred loss from his business amounting to Rs. 1,10,000 whereas his income from house property is Rs. 1,00,000. The assessee in this case can carry forward: a. business loss of Rs. 10,000 only b. business loss of Rs. 1,10,000 and claim full exemption of other income in the current previous year c. at his option do any of these 247. Where the assessee or his wife or her husband or dependant parents or any member of the family of HUF is a senior citizen and the medical insurance premium is paid to effect or keep in force an insurance in relation to him or her, the deduction allowed shall be: a. Rs. 10,000 b. Rs. 15,000 c. Rs. 20,000

Source: Tax & Estate Planning Questions from PDF File (Sample Questions) 248. Adjusted Total Income is ___________________ (1 Mark) a. b. c. d.

Gross Total Income . Deductions u/c VI A Gross Total Income . Rebate u/s 80 C Gross Total Income . Deducting Sec. 10 Incomes None of the above

249. ____________ receipts are not chargeable to Income tax A. Revenue

B. Capital a. b. c. d.

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(1 Mark)

C. Receipts by way of borrowing

A B A, B & C B&C

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250. Sec. 88 B provides a rebate of up to _____ % in respect of tax payable in respect of senior citizens. (1 Mark) a. 25 b. 50 c. 75 d. 100 251. Mr. Arora has three children. He will be entitled to a maximum rebate of Rs.____ u/s 88. (1 Mark) a. b. c. d.

12000 36000 24000 NIL

252. Ram has a house property whose Municipal Valuation is Rs.140000 whereas the fair rent of the house is Rs.160000 and Standard Rent is Rs.145000. Rakesh has paid municipal taxes of Rs.14000. Based on the above data, answer the following: If the annual rent = Rs.180000 and unrealized rent = Rs.60000, the Net Annual Value is ______________ (4 Marks) a. b. c. d.

145000 131000 160000 180000

Solution: The GAV is Rs.145000. Taxes paid = Rs.14000. Therefore Net Annual Value = Rs.131000. 253. Ram has a house property whose Municipal Valuation is Rs.140000 whereas the fair rent of the house is Rs.160000 and Standard Rent is Rs.145000. Rakesh has paid municipal taxes of Rs.14000. Based on the above data, answer the following: If Ram used the house for his own residential purpose the GAV of the house will be_______. (4 Marks) a. 145000 b. NIL c. 180000 d. 131000 Solution: NIL, as the GAV of self occupied property is NIL. Source: Practice Test 1 254. The maximum amount of income, which is not chargeable to income tax in case of a male (current age 45 years) is ____________ a) Rs.110000 b) Rs.100000 c) Rs.145000 255. The Income Tax Act,, extends to the “whole of India”, a) The Statement is True b) The Statement is False 256. The I.T.Act defines “Previous Year” as ____________ a) The financial year immediately preceding the assessment year b) The financial year immediately succeeding the assessment year c) The calendar year immediately preceding the assessment year

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257. Ms.Suvarna started her “Suvarna Fashions” on 15-06-2007, Name the Previous Year (P.Y.) & Assessment Year (A.Y.) a) P.Y. 15-06-2007 to 31-03-2008 & A.Y. 01-04-2008 to 31-03-2009 b) P.Y. 15-04-2007 to 31-03-2008 & A.Y. 01-04-2008 to 31-03-2009 c) P.Y. 01-04-2007 to 31-03-2008 & A.Y. 01-04-2008 to 31-03-2009 258. With reference to meaning of “Income”, answer whether the following is/ are True 1) A “Capital Receipt” is EXEMPT unless specifically made taxable under the Act. 2) A “Revenue Receipt” is always TAXABLE unless specifically exempted under the Act. a) Only 1 is True b) Only 2 is True c) Both 1 & 2 are True 259. The rates of income tax are not specified in the Income Tax Act, but are laid down by the “Finance Act” every year a) The statement is True b) The statement is False 260. The “scope of total income” depends upon factors namely_________ 1) whether the person earning the income is resident in India or not 2) whether the income arises during the previous year 3) whether the income arises in India or outside India c) Only 1 & 2 d) Only 2 & 3 e) All of the above 261. Mr. Edward paid Rs.2 Lakhs as Income Tax from his Salary income for PY=2007-08, he contends that since this Rs.2 Lakhs is an expense for him, he wants to claim it as allowable expense. a) Tax paid is not allowed as an expense since such tax is a statutory liability b) Tax paid is not allowed as an expense but Interest paid on the borrowing will be allowed as an allowable expense c) Tax paid is not allowed as an expense since such tax is paid by every one 262. In case of an “individual assessee”, Surcharge @ 10% is applicable only if the “Total Income” exceeds Rs.10 Lakhs a) True b) False c) None of the above 263. Dr. Shilpi is leaving India on 31-12-2007 to stay with her spouse in USA and has no plans to come back, during the said period (1-4-2007 to 31-12-2007) her income from profession was Rs.1,55,000. a) Income of the P.Y. 2007-08 will be assessed in the A.Y. 2008-09 as “Regular assessment” b) Income of the P.Y. 2007-08 will be assessed in the P.Y. 2007-08 as “Accelerated Assessment” c) Income of the previous year is assessed in the same year as “Income Escaping Assessment”

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Source Practice Test 2 264. Premium paid by Mr. Rajesh (age 43 years) to LIC for Critical Illness Rider is eligible for deduction under ________

a) Sec 80 C upto a Maximum of Rs. 1 Lakh b) Sec 80 D upto a Maximum of Rs.15,000 c) Sec 80 D upto a Maximum of Rs.20,000 265. With reference to set off & carry forward of losses under the I.T.Act, state which is/are True i. Short Term Capital Loss can be set off against Short Term Capital Gain as well as Long Term Capital Gain ii. Short Term Capital Loss can be set off only against Short Term Capital Gain iii. Long Term Capital Loss can be set off against Short Term Capital Gain as well as Long Term Capital Gain iv. Long Term Capital Loss can be set off only against Long Term Capital Gain

a) Only i & iii are True b) Only i & iv are True c) Only ii & iv are True

266. As per the I.T.Act, if Annual Premium paid is more than 20% of Sum Assured, then ____ a) Such Premium is fully eligible for deduction u/s 80 C upto maximum of Rs. 1 Lakhs and only the Maturity Value, Surrender Value is fully exempt u/s 10(10D). b) Such Premium is eligible for deduction u/s 80 C upto maximum of Rs. 1 Lakhs but only to extent of the first 20% of the Sum Assured but Maturity Value, Surrender Value is not exempt u/s 10(10D) with the exception of only Death Benefit. c) None of the above 267. If any advance money is received by the assessee in any earlier occasion of transfer, which could not materialise, if forfeited, such money shall ________ a) be taxable in the year it is forfeited b) be deducted from the cost of acquisition of such asset c) not be taxable

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268. With reference to receipt, accrual/due of Income, answer whether the following is/ are True i. Income is said to be received when it reaches the assessee ii. When the right to receive the income becomes vested in the assessee , income is said to accrue or arise. iii. Salary accrues every day but since paid at the end of the month, it becomes due on the last day of the month a) only i is True b) only ii & iii are True c) all are true 269. With reference to Sec 80-C of the I.T.Act, answer whether the following is/ are True i. Amount invested in Sec 80-C eligible investments would be allowed as a deduction irrespective of the fact whether or not such investments are made out of income chargeable to tax. ii. Amount invested in Sec 80 C eligible investments would be allowed as a deduction only if such investments are made out of income chargeable to tax. a) Only i is True b) Only ii is True c) Both i & ii are True 270. With reference to “Income from Salary”, answer whether the following is/ are True i. Any sum to be charged as “Income from Salary” the requisite criteria is there should be an “Employer-Employee Relationship” ii. Salary is taxable on due basis/ receipt basis whichever is earlier iii. Bonus is taxable on receipt basis only a) Only i is True b) Only ii & iii are True c) All are True 271. With reference to “Perquisites”, answer whether the following is/ are True i. Reimbursement of medical expenses by employer upto Rs.15,000 incurred by employee on medical treatment of himself of his family member is not a perquisite for the employee. ii. Premium paid by employer on Health Insurance of the employee or his family member under any scheme approved u/s 80-D is not a perquisite for the employee. iii. Premium paid by employer on Life Insurance of the employee or his family member is a perquisite for the employee. a) Only i is True b) Only ii & iii are True c) All are True 272. As per Sec.10(10), Gratuity is payable by the Employer to the Employee only when the employee has served for a continuous period of 5 years except due to Death and Permanent Disability. a) The statement is True b) The statement is False

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273. With reference to Sec 64 (Clubbing of Income), answer whether the following is/ are True i. Clubbing Provision is applied only to clubbing of Income ii. Clubbing Provision is not applied to clubbing of Losses iii. Clubbing Provision is applied BOTH to clubbing of Income as well as clubbing of Losses a) Only i is True b) Only iii is True c) Both i & ii are True 274. With reference to Deduction u/chapter VI-A, answer whether the following is/ are True i. Amount deductible u/s 80-C is equal to:- 100% of “qualifying investment” or Rs.1 Lakh, whichever is lower ii. The maximum amount deductible under Sec.80-C, Sec.80-CCC & Sec.80-CCD cannot exceed Rs. 1 Lakh as laid down u/s 80-CCE iii. Contribution to Public Provident Fund (PPF) is allowed as a deduction u/s 80-C subject to a maximum limit of Rs.70,000 a) Only i is True b) Only ii & iii are True c) All are True 275. With reference to Deduction u/chapter VI-A, answer whether the following is/ are True The deduction u/s 80-C for the relevant P.Y. is disallowed and deduction claimed in the past is withdrawn in the following cases:i. Termination of ULIP before 5 years ii. Discontinuation of Life Insurance Policy before 2 years iii. Transfer of House Property before 5 years iv. Transfer of Infrastructure Debentures/Shares/ Units before 3 years a) Only i & ii is True b) Only i & iv is True c) All are True 276. With reference to “Residential Status” u/s 6, answer whether the following is/ are True i. Residential status is to be determined for every P.Y. as it may change from year to year ii. Residential status is different from citizenship iii. Residential status is important in deciding whether foreign income of a person is taxable or not a) Only i is True b) Only ii & iii are True c) All are True 277. As per Sec. 6 “Residential Status”, a person is deemed to be of “Indian Origin”, if he or either of his parents(father or mother) or any of his grand-parents (grand-father or grandmother) was born in undivided India (i.e. India, Pakistan & Bangladesh) a) The statement is True b) The statement is False

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278. Mr. Ramesh Rane has satisfied the “basic conditions” of Residential Status and has been a resident in India for 2 out of 10 years immediately preceding the P.Y. and he has been in India for a period of 730 days during the 7 years immediately preceding the P.Y. What is his “Residential Status” under the I.T.Act. a) Resident in India b) Resident & Ordinarily Resident c) Resident but not Ordinarily Resident 279. Mr. Rohan earned Rs.5 Lakhs from an illegal source, The I.T. Officer wants to include it as her “Income from Profession” and tax it accordingly. a) Yes, the I.T.O action is acceptable, since Income (Legal/Illegal) is included in “Income”u/s 2(24) b) No, the I.T.O action is un-acceptable, since only Income from a Legal source is included in “Income” u/s 2(24) c) Yes, the I.T.O action is un-acceptable, since Income (Legal/Illegal) is included in “Income” u/s 2(24) but it should be taxed as “Income from Other Sources” C:\WINDOWS\TEMP\quiz-tax-campus-tax2.html 280. A person leaves India permanently on 15-11-2006. The assessment year for income earned till 15-11-2006 in this case shall be: a) 2005-06 b) 2006-07 c) 2007-08 281. For claiming deduction of entertainment allowance Govt. employee includes: a) Central and Sate Government employee b) State Government Employee c) Central and State Government Employees and employees of local authority d) Central and State Government employees, employees of local authority and employees of statutory corporation 282. During the previous year, the employee was reimbursed Rs.24,000 as medical expenses incurred by him, which includes Rs.7,000 spent in Govt. hospital. The taxable perquisite in this case shall be: a) b) c) d)

Rs.9,000 Nil Rs.2,000 Rs.24,000

283. For claiming exemption under section 54, the assessee should purchase residential property: a) b) c) d)

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2 years after the date of transfer 3 years after the date of transfer one year before or two years after the date of transfer one year before and 3 years after the date of transfer.

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284. For claiming exemption under section 54, the assessee should construct the residential property within: a) b) c) d)

one year before or 2 years after the date of transfer one year before or 3 years after the date of transfer within 3 years after the date of transfer within 2 years after the date of transfer

285. Deemed dividend is: a) taxable in all cases b) exempt in all cases except where a loan/advance is given to a shareholder/ concern by an Indian Company c) exempt in all cases except where a loan/advance is given by a closely held domestic company to a shareholder who has 10% voting power in the company or to a concern in which such shareholder has twenty percent voting power or share as the case may be. 286. R was born on 5th April, 1995 in India & he later on took the citizenship of U.S.A. Neither his parents nor his grand parents were born in divided/undivided India. R in this case shall be: a) citizen of India b) person of India origin c) a foreign national 287. R was born in England, his parents were born in India in 1951. His grand parents were born in South Africa. R shall be: a) a person of Indian origin b) a foreign national c) none of these 288. A subsidy received from the Tea Board by an assessee carrying on business of growing and manufacturing tea for re-plantation or replacement of tea bushes is: a) taxable b) exempt 289. A is entitled to Children education allowance @ Rs. 80 p.m. per child for 3 children amounting Rs. 240 p.m. It will be exempt to the extent of: a) Rs. 200 p.m. b) Rs. 160 p.m. c) Rs. 240 p.m. 290. R is entitled to Hostel expenditure allowance of Rs. 600 p.m. for his 3 children @ Rs. 200 per child. The exemption in this case shall be: a) Rs. 600 p.m. b) Rs. 400 p.m. c) Rs. 300 p.m.

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291. There is a surcharge on income tax if the total income of the assessment year 2007-08 of an individual or HUF exceeds: a) Rs. 1,00,000 b) Rs. 10,00,000 c) Rs. 8,50,000 292. R is entitled to a transport allowance of Rs. 1000 p.m. for commuting from his residence to office and back. He spends Rs. 600 p.m. The exemption shall be: a) Rs. 1,000 p.m. b) Rs. 800 p.m. c) Rs. 600 p.m. 293. R is entitled to Rs. 6,000 as medical allowance He spends Rs. 4000 on his medical treatment and Rs. 1000 on the medical treatment of his major son not dependent on him. The exemption in this case shall be: a) Rs. 4,000 b) Rs. 5,000 c) NIL 294. R is an employee of a Transport Company. He is entitled to transport allowance of Rs. 6,000 p.m. He spends Rs. 4,000 every month. The exemption shall be: a) Rs. 6,000 p.m. b) Rs. 4,000 p.m. c) Rs. 4,200 295. A has two house properties. Both are self- occupied. The annual value: a) of both house shall be nil b) one house shall be nil c) of no house shall be nil 296. Expenditure on scientific research incurred by the assessee shall be allowed if a) such research is related to the business of the assessee b) such research may or may not relate to the business of the assessee c) such research s related to the research specified by the Government 297. If an assessee carries on any scientific research related to his business, he shall be allowed deduction u/s 35 on account of: a) b) c) d)

revenue expenditure capital expenditure both revenue and capital expenditure both revenue and capital expenditure excepting expenditure incurred on acquisition of land.

298. Certain revenue and capital expenditure on scientific research are allowed as deduction in the previous year of commencement of business even if these are incurred: a) five years immediately before the commencement of business b) 3 years immediately before the commencement of the business c) any time prior to the commencement of the business.

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299. Where a scientific research asset is sold without having been used for other purpose then the sale price to the extent of the cost of the asset already allowed as deduction in the past shall treated as: a) b) c) d)

business income short-term capital gain long-term capital gain long-term or short-term capital gain depending upon the period for which such asset was held.

300. Where the sale price in the above case exceeds the cost of acquisition of such asset, such excess shall be treated as: a) b) c) d)

business income short-term capital gain long-term capital short-term or long-term capital gain depending upon the period for which such asset was held

301. Brought forward unabsorbed capital expenditure on scientific research can be carried forward: a) for any number of year b) 8 years c) 10 years 302. Surcharge in case of an individual or HUF for assessment year 2007-08 is payable at the rate of: a) 2.5% of the income-tax payable provided the total income exceed Rs. 10,00,000 b) 10% of the income-tax payable provided the total income exceeds c) 5% of the income-tax payable if the total income exceeds Rs. 10,00,000 303. If any amount is donated for research, such research should be in the nature of: a) scientific research only b) social or statistical research only c) scientific or social or statistical research 304. If donation is made for scientific or social on statistical research, such research: a) must relate to the business of the assessee b) may or may not relate to the business of the assessee c) none of these 305. Where a capital asset, other than certain urban agricultural land, is compulsorily acquired, then the capital gain shall arise in the previous year: a) of compulsory acquisition b) in which full consideration is received c) in which part or full consideration is received

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306. In the case of compulsory acquisition, the indexation of cost of acquisition or improvement shall be done till the: a) b) c) d)

previous year of compulsory acquisition in which the full compensation received in which part or full compensation is received. in which part or full compensation is received.

307. In case of compulsory acquisition, if an assessee receives enhanced compensation then enhanced compensation is taxable as: a) short-term capital gain b) long-term capital gain c) short-term or long-term capital gain depending upon the original capital gain of compulsory acquisition 308. In case of compulsory acquisition if initial compensation or enhanced compensation is received by legal heir due to death of assessee, then capital gain shall: a) not be taxable in the hands of legal heir b) be taxable in the hands of legal heir c) for initial compensation the legal heir will be taxable as representative assessee and for enhanced compensation he shall be himself taxable. 309. Conversion of debentures into shares shall: a) be regarded as transfer for capital gain purpose b) not be regarded as transfer for capital gain purpose c) none of these 310. If goodwill of a profession which is self generated is transferred, there will: a) be capital gain b) not be any capital gain c) be a short-term capital gain 311. Where a company purchases its own shares there will be capital gain to the2: a) b) c) d)

company shareholder neither to the company nor to the shareholder both to the company and the shareholder

312. For claiming exemption under section 54, the assessee should transfer: a) any house property b) a residential house property c) a residential house property the income of which is taxable under the head income from house property 313. Surcharge in case of a firm for assessment year 2007-08 is payable at the rate: a) 10% of income-tax payable b) 10% of income-tax payable provided the income exceeds Rs. 60,000 c) 2.5% of income-tax payable

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314. In the above case, the residential house property should be transferred: a) before 36 months b) after 36 months c) after 12 months 315. A business loss can be carried forward and set off in the subsequent assessment year when the business on account of which this loss has arisen: a) is continued in the assessment year in which the such loss is set off b) is continued or not c) is continued for any part of the previous year 316. Deduction under section 80DD in respect of maintenance including medical treatment of dependant being a person with disability shall be allowed to:2 a) any assessee b) an individual or HUF c) an individual or HUF who is resident in India. 317. Deduction under section 80DD shall be allowed. a) to the extent of actual expenditure/deposit or Rs 40,000 whichever is less: b) for a sum of Rs. 50,000 irrespective of actual expenditure or deposit c) for a sum of Rs. 40,000 irrespective of any expenditure incurred or actual deposited 318. Deduction under section 80DD in case of dependant with severe disability shall be allowed. a) to the extent of actual expenditure/deposit or Rs. 50,000 whichever is less: b) for a sum of Rs. 75,000 irrespective of actual expenditure or deposit c) for a sum of Rs. 50,000 irrespective of any expenditure incurred or actual deposited 319. Deduction u/s 80DDB in respect of medical treatment for specified ailment or disease is allowed to: a) any assessee b) individual or HUF c) individual or HUF who is resident in India 320. Deduction under section 88DDB shall be allowed for medical treatment of specified ailment or disease of: a) any dependant relative b) any dependant handicapped relative c) the assessee himself or any dependant relative 321. Deduction under section 80DDB shall be allowed for a sum of: a) Rs. 40,000 irrespective of any expenditure b) Rs. 40,000 or actual expenditure whichever is less c) Rs. 50,000

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322. In case the assessee or dependant relative is a senior citizen then the deduction under section 80DDB shall be allowed for a sum of: a) Rs. 40,000 or actual expenditure whichever is less b) Rs. 60,000 or actual expenditure whichever is less c) Rs. 60,000 irrespective of actual expenditure 323. Deduction under section 80E is allowed on account of: a) repayment of loan taken from certain specified institutions b) repayment of loan and interest on loan taken from certain specified institutions c) interest on loan taken from certain specified institutions 324. No person other than individual or HUF can be "resident but not ordinarily resident in India": a) True b) False 325. Deduction under section 80E in respect of interest on loan taken for higher education shall be allowed to: a) b) c) d)

an individual assessee only an individual who is resident in India an individual or HUF an individual or HUF who is resident in India

326. Deduction under section 80E shall be allowed in respect of amount paid by way of interest on loan taken from: a) any person b) financial institutions c) financial institutions or approved charitable institution 327. For claiming deduction of interest u/s 80E loan should be taken for doing: a) any post graduate course b) any graduate or post graduate course in engineering, medicine, management c) for course mentioned in (B) and post graduate course in applied science or pure sciences including mathematics and pure sciences 328. The deduction u/s 80E is allowed for payment by way of interest on loan to the extent of: a) Rs. 25,000 b) Rs. 40,000 c) any amount 329. Deduction under section 80E for payment by way of interest on loan is allowed for: a) b) c) d)

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5 years 8 years or till the interest is paid whichever is earlier 10 years 8 years

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330. If the assessee uses its own agricultural produce for the purpose of manufacturing certain products other than tea, rubber or coffee the cost of such agricultural produce for the purpose of computing business income of manufacturing shall be: a) cost of producing such agricultural produce b) market value of such agricultural produce as on the date of use c) none of these two 331. If an assessee uses the agricultural produce grown by him for his own consumption then: a) the market value of such agricultural produce shall be treated as his agricultural income b) the market value of the agricultural produce minus the cost of cultivation shall be treated as his agricultural income c) nothing shall be treated as his agricultural income. 332. In case of a firm carrying on a specified profession, the deduction on account of remuneration to working partners shall be to the maximum extent of: a) Rs. 50,000 b) On the first 75,000 of book profits - 90% of book profits or Rs. 50,000 whichever is more, on the next Rs. 75,000 of book profits 60% and on the balance book profits 40%. c) On the first 1,00,000 of book profits - 90% of book profits or Rs. 50,000 whichever is more, on the next 1,00,000 of book profits 60% and on the balance book profits 40%. 333. A firm carrying on business shall be entitled to deduction on account of any remuneration to working partner to the maximum extent of: a) Rs. 50,000 b) Rs. 50,000 or 90% of the first 75,000 of book profits, whichever is more, 60% of the next Rs. 75,000 book profits & 40% of the balance book profits c) Rs. 50,000 or 90% of the first 1,00,000 of book profit, 60% of the next 1,00,000 of book profit and 40% of the balance book profits 334. In case of AOP whose members include a foreign company, and their shares are unknown, the tax shall be charged: a) at the rate applicable to individuals b) at the maximum marginal rate i.e. 30% + surcharge as applicable + education cess @ 2% c) at the rate applicable to the foreign company i.e. 40% + surcharge @ 2.5% + education cess @ 2% 335. An income under the head capital gain to a trade union is: a) exempt b) taxable

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336. In case of AOP whose members are other than foreign company, and whose shares are known, but the total income of any of its member exceeds the maximum exemption limit, tax to the AOP shall be charged: a) at the rate applicable to individuals b) at the maximum marginal rate i.e. 30% + surcharge as applicable + education cess @ 2% c) at the rate of 40% + surcharge + education cess @ 2% 337. Municipal valuation of the house is Rs. 1,20,000, fair rent is Rs. 1,40,000 standard rent is Rs. 1,30,000 whereas actual rent received or receivable is Rs. 1,25,000; municipal taxes paid are 40,000. The annual value in this case shall be: a) Rs. 1,00,000 b) Rs. 85,000 c) Rs. 90,000 338. Fair rental value of a house is Rs. 1,50,000, standard rent Rs. 1,20,000, actual rent Rs. 1,30,000. Municipal taxes paid during the previous year for the past 7 years is Rs.1,40,000. The annual value shall be: a) Rs. 20,000 b) Nil c) (-) 10,000 339. If the income of a business before claiming revenue expenditure on scientific research is Rs. 50,000 and the revenue expenditure incurred on scientific research related to the business of the assessee is Rs. 80,000, then Rs. 30,000 shall be: a) business loss b) unabsorbed revenue expenditure on scientific research c) none of these two 340. If the income of a business before claiming capital expenditure on scientific research is Rs. 50,000 and the capital expenditure incurred on scientific research related to the business of the assessee is Rs. 80,000, then Rs. 30,000 shall be a) business loss b) unabsorbed capital expenditure on scientific research c) none of these two 341. In case of compulsory acquisition, if enhanced compensation is received then for purpose of computation of capital gain the cost of acquisition and cost improvement in that case shall be taken as: a) nil b) cost of acquisition or cost of improvement which was in excess of initial compensation earlier received c) none of these

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342. R has sold 2000 14% debentures of Rs. 100 each to his wife for Rs. 90,000. The market value of debentures on the date of transfer was Rs. 1,80,000. In this case, interest income to be included in the total income of R shall be: a) b) c) d)

Rs. 12,600 Rs. 28,000 Rs. 14,000 Rs. 25,200

343. An assessee has incurred Rs. 1,00,000 on the cultivation of agricultural produce. 50% of the produce has been sold for Rs. 1,10,000 and the balance 50% has been used by the assessee for his self-consumption, the agricultural income in this case shall be: a) Rs. 10,000 b) Rs. 60,000 c) Rs. 1,20,000 344. R a person of Indian origin visited India on 2-10-2006 and plans to stay here for 185 days. During 4 years prior to previous year 2006-07, he was in India for 750 days. Earlier to that he was never in India. For assessment year 2007-08, R shall be: a) resident and ordinarily resident in India b) non-resident. 345. Mrs. R, wife of R who is employed in G LTD went for by pass surgery in England alongwith her husband. Expenses on medical treatment of wife and stay outside India of wife and R amounted to Rs.7,00,000 as against Rs.6,50,000 permitted by RBI. The travel expenses amounted to Rs.1,50,000. All expenses were reimbursed by the employer. Assume the gross salary and income from other sources of the employee are Rs.1,40,000 and Rs.40,000 respectively. The taxable perquisite in this case shall be: a) b) c) d)

Rs. Nil Rs. 50,000 Rs. 2,00,000 Rs. 1,50,000

346. The daily allowance received by a Member of Parliament is: a) exempt b) taxable c) included in total income for rate purposes 347. A car of 1500 cc is provided by the employer to the employee whose salary is Rs.20,000 per month. The car in used by him partly for official and partly for his personal purposes. The expenses of running and maintenance for official purpose is met by the employer and the expenses of running and maintenance for private use is met by employee himself. The valuation of this perquisite shall be: a) Nil b) Rs. 1,200 p.m. c) Rs. 400 p.m.

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348. An employer has provided a motorcar of 1.5 litre capacity to his employee, which the employee is allowed to use for official purpose and for travelling from office to residence and back. The expenses of running and maintenance of Motor Car are met by the employer. The value of this perquisite shall be a) b) c) d)

Rs. 1,200 p.m. Rs. 400 p.m. Nil Rs. 1,600 p.m.

349. R is provided with a car of 1.6 litre capacity by the employer along with driver. The expenses of running and maintenance of car are met by R himself. Besides using the car for official purposes, R uses the car for his personal purposes also. The valuation of the perquisite of car shall be a) b) c) d)

Nil Rs. 12,000 Rs. 8,000 Rs. 10,400

350. R Ltd., paid Rs. 1,10,00,000 during the previous year 2005-06 for acquiring the telecommunication rights which were effective for 11 years. It commenced the business of operating the telecommunication service with effect from previous year 2006-07. R Ltd. shall be entitled to a deduction of: a) Rs.10 lakhs w.e.f. previous year 2005-06 b) Rs. 11 lakhs w.e.f. previous year 2006-07 c) none of these 351. R had acquired a licence to operate telecommunication service in the previous year 2004-05 for Rs.2 crores and its life was 10 years. During the previous year 2006-07 it has sold the licence for Rs. 150,00,000. It shall be allowed a deduction under section 35ABB during the previous year 2006-07 to the extent of: a) Rs. 20 lakhs b) Rs. 10 lakhs c) none of these 352. Where a closely held company gives an loan/advance to a shareholder who has 10% voting power in the company or to concern in which such shareholder has 20% share in case such concern is a non company assessee or has substantial interest (20% voting power) in case it is a company then loan/advance so paid shall be deemed divided to the extent of: a) accumulated profits whether capitalized or not b) accumulated profits excluding capitalized profits c) the loan or advance so paid 353. The daily allowance received by an MLA is: a) b) c) d)

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exempt taxable included in total income for rate purposes Exempt upto Rs. 2,000 p.m.

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354. Entertainment allowance in case of Government employee is: a) b) c) d)

fully exempt fully taxable exempt upto certain limits mentioned in section 16(ii) first included in full in gross salary and thereafter deduction allowed from gross salary under section 16(ii)

C:\WINDOWS\TEMP\quiz-tax-campus-tax3.html 355. The maximum amount on which income-tax is not chargeable in case of firm is: a) b) c) d)

Rs. 50,000 Rs. 30,000 Rs. 60,000 Nil

356. Venture capital company or venture capital fund are given exemption from income-tax for: a) any income by way of dividend or long-term capital gain from investments made by way of equity shares in a venture capital undertaking b) any income from investment in a venture capital undertaking c) any income wherever invested 357. R an employee, owns a car which he uses for his private as well as official purposes. The expenses of running and maintenance of the car is met by the employer. The perquisite shall a) b) c) d)

be taxable in case of specified employee only be taxable in case of an employee other than specified employees be taxable case of specified and non specified employee not be taxable

358. R is an employee of Indian Oil Corporation Ltd. He is provided with free gas for his personal purposes by the employer. The value of this perquisite shall be: a) b) c) d)

Nil 61/4% of the salary manufacturing cost per unit market rate of gas

359. R owns a house in which he lives. His employer reimburses to him the electricity bill amounting to Rs. 5,000. It shall be a perquisite for: a) specified employee only b) employee other than specified employees c) both specified and other employees. 360. The employer provides free facility of watchman Sweeper and Gardner to his employees. It will be a perquisite for: a) specified employee only b) employees other than specified employees c) specified as well as other employees.

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361. R Ltd. owns a house which has been provided to its employee along with the Gardner. The Gardner salary paid shall be: a) b) c) d)

tax free perquisite taxable to the extent of Rs. 120 p.m. fully taxable tax free perquisite but will be added to the fair rental value

362. Employer’s contribution to statutory fund shall be: a) fully exempt b) exempt upto 12% of salary c) exempt upto 10% of salary 363. Expenditure incurred on prospecting, etc. of minerals shall be allowed as deduction in: a) 5 equal instalments b) 10 equal instalments c) full 364. In case the assessee follows mercantile system of accounting, bonus or commission to the employee are allowed as deduction on: a) due basis b) payment basis c) due basis but subject to section 43B. 365. Expenditure incurred on family planning amongst the employees is allowed to: a) any assessee b) a company assessee c) an assessee which is a company or Cooperative Society 366. The maximum amount on which income-tax is not chargeable in case of a co-operative society is: a) b) c) d)

Rs. 50,000 Rs. 30,000 Nil Nil

367. Capital expenditure incurred on family planning amongst employees of the company assessee is allowed as deduction: a) in full b) 5 equal instalments c) in 10 equal instalments 368. Deductions under section 37(1) shall be allowed of those expenditure which are of: a) revenue nature b) capital nature c) both revenue and capital nature

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369. Interest on capital of or loan from partner of a firm is allowed as deduction to the firm to the extent of: a) 18% p.a. b) 12% p.a. even if it is not mentioned in partnership deed c) 12% p.a. or at the rate mentioned in partnership deed whichever is less. 370. Deduction under section 40(b) shall be allowed on account of salary/remuneration paid to: a) any partner b) major partner only c) working partner only 371. Exemption u/s 54D is available to: a) any assessee b) any assessee owning an industrial undertaking c) an individual or HUF owning an industrial undertaking. 372. Exemption u/s 54D is available if there is: a) a transfer b) compulsory acquisition by law c) sale 373. Exemption u/s 54D is available if there is a Compulsory acquisition of: a) any land and building used by an industrial undertaking b) land and Building which has been used by the industrial undertaking for atleast 2 years for its activities, immediately preceding the date of compulsory acquisition c) land and building used for atleast 3 years immediately preceding the date of compulsory acquisition 374. For claiming exemption u/s 54D, the assessee should purchase and/or construct another land and building within: a) 2 years from the date of compulsory acquisition b) 3 years from the date of compulsory acquisition c) within 3 years from the end of the previous year of compulsory acquisition. 375. If the new land and building acquired for claiming exemption u/s 54D, is transferred within 3 years, then there will be: a) short-term capital gain b) exemption claimed under section 54D earlier shall be withdrawn c) the cost of acquisition of the said asset shall be reduced by the capital gain exempt u/s 54D earlier

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376. Exemption under section 54EC shall be available to: a) b) c) d)

any assessee individual only individual or HUF company assessee only

377. A local authority is taxable at flat rate of income-tax. a) True b) False 378. Exemption under section 54EC shall be available for transfer of: a) any long-term capital asset b) residential house property c) any long-term capital asset other than residential house property 379. Under section 54EC, the assessee shall be allowed exemption: a) to the extent of capital gain invested b) proportionate to the net consideration price so invested c) to the extent of the amount invested 380. Under section 54EC, the assessee shall be allowed exemption: a) to the extent of capital gain invested b) proportionate to the net consideration price so invested c) to the extent of the amount invested 381. For claiming exemption under section 54EC, amount to the extent of the capital gain should be invested: a) b) c) d)

within 2 years from the date of transfer within 3 years from the date of transfer within Six months from the date of transfer within six months of transfer or before the due date of furnishing the return of income, whichever is earlier.

382. For claiming exemption under section 54EC, the amount to the extent of capital gain should be invested within six months from the date of transfer in: a) b) c) d)

State Bank of India Notified Securities State Bank of India or notified Securities Bonds of the NHAI or RECL

383. A period of 3 years from the date of transfer a) a period of 3 years from the date of acquisition of such securities b) a period of 7 years from the date of transfer c) a period of 7 years from the date of its acquisition.

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384. Winning from lotteries, cross word puzzles, horse races & other races, card game, etc. are casual income & hence: a) fully exempt b) exempt upto Rs. 5,000 c) fully taxable 385. As per section 64(1A) income accruing to a minor shall be clubbed in the income of: a) b) c) d)

father mother father or mother at their option a parent whose income before this clubbing is greater

386. Loss from derivate trading in shares can be carried forward for: a) 8 years b) 10 years c) 4 years 387. Loss from derivate trading in commodity exchange is a: a) loss from speculative business b) loss from non-speculative business

388. Loss under the head house property: a) b) c) d)

can be carried forward for 8 years cannot be carried forward can be carried forward for only 4 years. can be carried forward for only 4 years.

389. R a citizen of India left India for U.S. on 16-8-2006 for booking orders on behalf of an Indian company for exporting goods to U.S. He came back to India on 5-5-2007. He had been resident in India for the past 10 years. For assessment year 2007-08, R shall be: a) “resident and ordinarily resident in India “ b) "resident but not ordinarily resident in India" c) “non-resident “ 390. MAT provisions are applicable in case of a) any assessee b) a company c) a company or a firm 391. The valuation of the perquisite in the above case shall be: a) b) c) d)

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actual wages paid to each servant Rs.120 p.m. per servant Rs.60 p.m. per servant. Rs.60 p.m. per servant.

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392. R Ltd. provides the facility of cook to its employee for which it paid Rs. 1,000 p.m. as salary to the cook. The valuation of this perquisite shall be: a) Rs.120 p.m. b) Rs.1,000 p.m. c) Rs.60 p.m. 393. The Gardner, Sweeper and the watchman are employed by the employee but their salary of Rs.500 p.m. per person is paid by the employer. The valuation of this perquisite shall be: a) Rs.4,320 b) Rs.18,000 c) Rs.1,960 394. Municipal tax is a deducted from: a) gross annual value b) net annual value 395. In case the property is owned by co-owners and it is let out, income from such property shall be computed: a) separately for each co-owner b) it will be first computed ignoring the co-ownership and then distributed amongst co-owners. 396. Interest incurred before the commencement of the production is to be: a) capitalized b) treated as revenue expenditure c) either capitalized or treated as revenue expenditure. 397. Interest on money borrowed for acquiring an asset by a existing concern for expansion of the existing business, pertaining to a period prior to the date on which the asset is put to use is to be: a) capitalized b) treated as revenue expenditure c) either capitalized or treated as revenue expenditure at the option of the assessee till the asset is put to use. 398. Interest on money borrowed for the purpose of acquiring a capital asset pertaining to the period after the asset is put to use is to be: a) capitalized b) treated as revenue expenditure c) either capitalized or treated as revenue expenditure 399. Expenditure incurred on purchase of animals to be used by the assessee for the purpose of carrying on his business & profession is subject to: a) depreciation b) deduction in the previous year in which animal dies or become permanently useless c) nil deduction

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400. R, a citizen a India is employed on an Indian ship. During the previous year 2006-07 he leaves India for Germany on 15-9-2006 for holidays and returned on 1-4-2007. He had been nonresident for the past 3 years. Earlier to that he was permanently in India. For assessment year 2007-08, R shall be: a) resident and ordinarily resident in India b) non-resident in India. 401. The business income of a company assessee before claiming Rs. 60,000 being 1/5th capital expenditure on family planning is Rs. 40,000. The balance Rs. 20,000 shall be treated as: a) business loss b) unabsorbed expenditure on family planning c) none of these 402. The business income of a company before claiming Rs. 60,000 being revenue expenditure on family planning is Rs. 40,000. The balance Rs. 20,000 shall be treated as: a) business loss b) unabsorbed expenditure on family planning c) none of these 403. New assets acquired for claiming exemption u/s 54, 54B or 54D, if transferred within 3 years, will result in: a) short-term capital gain b) long-term capital gain c) short-term or long-term capital gain depending upon original transfer 404. Unutilized amount deposited under capital gain scheme for claiming exemption u/s 54D shall be treated as a) short-term capital gain b) long-term capital gain c) short-term or long-term gain depending upon the original transfer 405. Deduction under section 80-IA for enterprise engaged in the business of providing telecommunication, etc. shall be allowed for: a) 10 years @ 100% b) first 5 assessment years @ 100% and 30% for the subsequent 5 assessment years c) first 5 assessment years @ 100% and 30% in case of a company and 25% in case of non-company assessees for the subsequent 5 assessment years 406. Deduction under section 80-IA for enterprise engaged in the business of telecommunication shall be allowed for: a) first 5 assessment years @ 100% and for the next 5 assessment years @ 30% starting from the assessment year in which it starts providing telecommunication services b) first 5 consecutive assessment years @ 100% and subsequent 5 consecutive assessment years 30% out of 15 years being with the year is which enterprises starts providing telecommunication services c) first 5 consecutive assessment years @ 100% and subsequent 5 consecutive assessment years 30% out of 20 years being with the year is which enterprises starts providing telecommunication services

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407. Deduction u/s 80-IB in respect of an industrial undertaking established in a backward state or district of category A shall be allowed: a) 100% of profits from such industrial undertaking for 10 years b) 150% of profit for 10 years c) 100% of profits for 5 years, 30% or 25% of profits in case of company and non company assessee other than cooperative society for subsequent 5 years (25% of the profits in case of cooperative society for subsequent 7 years) 408. Deduction u/s 80-IB in respect of an industrial undertaking established in a district of category B shall be allowed: a) 100% of the profit from such industries for 10 years b) 100% of the profit for the first 3 years and 30% (in case of company) or 25% (in case of non-company assessee) of the profit, as the case may be for next 5 years. c) 100% of the profits for first 5 years and 30% (in case of company) or 25% (in case of non-company assessees) for next 5 years but 25% of the profits in case of a co-operative society for next 9 years. 409. Deduction under section 80-IB in respect of a hotel located in a hilly area or rural area or a place of pilgrimage shall be allowed to the extent of: a) 30% of the profits for 10 years b) 50% the profits for 10 years c) 100% of profits for first 5 years and 30% of profits for next subsequent 5 years 410. Deduction under section 80-IB in respect of specified hotel or other hotel shall be allowed if the commencement of business taken place any time between: a) 1-4-1995 to 31-3-1999 b) 1-4-1997 to 31-3-2001 c) 1-4-1997 to 31-3-2002 411. R Ltd., is an Indian company whose entire control and management of its affairs is situated outside India. R Ltd., shall be: a) resident in India b) non-resident in India c) "not ordinarily resident in India" 412. Deduction of any hotel other than specified hotel established in any area other than Delhi, Mumbai, Chennai and Calcutta shall be allowed to the extent of: a) 50% of the profits for 10 years b) 30% of profits for 10 years c) 30% of the profits for 12 years 413. R gifts Rs.5,00,000 to his wife who invested the same in the partnership business. Mrs. R receives Rs.1,45,000 as her share of profits from such firm. In this case amount to be clubbed in the income of R shall be: a) Rs.1,45,000 b) Rs.10,000 after giving maximum exemption of Rs.1,35,000 to Mrs. R c) Nil

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414. An employer provides free facility of gas electricity etc. to his employee, which he uses partly for official and partly for his personal purposes. The actual amount spent by employee is Rs.10,000 and the salary of the employer is Rs.2,00,000. The valuation of this perquisite shall be: a) Rs.10,000 b) Rs.6,250 c) proportionate amount for personal use. 415. The business income of a company assessee before claiming deduction of revenue and capital expenditure is Rs.6,00,000. The revenue and capital expenditure incurred during the year are Rs.7,00,000 and Rs.10,00,000 respectively. The unabsorbed expenditure on family planning in this case shall be: a) Rs. 3,00,000 b) Rs.11,00,000 c) Rs.2,00,000 and Rs.1,00,000 shall be business loss 416. Loan & advance paid by the closely held company to its shareholder having 10% voting power in the ordinary course of money leading business shall: a) be treated as deemed divided b) not be treated as deemed divided c) none of these 417. R. has gifted Rs. 10,00,000 to his wife on 1-4-2003. The wife invested the above sum as capital contribution to the firm where she is a partner and earned interest every year. The total capital of Mrs. R as on 1-4-2006 including 3 years interest was Rs. 15,00,000. During the year she earned Rs. 2,70,000 as interest on such capital balance. The income to be clubbed in the hands of R shall be: a) Rs. 2,70,000 b) Rs. 1,80,000 c) Nil 418. Deduction under section 80-IA for any undertaking or enterprises engaged in development of infrastructure facility shall be allowed @ 100% for 10 consecutive assessment years out of: a) 15 years beginning with the year in which undertaking or the enterprise develops or begins to operate any infrastructure facility. b) 20 years beginning with the year in which undertaking or the enterprise develops or begins to operate any infrastructure facility. c) 20 years beginning with the year in which undertaking or the enterprise develops or begins to operate any infrastructure facility other than port, airport, inland port or inland water ways and out of 15 years for such port, airport, inland port or inland waterways. 419. If a firm earns agricultural income, it will be exempt: a) b) c) d)

Tax Planning

in the hands of firm in the hands of firm but taxable in the hands of the partners in the hands of firm as well its partners in the hands of the firm as well its partner but would be included in the other income of partners for computation of tax on his other incomes.

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420. If a company declares dividend out of agricultural income, such dividend declared by the company shall be: a) exempt in the hands of the shareholder but dividend tax will be payable by the company b) not be subject to any income tax, either in the hands of company or the shareholder c) included in the total income of the shareholder 421. If there is change in the constitution of the firm due to retirement, death, etc. of the partner then the brought forward loss of the firm shall a) be allowed to be set off in the hands of reconstituted firm b) be allowed to be set off in the hands of reconstituted firm to the extent of brought forward loss minus share of the brought forward loss of partner who has retired or died c) not be allowed to be carry forward and set off. 422. Income arising from the transfer of units of the Unit Trust of India or of mutual fund covered under section 10(23D) shall: a) be exempt b) not be exempt 423. In case of AOP/BOI where the share of the members are known but none of the members has taxable income exceeding maximum exemption limit, nor any member is taxable at a rate higher than the maximum marginal rate, the tax shall be charged: a) at the rate applicable to individuals b) at the maximum marginal rate i.e. 30% + surcharge + education cess @ 2% c) at the rate of 35% + surcharge + education cess @ 2% 424. A borrowed Rs. 5,00,000 @ 12% p.a. on 1-4-2002 for construction of house property which was completed on 15-3-2006. The amount is still unpaid. The deduction of interest for previous year 2006-07 shall be: a) b) c) d)

Rs. 60,000 Rs. 96,000 Rs. 1,80,000 Rs. 2,40,000

425. What shall be the amount of deduction if the house is completed on 2-4-2007 (Refer to the question above) a) b) c) d)

Rs. 60,000 Rs. 96,000 Rs. 2,40,000 Rs. 1,08,000

426. A borrowed a sum of Rs. 5,00,000 @ 12% p.a. on 1-4-1997 for construction of a house which was completed on 15-3-2002. What shall be the amount of deduction allowed on account of interest for the assessment year 2007-08: a) Rs. 96,000 b) Rs. 60,000 c) Rs. 1,08,000

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427. What shall be the deduction if the loan is repaid on 31-8-2006: (Refer to the question above) a) Rs. 60,000 b) Rs. 1,08,000 c) Rs. 25,000 428. If the marriage of the parents does not subsist, the income of the minor child shall be clubbed in the income of: a) father b) parent who maintains the child c) father or mother whose income is higher 429. Any sum received under a Life Insurance Policy including bonus shall be exempt: a) in all kinds of policies b) in all kinds of policies except when received under a Keyman Insurance Policy c) in all kinds of policies except when received under Keyman Policy or under a policy covered under section 80DDA(3). d) in all kinds of policies except when received under Keyman Insurance Policy or such policy as is covered under section 80DD(3) or policy issued on or after 1-42003, if the premium paid for any year exceeds 20% of actual capital sum assured, except on death. 430. Any pension received by an individual or family pension received by any member of his family where such individual is in the service of Central or State Government and was awarded Parmvir Chakra, Mahavir Chakra or Vir Chakra or any other notified gallantry award shall be: a) exempt b) taxable 431. An assessee has borrowed money for purchase of a house & interest is payable outside India. Such interest shall: a) be allowed as deduction b) not be allowed on deduction c) be allowed as deduction if the tax is deducted at source C:\WINDOWS\TEMP\quiz-tax-class-test1.html 432. _________ is not an exempt income u/s 10 of the Income Tax Act, 1961 a) b) c) d)

National Savings Certificates Interest Public Provident Fund Interest Interest on Post Office Savings Bank Accounts Interest on Post Office Time Deposits

433. Section 80 C deals with tax _________________ a) b) c) d)

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Deduction Exemption Rebate None of the above

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434. Section 36 deals with __________________ tax deduction a) b) c) d)

Wealth Inheritance Income Corporate

435. The Companies Act, 1956 is applicable to ____________ companies a) b) c) d)

Listed Unlisted Both A and B Foreign

436. ___________ can derive benefit u/s Sec. 80 C. a) b) c) d)

Individual assesses Hindu Undivided families Corporate entities Both A and B

437. The maximum deduction allowed u/s 80 D for a non-senior citizen is Rs. ____ a) b) c) d)

5000 10000 15000 20000

438. The Karta of a HUF is usually the ____________________ a) b) c) d)

Eldest male member Youngest male member Eldest female member Youngest female member

439. ______________ are not Persons under the Income Tax Act, 1961 a) b) c) d)

Minors Individuals Temples and Trusts Partnership Firms

440. In respect of capital assets acquired by the assessee before 01-04-1981, he is allowed to opt either the purchase cost or the market value as on 01-04-1981 in case of _______ a) All capital assets b) All capital assets other than depreciable assets c) All capital assets other than depreciable assets, goodwill of a business, right to manufacture, tenancy rights, loom hours and route permits 441. Part I of Schedule I of the Finance Act, 2006 has given rates of income tax for the assessment year: a) 2006-07 b) 2007-08 c) 2008-09

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442. Part II of Schedule I of the Finance Act, 2006 has given the rates of tax deductible at source for the financial year: a) 2005-06 b) 2006-07 c) 2007-08 443. An assessee can be assessed under the One By Six Scheme if a) b) c) d)

He has an Add On Credit card He has undertaken a trip to Mansarovar during the Previous year He has a GSM Mobile Phone or a landline telephone connection None of the above

444. Income that accrues or arises outside India from a business controlled from India is taxable in case of: a) b) c) d) e)

resident only not ordinarily resident only both ordinarily resident and not ordinarily resident non-resident all the assessees

445. Income that accrues or arises outside India and also received outside India is taxable in case of: a) b) c) d)

resident only not ordinarily resident both ordinarily resident and not ordinarily resident none of the above

446. Total income of a person is determined on the basis of his: a) b) c) d)

residential status in India citizenship in India none of the above both of the above

447. R traced a missing person and was awarded a sum of Rs. 1,00,000 although there was no stipulation to that effect. Such receipt shall be: a) casual income and fully taxable. b) casual income and exempt upto Rs. 5,000. c) fully exempt. 448. For purpose of calculating exemption of gratuity, salary shall include: a) fixed commission b) commission if it is a fixed percentage on turnover c) none of these two 449. Pension received by a Govt. employee is: a) exempt b) taxable c) partially taxable

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450. Scholarship received by a student to meet the cost of education is: a) casual income b) fully taxable c) fully exempt 451. Gratuity shall be fully exempt in the case of: a) Central and State Government employee b) Central and State Government employees and employees of local authorities c) Central and State Government employee, employee of local authorities and employee of statuary corporation 452. Income-tax Act extends to: a) b) c) d)

whole of India whole of India except Jammu & Kashmir whole of India except Sikkim whole of India except Jammu & Kashmir and Sikkim

453. Finance Bill becomes the Finance Act when it is passed by: a) b) c) d)

the Lok Sabha both Lok Sabha and Rajya Sabha both Houses of Parliament and given the assent of the President both Houses of Parliament and given the assent of the PM/ Finance Minister

454. Incomes mentioned u/s 10 of the IT Act, 1961 are ____ in the computation of Gross Total Income a) Taxed at a flat rate b) Excluded c) Included d) Used for rate purpose only 455. An award of Rs.1,00,000 was announced for tracing a missing person. R traced the person and received the award amount. Such receipt shall be a) casual income b) fully exempt c) fully taxable 456. Scholarship received by a student was Rs. 1,000 p.m. He spends Rs.8,000 for meeting the cost of education. The balance Rs.4,000 is: a) taxable b) a casual income c) exempt 457. R who was working with another company joined the present employer w.e.f. 1-5-2006 at a Salary of Rs.10,000 p.m. His salary becomes due on first of next month. He was also entitled to a pension of Rs.4,000 p.m. from his former employer. His gross salary for assessment year 200708 shall be: a) Rs. 1,10,000 b) Rs. 1,58,000 c) Rs. 1,48,000

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458. The Govt. of India announced increase in the D.A on 15-3-2006 with retrospective effect from 1-5-2002 and the same were paid on 6-4-2006. The arrears of D.A shall be taxable in the previous year: a) 2005-06 b) 2006-07 c) in respective previous years to which these relate 459. An employee is covered under Payment of Gratuity Act, 1972. Salary for purpose of calculating 15 days salary for each completed year of service shall be: a) last drawn Salary b) average Salary of last 10 months c) average Salary of last 3 completed years. 460. An employee is covered under Payment of Gratuity Act, 1972. Salary for the above purpose shall: a) include dearness allowance b) not include Dearness allowance c) include dearness allowance to the extent the terms of employment provide 461. An employee is covered under Payment of Gratuity Act, 1972. If the employee has completed service of 16 years 6 months and 5 days, the number of completed year shall be taken as: a) 16 years b) 17 years c) 16 years 6 months and 5 days. 462. An employee is covered under Payment of Gratuity Act, 1972. If he has completed exactly 16 years and 6 months, the completed year shall be: a) 16 Years b) 17 Years c) 16 Years and 6 months 463. An employee is covered under Payment of Gratuity Act, 1972. For purpose of computing 15 days’ salary, the number of days in a month shall be taken as: a) 30 days b) 26 days c) 31 days 464. The Income tax Act defines Senior Citizens as those aged above ___________ a) b) c) d)

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65 70 50 54

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465. An employee is covered under Payment of Gratuity Act, 1972. The maximum exemption of gratuity shall be: a) b) c) d)

Rs. 2,40,000 Rs. 2,50,000 Rs. 3,50,000 20 months Salary

466. An employee is neither a Government employee nor covered under Payment of Gratuity Act, 1972. Salary for purpose of calculating half month shall be taken as: a) last drawn Salary b) average Salary of 10 months preceding the month of retirement c) average salary of each completed year 467. An employee is neither a Government employee nor covered under Payment of Gratuity Act, 1972. Salary for the above purpose: a) shall include dearness allowance b) shall not include dearness allowance c) shall include dearness allowance to the extent the terms of employment so provide 468. An employee is neither a Government employee nor covered under Payment of Gratuity Act, 1972. If the employee has completed 16 years and 8 months of service, the number of completed years shall be taken as: a) 17 years b) 16 years c) 16 years and 8 months 469. An employee is neither a Government employee nor covered under Payment of Gratuity Act, 1972. The maximum exemption of gratuity shall be: a) b) c) d)

Rs. 2,40,000 Rs. 2,50,000 Rs. 3,50,000 20 months Salary

470. R, who claimed the exemption of gratuity in the past to the extent of Rs. 2,50,000, was entitled to the gratuity from the present/second employer amounting to Rs. 2,00,000 in the previous year 2006-07. R shall be entitled to exemption to the maximum extent of: a) Rs. 2,00,000 b) Nil c) Rs. 1,00,000 471. R worked with a previous employer for 3 years but was not entitled to any gratuity. He worked with the present employer for 8 years and 7 months. The completed years of service for calculating exemption of gratuity shall be taken as: a) b) c) d)

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11 years 8 years 9 years 12 years

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472. R has taken a house property on lease for 15 years from G and let out the same to S. Income from such house to R shall be taxable as:a) income under the head other sources b) income from house property as R is the deemed owner. 473. What shall be the answer if R had taken it on lease for 10 years (Refer to the question above) a) Income under the head other sources b) Income from house property as R is the deemed owner 474. R gifted his house property to his married minor daughter. The income from such house property shall be taxable in the hands of: a) R as deemed owner b) R. However, it will be first computed as minor daughters income & clubbed in the income of R income of married minor daughter 475. Immovable property must be held for minimum of ________ years in order to qualify as a Long Term Capital Asset a) b) c) d)

Three One Two Four

476. R is a member of house building Cooperative Society who is the owner of flats constructed by it. One of the flats is allotted to R. The income from such house property shall be taxable in the hands of: a) co-operative society b) R as deemed owner 477. 2% Education Cess is only applicable to assessees in the highest Tax Bracket. a) b) c) d)

False True Applicable only to those in the highest bracket and with income above Rs.8.5 lakhs Applicable only to those in the highest bracket and claiming rebate u/s 88 B or 88 C

478. ______ has interest income allowed as a deduction u/s 80 L a) b) c) d)

Kisan Vikas Patra Corporate Fixed Deposits National Savings Certificates None of the above

479. A person making a WILL is known as a _____ a) b) c) d)

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Trustee Beneficiary Executor Testator

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480. The Presiding Deity of a Hindu Temple is a) b) c) d)

An Artificial Juridical Person An Individual An Association of Persons A Company

481. Assessee is always a person but a person may or may not be an assessee. a) True b) False Source Practice Test 2 482. Dr. Rana saved Ms. Vrushali from dying, after paying his professional fees, she gifted him a Honda City Car. The I.T. Officer wants to include the market value of the car as income of Dr. Rana as his “Income from Profession” and tax it accordingly. a) Yes, the I.T.O action is acceptable, since both Income in Cash or Kind is included in “Income” u/s 2(24) b) No, the I.T.O action is un-acceptable, since only Income in Cash is included in “Income” u/s 2(24) c) Yes, the I.T.O action is acceptable, since both Income in Cash or Kind is included in “Income” u/s 2(24) but it should be taxed as “Income from Other Sources Source: Tax Planning Question a day doc 483. Mr. Rajendra P. Chitale (CA) is the Senior Partner of “M/s M.P.Chitale & Co.” (Chartered Accountants), during the P.Y.=2007-08, he received the following from the firm: Salary = Rs. 4,00,000  Interest on Capital Contribution = Rs.1,00,000  Performance Bonus = Rs. 10,00,000  Commission as a percentage of Profit = Rs.8,00,000 a) Rs.23 Lakhs will be considered as Income from Profession b) Rs.4 Lakhs as Income from Salary and Rs.19 Lakhs as Income from Profession c) Rs.4 Lakhs as Income from Salary , Rs.18 Lakhs as Income from Profession and Rs.1 Lakh as Income from Other Sources 484.. Ms. Vrushali during her working career with M/s Hindustan Lever Ltd. received Rs. 2,70,000 as Gratuity in Dec’2005 as per “The Payment of Gratuity Act, 1972”. Later on again during her working career with M/s Nirma Ltd. received Rs. 3,32,000 as Gratuity in May’2007 as per “The Payment of Gratuity Act, 1972”. Find out the taxable gratuity a) Nil b) Rs. 2,52,000 is Taxable as Income From Salary c) Rs. 3,32,000 is Taxable as Income From Salary

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485. Ms. Rachana Data Sheet for P.Y.=2007-08 depicted the following:  She works for “Prestige College of Economics” of Mumbai,  Her Basic Salary is Rs. 15,000 per month, DA = 50% of Basic  Her college pays HRA of Rs.2800 per month  Her parents are staying with her in her own flat in Mumbai. Compute her HRA amount taxable as Salary after factoring in the HRA exemptions u/s 10(13A) a) Rs.33,600 b) Rs 6,600 c) Rs. 5,800 486. The employer of Ms. Suvarna contributed to “Recognised Provident Fund”(RPF) 18% of her salary and also credited interest @ 12%. a) Full contribution of the employer and interest is not an income for Ms. Suvarna b) Full contribution of the employer and interest is exempt for Ms. Suvarna since it’s a “RPF” c) Both Employer contribution more than 12% of salary & interest more than 9.50 % will be taxed as “Deemed Income” in Ms. Suvarna hands 487. Ms. Maggi resident of Goa (Owns a Flat in Goa) is working for “M/s Wipro BPO” in Mumbai and stays in a rented flat paying a rent of Rs.5,000 per month, Her Salary per month is :Basic Rs.15,000, DA is 20% of Basic, CCA is 20 % of Basic and HRA is 50% of Basic. Compute her HRA amount taxable as Salary after factoring in the HRA exemptions u/s 10(13A) a. Rs. 80,400 b. Rs.51,600 c. Rs.55,200 488. Mr. Edward was born in 1975 in India. His Parents were born in India in 1950 while his grand parents were born in England. He was residing in India till 15-03-2005. Thereafter he migrated to England and took the citizenship of England on 15-3-2007. He visited India during P.Y. 2007-08 for 90 days.Find out his “Residential Status” a) Non Resident b) Resident and Ordinarily Resident in India c) Resident but Not Ordinarily Resident In India 489. Mr. Michael Mathias purchased 100 Debentures of Reliance Industries Ltd. (Listed on Debt Market-NSE) on 01-04-1991 and on 30-06-2007 he sold the same through NSE. He contends that since his holding period is more than 1 year he can avail the benefits of indexation of his acquisition cost. a) Indexation of purchase cost will be allowed b) Indexation of purchase cost won’t be allowed

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490. Mr. Mohan Data Sheet for P.Y.=2007-08 depicted the following :Owns a Flat in Mumbai (Mortgaged with HDFC Bank against loan for the said flat) which he has given on rent for the P.Y. Municipal Value = Rs. 4,90,000 Fair Rent for the FY = Rs. 5,10,000 Standard Rent as per the “Rent Control Act” = Rs.5,30,000 Actual Rent per month for the F.Y. = Rs. 47,000 Flat was let out for 11 months out of 12 months Flat was vacant for 1 months out of 12 months Municipal Taxes paid by Mohan = Rs.50,000 Outstanding Interest on Home Loan = Rs.1,85,000 Home Insurance Premium paid by the Owner = Rs.5,000 Ground Rent paid by the Owner = Rs.10,000 As a Tax Planner compute his Taxable “Income From House Property” (Sec.22 to Sec.27) a) Rs. 1,74,800 b) Rs. 1,76,900 c) Rs.1,41,900

491. Mr. Chintan Data Sheet for P.Y.=2007-08 depicted the following :Purchased a House for Rs.1,20,000 in 1975 Constructed First Floor in January 1981 at Rs. 1,50,000 Constructed Second Floor in May 1982 at Rs.2,50,000 Fair Market Value of the House as on 01-04-1981 is Rs. 7,50,000 The House was Sold in July 2007 for Rs.55,00,000 Brokerage on Sale was 2% Cost Inflation Index (CII) :- FY 1981-82 = 100, 1982-83 = 109, (CII) :- FY 2006-07 = 517, 2007-08 = 538 As a Tax Planner compute his “ Long Term Capital Gain/ (Capital Loss)” (Sec.45 to Sec.55) a) Rs.1,21,055 b) Rs. 6,85,945 c) Rs.4,95,245 492.Mr. Jitendra Apte Data Sheet for P.Y.=2007-08 depicted the following :Purchased a House for Rs.5,20,000 in May 1983 Gifted the House to his son Paras in May 1998. The House was Sold in June 2007 by Paras for Rs.15,00,000 Brokerage on Sale was 2% Cost Inflation Index (CII) :- FY 1983-84 = 116, 1998-99 = 351, 2007-08 = 538 As a Tax Planner of Paras compute his “ Long Term Capital Gain/ (Capital Loss)” (Sec.45 to Sec.55) a) Rs.6,72,963 b) (Rs.9,41,724) c) Rs.7,02,963

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493. Mr. Andrew D’souza (31 years) Data Sheet for P.Y.=2007-08 depicts the following:Income from Salary = Rs.2,50,000 Income from House Property = Rs.5,50,000 Income from Business = Rs. 3,50,000 Income from Short Term Capital Gains = Rs.75,000 Income from Other Sources = Rs.50,000 Paid Rs.15,000 as premium for Kotak Term Insurance (No Riders) Invested Rs.10,000 in Fidelity Tax Advantage Fund (ELSS) Invested Rs.5,000 in Fidelity Equity Fund Paid Rs. 1,00,000 in Public Provident Fund A/c maintained with SBI As a Tax Planner compute the “Tax Payable” at the tax rates applicable for A.Y. 2008-09 a) Rs.3,39,966 b) Rs. 3,43,299 c) Rs.3,41,600 494. Mrs. Smita D’souza (29 years) Data Sheet for P.Y.=2007-08 depicts the following:Income from Salary = Rs.5,50,000 Income from Other Sources = Rs.50,000 Paid Rs.15,000 as premium for LIC Endowment Policy (No Riders) Invested Rs.30,000 in HDFC Long Term Advantage Fund (ELSS) Invested Rs.55,000 in Fidelity Equity Fund Paid to New India Assurance for Health Insurance =Rs 20,000 As a Tax Planner compute the “Tax Payable” at the tax rates applicable for A.Y. 2008-09 a) Rs. 1,14,330 b) Rs. 1,09,180 c) Rs. 1,10,725 495. Which of the following legal entity can be a charitable organization? a. b. c. d.

Trust Society Company All of the above

496. Which of the following will be taxed as income: a) b) c) d) e)

Birthday gifts Marriage gifts PIN Money All of the above None of the above

497. Co-owners of the building equally sharing the rental income will be assessed as: a) b) c) d)

Tax Planning

Association of persons HUF Individuals Will not be taxed.

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498. Which of the following statement is true: a) b) c) d)

An income may be taxed twice Illegal income is also taxed PIN money is also taxable Income from temporary sources is not taxable

499. Local authority is taxed a) b) c) d)

at slab rates applicable to individuals At a flat rate of 30% At a flat rate of 35% Is exempt from tax.

500. NRO A/c can be opened by an NRI in the form of a : (a) Current A/c. (b) Savings A/c. (c) Recurring A/c. (d) Fixed Deposit A/c. (e) All of the above. 501.Interest earned on NRE A/c is : (a) Fully taxable. (b) Partly taxable. (c) Fully exempt. 502. FCNR A/c can be maintained only in the form of : (a) Current A/c. (b) Savings A/c. (c) Term deposits. 503. FCNR A/c can be maintained in : (a) Euro. (b) Pound Sterling. (c) US Dollar. (d) Japanese Yen. (e) All of the above. 504. As per Sec 115A royalty received by a foreign company from Government in pursuance of st st and agreement made after 31 March 1976 but before 1 June, 1997 is charged at : (a) Normal. (b) 30%. (c) 20%. (d) 10%. 505. Income of FIIs in the form of short-term capital gains from transfer of securities is charged at :(a) 30%. (b) 20%. (c) 10%. (d) None of the above.

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506. Under section 115E, NRIs are required to pay tax on long terms capital gains from the transfer of assets other than specified assets at : (a) (b) (c) (d)

Normal rates. 30%. 20%. 10%

507. An overseas corporate body can only be a : (a) (b) (c) (d)

Company Partnership firm Society All of the above

508. NRE A/C can be opened only by : (a) (b) (c) (d)

NRIs OCBs Both (a) and (b) None of the above

509. NRE account can be maintained in the form of a : (a) (b) (c) (d)

Savings A/c Current A/c Fixed Deposit A/c All of the above

510. Joint account of two or more NRIs are permitted in case of : (a) (b) (c) (d)

FCNR A/c NRE A/c NRO A/c All of the above

511. Joint account with a resident Indian is permitted in case of : (a) (b) (c) (d)

FCNR A/c NRE A/c NRO A/c All of the above

512. Principle is freely repatriable in case of : (a) (b) (c) (d) (e)

Tax Planning

FCNR A/c NRE A/c NRO A/c Both (a) and (b) Both (a) and (c)

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513. Interest is freely repatriable in case of : (a) (b) (c) (d)

FCNR A/c NRE A/c NRO A/c All of the above

514. Non-resident Indian means : (a) An Indian citizen (b) Person of Indian origin who is not a resident (c) Both (a) and (b) 515. Steve Waugh while on a cricket tour in India, earned the following income during the previous year 2005-06 : Rs. Participation in cricket 10,00,000 Advertisement on TV 5,00,000 Article in newspaper 1,00,000 Lottery income 50,000 Other income 45,000 Income from participation in cricket will be taxed @ : (a) (b) (c) (d)

10% 20% 30% Normal rates

516. The following Question is based on the previous question. Find below the information for your reference Steve Waugh while on a cricket tour in India, earned the following income during the previous year 2003-04 : Rs. Participation in cricket 10,00,000 Advertisement on TV 5,00,000 Article in newspaper 1,00,000 Lottery income 50,000 Other income 45,000 The following income would be taxed @ 10% : (a) (b) (c) (d) (e)

Tax Planning

Participation in cricket Advertisement on TV Article in newspaper All of the above None of the above

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517. Steve Waugh while on a cricket tour in India, earned the following income during the previous year 2005-06 : Rs. Participation in cricket 10,00,000 Advertisement on TV 5,00,000 Article in newspaper 1,00,000 Lottery income 50,000 Other income 45,000 Tax on lottery income will be : (a) (b) (c) (d)

Nil Rs. 5,000 Rs. 15,000 None of the above

518. Choose the amount of final tax liability of R for the assessment year 2007-08: Rs. Share of profit from PFAAs Income from salary (Computed) Receipt of accumulated balance in PPF Lottery income (gross)

40,000 2,00,000 80,000 7,000

(A) 17100 (B) 17442 (C) 15700 (D) 16014 519. Mr. Shelar in April 2007 transferred Rs.1,00,000 from his Business Income to his spouse Bank A/c which was converted in a FD in the name of Mrs Suvarna(spouse) fetching @ 10% p.a. For A.Y.=2008-09, The I.T. officer clubbed u/s 64, Rs.10,000 (interest for one year) in Mr. Shelar Income Tax Return and accordingly taxed him Rs. 2,000/- (20% tax bracket) and told Mr. Shelar to pay the same which Mr. Shelar claimed that since he has turned bankrupt he can’t pay the same. a) Yes, the I.T.O is right in his demand and Mr. Shelar will pay the tax u/s 64 b) Yes, the I.T.O is right in his demand but now Mrs. Suvarna will pay the tax u/s 65 c) No, the I.T.O is wrong in his demand since as per sec 65, Mr. Shelar will pay tax as per the tax bracket of Mrs. Suvarna 520. Tea and snacks are provided to employees in the office during office hours. The value of this perquisite shall be: (Refer to the question above) a. Nil b. Nil, if it is upto Rs. 50 per meal c. Actual amount spent by the employer

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521. The employer gives a gift (in kind) on the marriage of the son of the employee. Gift so made shall not be perquisite if the value of the gift is: a. Rs. 6,000 or less b. Below Rs. 5,000 c. Rs. 10,000 or less d. Below Rs. 10,000 e. any amount 522. What will be your answer if the gift is made to the employee on the silver jubilee of the company? (Refer to the question above) a. b. c. d.

Rs. 6,000 or less Below Rs. 5,000 Rs. 10,000 or less Below Rs. 10,000

523. The employer has given a lap top computer for the personal use of the employee. The value of this perquisite shall be: a. Nil b. 10% p.a. of the cost of the asset c. 10% p.a. of the W.D.V. of the asset 524. What will be your answer if this laptop is given for the personal use of the son of the employee? (Refer to the question above) a. Nil b. 10% p.a. of the cost of the asset c. 10% p.a. of the W.D.V. of the asset

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