INCOME TAX 2 MARKS QUESTION PAPER QUESTIONS WITH ANSWERS

(2013-18)

1) What do you mean by commuted pension?

Ans: As per the terms of employment the employee receives pension every month
after his retirement from service. But instead of such monthly payment he can opt for
the entire amount once that amount is called commuted pension.

2) What is fair rent value of a house property?

Ans: FRV means the rent at which a similar property can be fetched in the same area
or locality, it is let out for a year.

3) What is TDS rate on lotteries? Find out the gross amount if the net
amount received on winnings from lottery is ₨.21,000.

Ans: The TDS rate on lotteries is 30%

21000 × 100 ÷ 70 ꞊ 30,000.

4) How to treat tax free interest received on government securities?

Ans: The securities are tax free or fully exempt from tax. It must be issued by central
government. [ with permission of central government state government can issue].

5) Define ’perquisites’ .Give two examples for tax free perquisites.

Ans: According to sec 17(2) the term perquisites means ”Any casual fee or benefits
attached to an office or position in addition to salary or wages.” Perquisites may be
given in cash or kinds. Examples are:1) refreshments 2) family planning expenses 3)
telephone bills or mobile bills etc.

6) Give the meaning of indexed cost of acquisition.

Ans: The valve of purchase cost at the time of sale of an asset which is recomputed
using the cost inflation index is known as the index cost of acquisition. It simply
means adjusting the original cost with the rate of inflation.

7) Define profession.

Ans: It means application of special knowledge, intellectual skills, technical skills in a

specified area. Example: doctors, lawyers, CA, CS, professors etc.

8) When is an asset said to be a short term capital asset ?

Ans: The gain arising from sale or transfer of any asset held for less than 24 months
is known as short term capital assets.
 9) Define agricultural income.

Ans: The income tax act defines agricultural income as follows: a) Any rent or
revenue derived from land which is situated in India and it is used for agricultural
purpose.

b)Any income from agriculture which is situated in India is totally exempt from tax.

10) What do you mean by annual value of house property?

Ans: AV is the value at which a property might be reasonably expected to let out from
year to year.

11) What is unrealized rent ?

Ans: It is the rent that is not recovered from defaulted rent payer or tenant. The
unrealized rent should be deducted from actual rent received.

12) How do you treat the single payment exceeding ₨10,000 in cash
while computing business income ?

Ans: Sec 40A(3) provides the payments in excess of ₨10,000 in cash shall be
disallowed while computing the “profit and gain from business or profession”.

13) What do you mean by grossing up of interest?

Ans: This term is most frequently used in terms of salary. An employee can receive
the salary grossed up, which means they would receive the full salary promised to
them without deduction of tax.

14) Define previous year.

Ans: The financial year soon before the assessment year. This year is also known as
income earning year (2018-19).

15) What do you mean by Benami transaction ?

Ans: It is a transaction in which the real beneficiary is not the one in whose name the
property is purchased. As a result, the person in whose name the property is
purchased is just a mask of the real beneficiary.

16) What are the twin objectives of income tax?

Ans:1)Tax neutrality 2)Tax equity.

17) Define assessee under IT ACT .

Ans: Assesse means a person by whom any tax or any other sum of money is payable
under IT ACT is called assesse.
 18) What do you mean by profit in leaue of salary?

Ans: Any payment received or due in addition to your salary or wages from your
employer is called profit in leaue of salary.

19) Define casual income. Give two example.

Ans: It is a nonrecurring income that is not likely to occur again in a year. It is a

income which is earned by chance. Such income are received at uncertain time and
they are not anticipated nor provided in any type of agreement.

20) Who is called deemed assessee?

Ans: In case a person dies without writing a will then his eldest son or any other legal
heir are known as deemed assessee. In case of a minor, lunatic or an idiot having a
income taxable under IT ACT then their guardians are called deemed assessee.

21) What do you mean by expected rent in house property?

Ans: ER=MRV or FRV whichever is high, not exceeding the SR (standard rent).

22) Who is a specified employee?

Ans: He is a director, employee of the company. / A person who has at least 20% of
voting rights in the company. / Person whose monitory benefits exceeds ₨50,000 in
the py

23) Define assessment year (AY).

Ans: It is a period of 12 months commencing on 1 st April every year and ending on

31st March of the subsequent year or next year.

24) What is standard rent ?

Ans: It refers to rent determined under rent control act. Therefore ER not exceed SR.
The ER can be equal to or less than SR.

25) When an individual is said to be an ordinary resident ( OR) in India

in the PY?

Ans: A person satisfy anyone of the basic condition he is considered as a resident and
if the same person satisfy the additional conditions then he is considered as OR.

26) Give the meaning of deemed to be let out property.

Ans: It means the property that has not been given on rent but because the assessee
own more than one property, all the other properties except the one which is self-
occupied by him would be treated as deemed let out.
 27) What is meant by tax free income?

Ans: It is the income received that is not subject to income tax such as municipal
bonds etc.

28) What is gratuity?

Ans: It is an amount paid to an employee on his retirement or to his family in case of

his death, in appreciation of his past service in an organisation. It is given both to
govt. and non govt. employees.

29) Give an example for partly agricultural income.

Ans: 1) profit from tea manufacturing

2) growing and manufacturing of rubber

3) growing and manufacturing of coffee.

30) Give the meaning of long term capital assets.

Ans: It means a capital asset held by an assessee for more than 24 months
immediately preceding the date of transfer.

31) What is long term capital gain?

Ans: It is the difference between full value of consideration and indexed cost of
acquisition, indexed cost of improvement and incidental expenditure.

32) State exemptible limit of commuted pension.

Ans: Any amount received by a govt. employee as a pension is tax free. In the case
of private employees it is exempted to the extent of :

a) the commuted value of 1/3 of the pension received if he received gratuity.

b) the commuted value of ½ such pension in any other case.

33) What are tax free income?

Ans: Income on which no tax has to be paid by the. assessee is called tax free
income.

34) List two characteristics of income.

Ans: a) regular & definite source

b) external source.

c) receipt & accrual.

 35) What is vocation?

Ans: Means activities which are performed in order to earn livelihood, for eg.
Music, dancing, brokerage etc.

36) Who is a deemed assesse? Give an example.

Ans: deemed assesse is a person who is legal representative of others.
Eg:agent of non resident, guardian of a minor.
37) What is the basic requirements to treat an item as salary income
u/s 15?
Employee and employer relationship, salary should be real not fictitious.
38) Mention the meaning of salary for RPF contribution.
Basic only, if DA considered for Retirement benefits take into consideration
(basic+ DA), if commission is paid % of sales turnover take into consider,
(basic+DA+% of commission)
39) Write the meaning of PCP.
Loan taken for construction of house or construction of any building.
Any interest paid prior to completion of construction will be deducted in 5
equal installments from the year of completion of construction.
This is known as pre construction period interest.(PCP).
The calculation begins with the date and month on which loan is taken
and ends with 31st March of the year of construction completed.
40) Mention any 2 Assets which is not treated as capital asset.
Clothes, furniture, stock in trade, 6.5% gold bonds, special bearer bonds.
41) What is a less tax commercial security?
These type of securities are issued by statutory corporation or local authority,
here security holder receives interest after deducting TDS. If interest amount
is given should be grossed up, if % of interest is given no need to grossing
up.
42) Why do you treat income from subletting as income U/S56?
Because here assesse is not the owner of that sublet house. Therefore this
income does not come u/s 22, it comes u/s 56.
43) How is income tax collected and apportioned?
Income tax is collected from different sources ie salary, house property,
business or profession, capital gain, other sources, collected on the basis of
tax slab , apportioned on the basis of purpose, education, irrigation,
transportation etc.
44) What do you mean by partly agriculture income?
 This type of income may be partly agriculture and partly non agriculture ie
chargeable under heads of profit and gains from business eg: income from
sugar factory.
Here sugar factory owning farms the market value of any agriculture
produced is considered as agriculture income and utilise its waste for
preparation of drug materials is considered as non agriculture income.
45) What is meant by tax free income?
Tax free income is one type of income assesse need not pay tax to this type
of income which comes u/s 10 but he has to satisfy conditions. Eg:
agricultural income from Indian land, Central tax free security, POSB up 3500
nil.
46) What is deemed income?
Deemed income is a income which may be considered as unexplained
expenditure or un explained income. Assesse does not treat these transaction
in the books of accounts. Eg: cash credit, unexplained money, etc.
47) Define causal income. How do you treat it for income tax purpose?
These incomes are income which are irregularity in nature.
Eg: winning from horse race, card game, betting, cross word puzzle, lottery,
TV game show etc. the treatment is if net amount or received amount in the
problem it should be grossing up by 100/70 procedure.
48) What do you mean by application of salary?
It refers to utilizing the salary after its receipt by the assesse towards various
payments it is fully taxable.
49) What do you mean by grossing up of interest?
The procedure of converting net interest into gross interest is called as
grossing up of interest. Eg: 100/90, 100/70
50) What is the extent of deduction for Family Pension?
Amount of Pension – (standard deduction 33.33% of pension received) or
(Rs15000) whichever is less.
Eg: Family pension Received 30000
30000- (30000x33.33% or 15000) whichever is less
 30000- (9999 or 15000)
20,001

Exempted and Not Taxable entries for Computation of

Total Income (INCIDENCE OF TAX LIABILITY)

Particulars OR NOR NR
1. Agriculture income from land situated in Exempt Exempt Exempt
India
2. Dividend from Indian Company Exempt Exempt Exempt
3. Gift from Relatives Exempt Exempt Exempt
4. Gift at the time occasion of marriage Exempt Exempt Exempt
5. Gift of any amount from father settled Exempt Exempt Exempt
outside India, received in India
6. Award received from BBMP or any Exempt Exempt Exempt
corporation for active involvement in
Swacch Bharath Abhiyan
7. Cash award received from university to Exempt Exempt Exempt
secure first rank
8. Gift from notified charitable institute Exempt Exempt Exempt
9. Gift of commercial property received Exempt Exempt Exempt
from his father’s friend by way of WILL.

10. Gift of any property from father in way Exempt Exempt Exempt
of inheritance
11. Gift from friend or Business associates Exempt Exempt Exempt
upto `50000.
(if Gift amount exceeds `50000, entire
amount Taxable)
12. Gift from friend in the form of Wrist Exempt Exempt Exempt
watch, motor cycle, car and any gift in
kind.
(but other than jewellery,
immovable property, shares and
securities which is Taxable)
13. Past untaxed foreign profit brought or Not Not Not
remitted to India taxable taxable taxable
14. Interest on POSB account in India Exempt Exempt Exempt
upto upto upto `3500
`3500 `3500
Note:

1. Gift on the occasion of marriage is not chargeable to tax, gift on other

occasions e.g wedding anniversary, birthday, housing ceremony etc, will
consider as tax.(limit is `50000).
2. Gift from a friend in the form of any movable property (excluding shares and
securities, jewellery, archaeological collections, drawings, paintings,
sculptures, any work of art or bullion) is not taxable in the hands of an
individual. E g. watch, car, bike etc.
3. If a person receives any gift from any of his relatives, such gift will not be
chargeable to tax.
4. Relative means: Spouse(Husband/Wife) of the Individual, brother or sister
of the individual, brother or sisters of the spouse of the individual, brother or
sisters of either of the parents of the individual, any lineal ascendant and
descendant of the individual, any lineal ascendant or descendant of the
spouse of the individual.
5. Any property or money received as gift or any form by way of will or
inheritance is exempt from income tax as per section 56(2).
6. Any property or money received as gift or any form from notified charitable
institute or trust is exempt from income tax as per section 56(2).
7. Any money or property received as a gift or an award form local
authority/university/ educational institution, foundation/trust are exempt
from income tax as per section 56(2) of income tax act 1961.

By,

Raghavendra G G

Dept. of Commerce &

Administration

UPMC

Udupi

raghugubbiga@gmail.com

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