Income Tax 2 Marks Questions with Answers
2 Marks (IMP)
1. What is Profession?
“Profession” may be defined as a vacation, or a job requiring some thought, skill and special knowledge like that of C.A., Lawyer, Doctor, Engineer, Architect etc. So, profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill.
2. Mention any four admissible expenses while calculating income from business.
• Audit fees
• Bad debts
• Allowed depreciation
• Printing and stationery
3. What is Long term capital gain?
Any profit or gain arising from the sale or transfer of long-term capital asset (Financial asset more than one year & other assets more than three years) is known as capital asset.
4. State the provisions US 80GGA.
Section 80GGA allows deductions for donations made towards scientific research or rural development. This deduction is allowed to all assesses. except those who have an income (or loss) from a business and/or a profession.
Mode of payment: Donations can be made in the form of a cheque or by a draft or in cash; however, cash donations in excess of Rs 10,000 are not allowed as deductions. 100% of the amount that is donated or contributed is considered eligible for deductions.
5. What is Tax Free Government securities?
Tax free government securities are those securities which are exempted from tax under section 10(15)
6. Mention any two-no limit 100% deductible donations U/S 80G.
- National Children Fund
- National Defence Fund
- ecrease: Reduce the problem to a smaller instance of the same problem.
- Conquer: Solve the smaller problem, either iteratively or recursively.
7. If Net Income from horse race is 210000, find the gross amount.
Gross winnings = Net winnings X 100/100 - Tax rate
210000X100/70= 3,00,000
8. Define Business.
Section 2(13) Income Tax: Business means As per Section 2(13) of the Income Tax Act, 1961, the term ‘business’ includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
9. Mention any four disallowed expenses, in calculation of profit from business.
- Interest on capital
- Speculation losses
- Deference in trial balance
- Fines and penalties
10. What is short term capital asset?
STCA means a capital asset held by an assesses for less than 36 months, (12 months in the case of specified assets), immediately preceding the date of its transfer.
11. What do you mean by less tax securities?
Less tax securities can be issued either by government of non-government institutions. They are taxable securities but no tax is deducted at source and interest on these will not be grossed. If the interest payable during the financial year exceeds 10,000 tax will be deducted at source.
12.Explain the provisions U/S 80U.
The Income Tax Act, 1961 provides deduction u/s. 80U in pursuance of which an individual (Indian citizen and foreign national) who is resident of India, and who suffers from not less than 40 per cent of any disability is eligible for deduction to the extent of Rs. 75,000/- and in case of severe disability to the extent of Rs. 125,000/-
13. Name any two 50% deductible donations U/S 80G.
- Jawaharlal Nehru Memorial Fund
- Indera Gandhi Memorial Trust
14. How do you set off the long term capital loss?
It is set off against long term capital gain only and any unabsorbed loss can be carry forward for 8 years and such carry forwarded loss can be set off against long term capital loss only.
15. What is Vocation?
Vocation means activities which are performed in order to earn livelihood. It comes out from practice and as gods gift. Example: Dancing and singing etc. for tax purpose profession includes vocation.
16. What is Casual Income?
Casual income is a non-recurring income that is not likely to occur again in a year. It is an income which is earned by chance. Such income is neither anticipated nor provided for in any agreement. Such incomes are received at uncertain times. Income received from winning lotteries, crosswords, puzzles, card games, horse race, gambling, betting or any other games is known as casual income.
17. State the Provisions of section 80 D.
Individual and HUF (Hindu Undivided Family) can claim deduction from taxable income under section 80D. A person can claim deduction for health insurance premium & expense incurred towards preventive health check-up for self, spouse, dependent children and parents
18. What is carry forward and set off of losses?
Set off of losses means adjusting the losses against the profit of a particular financial year. If the profits are insufficient to set off the losses, they can be carried forward to the next assessment year
19. What is meant by cost of improvement?
Cost of improvement means expenditure of capital nature in making any additions or alterations to the capital asset. Cost of improvement incurred by the assessee before 1.4.2001 shall be fully ignored.
20. State any four transactions incurred under the term transfer.
• Sale
• Exchange
• Relinquishment
• Extinguishment
• Compulsory acquisition
21. What is meant by cash system of accounting?
Cash system of accounting where income received or expenditure paid during the previous year is taxable whether it relates to the previous year of a year preceding or following the previous year.
22. How do you treat bad debt recovered but disallowed earlier?
bad debt recovered but disallowed earlier is fully exempted from tax hence should be deducted from net profit.
23. What is grossing up and why it should be done?
“Grossing up” is calculating the before-tax income amount from the after-tax amount. calculating the taxable value of the income it is necessary to gross it up and take the grossed-up value as taxable income. The net amount is divided by 70 and multiplied by 100 to gross up the casual income.
24. What are the listed and unlisted securities?
Listed Securities are shares, debentures or any other securities that is traded through an exchange such as BSE, NSE, etc. When a private company decides to go public and issue shares, it will need to choose an exchange on which to be listed.
Unlisted Securities are shares, debentures or any other securities that are not traded on an exchange but through the over-the-counter (OTC) market. Unlisted securities are also called OTC securities. Market makers facilitate the buying and selling of unlisted securities in the OTC market.
25. How do you treat family pension received by the family members of deceased person?
Family pension received by the family members shall be computed after allowing slandered deduction. Such deduction is to be allowed either at 33.33% or Rs 15,000, Which ever is less.
26. Name any four incomes chargeable under the head Other Sources.
• Casual Income
• Composite rent
• Interest on securities
• Rent from Land
27. Expand TDS, DTC
TDS: Tax Deducted at Source
DTC: Direct Tax Code
28. How do you treat expenditure on patents while calculating taxable business income
The expenditure on patents is treated as inadmissible and added to net profit on the other hand depreciation is allowed hence it will be deducted from net profit.
29. What is meant by block of assets?
Section 2(11) of Income Tax defines ‘Block of Assets’ as a ‘group of assets’ in respect of which the same percentage of depreciation is to be applied, i.e. proper calculation of Depreciation based on WDV of each block of assets has been prescribed for determining exact tax liability on capital gains/ business profits.
30. What is bond washing transaction?
Bond washing transaction under section 94 (1)
A bond washing transaction is narrated as a transaction which consist of selling securities to a friend or relative sometimes before the due date and acquiring back the same or similar securities after the due date of interest is over. This practice generally adopted by high income class assesses to avoid the tax.
31. Give the meaning of inter head setoff.
Inter head setoff is adjusting the loss from one head against income from other head, E.g., Loss under the head of house property to be adjusted against salary.
32. Define Capital Asset.
Capital asset include property of any kind held by the assessee weather connected with the business or not, fixed or floating, movable or immovable, tangible or intangible under section 2(14)
33. Mention any two types of assessment.
- Self assessment –u/s 140A.
- Summary assessment –u/s 143(1)
- Scrutiny assessment –u/s 143(3)
- Best Judgment Assessment –u/s 144.
- Protective assessment.
- Re-assessment or Income escaping assessment –u/s 147.
- Assessment in case of search –u/s153A.
34. What is gross total income?
The ‘gross total income’ (GTI) is the total income earn by adding all heads of income. Income from salary, property, other sources, business or profession, and capital gains earned in a financial year are all added to arrive at the GTI.
35. What is total income?
The ‘total income’ (TI) is derived after subtracting the various deductions under Section 80 from the GTI. So, you first calculate the GTI and then subtract the deductions to arrive at the TI.
36. Expand PAN and CBDT
PAN: Permanent Account Number
CBDT: Central Board of Direct Taxes
37. How do you calculate indexed cost of acquisition?
Indexed cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year in which the asset is transferred / Cost inflation index (CII) of the year in which asset was first held by the seller or 2001-02 whichever is later.
38. How do you calculate indexed cost of improvement?
Indexed cost of improvement = Cost of improvement * Cost inflation index of the year in which the asset is transferred / Cost inflation index of the year in which improvement took
place
39. List any four items deductible under section 80c
• Home loan payment.
• Life insurance.
• Registration charges of house and stamp duty.
• Fixed deposit.
• Health Insurance.
• National Savings certificate.
• Provident fund.
• Infrastructure bonds.
40. What are tax free government securities
Tax free government securities are those securities on which interest is fully exempted from tax under section 10 subsection 15 for example interest on 7 percentage capital investment bonds special bearer bonds 1991.
41. How do you treat daily allowances given to member of parliament?
The salaries of MPs are taxable under the head “Income from other Sources” and not Income
under the head Salaries. However all the daily allowances and all other allowance received by
the MPs and MLAs are fully exempted under section 10(17) of income tax act, 1961.
42. Mention the provisions of section 80GGC
Assessees other than local authorities and artificial juridical person fully or partly funded by the government can claim deduction for contribution made towards political party
Condition any some contributed during the previous year qualifies for deduction provided such contribution made by cheque from the assessment year 2014-15. No deduction shall be allowed in respect of any some contributed by the way of cash
Amount of deduction 100 percentage of such contribution qualifies for deduction
43. Mention the rules for carry forward of speculation business loss
loss from speculation business can be set off against income from speculation business unabsorbed loss from speculation business can be carried forward for 4 years and search carry forward loss can be set off against speculation business income.
44. What is reassessment?
Reassessment means reopening the already completed assessment on fulfillment of certain conditions and reassess the total income of the assessee by including the income which has escaped earlier assessment. Reassessment is completed under section 147 of the Income Tax Act.
45. Who is an inspector of income tax?
A job in this section includes work related to desk job details that come with the title of Income Tax Inspector. He will be responsible for assessing income tax that people, company or partnership firms are liable to pay. He will also have to handle refund claims and TDS (Tax Deduction at Source) queries.
46. What is Cost Inflation Index (CII)
Cost Inflation Index (CII) is used for calculating the estimated increase in the prices of goods and assets year-by-year due to inflation.
47. What is Speculative Transaction?
Speculative transaction means a transaction in which a contract for the purchase or sales of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips [section 43(5)].
48. State any four long term capital assets for which benefit indication is not available
In the following cases the benefits of indexation is not available even if the Capital asset is long
term Capital asset
- Depreciating assets
- Slump sale
- Shares and debentures in an Indian company acquired by non resident in foreign
currency - Bond or debenture other than a capital indexed bond issued by the government or
sovereign gold
49. What is self-assessment?
The assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax return. The assessee consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions if any, available to him during the year.
50. What is Mercantile System of accounting?
Under this method total income and total expenditure pertaining to previous year are to be taken. That is outstanding and prepaid adjustments are to be taken into account
Total income = income received + accrued or outstanding – income received in advance.
51. What is written down value?
Written down value refers to actual cost incurred by the assessee in purchasing an asset during the previous year however if assessee purchased prior to previous year WDV is the difference between actual cost and depreciation charged on asset
52. What do you mean by expressly admissible expenses?
Expressly admissible expenses are those expenses which are allowed in the interest of business and treated as incidental expenses.
53. What is cost of acquisition?
Cost of acquisition means total of all the expenses incurred by the assessee on acquiring the asset that is purchase price + expenses incurred after purchase till its first use. Example installation charges etc.
54. What is a zero-coupon bond?
Zero coupon bond also known as accrual bond is a debt security that does not pay interest but is traded at a deep discount redeeming profit at maturity when the bond is redeemed for its full-face value.
55. State the types of securities
It can be broadly classified into four categories:
- Tax free government securities
- Less tax government securities
- Tax free commercial securities
- Less tax commercial securities
56. What is the rate of TDS for casual income and interest on securities?
The rate of TDS for casual income is 30 % and on interest on securities 10 %.
57. What is PAN?
Permanent Account Number (PAN) is a code that acts as an identification for individuals, corporates (Indian or foreign) especially those who pay income tax. It is a unique 10 character Alpha number identifier issued to all judicial entries identifiable under the Income tax act 1961.
58. What is extinguishment
It means the right of ownership comes to an end by the operation of any law. That is insurance company taking over the damaged assets after paying the insurance amount
59. Give the meaning of slump sale.
Slump sale means sale of running concern for a lump sum consideration. In case of slump sale the benefit of indexation of cost is not available to the assessee.
60. What is income from other sources?
It is the last head of income where in any income which is chargeable to tax but does not find place under the first four heads of income will be assessed to tax under the head income from other sources