Income-tax and Corporate Tax Planning MCQ Quiz - Objective Question with Answer for Income-tax and Corporate Tax Planning - Download Free PDF

The correct answer is - Sec. 90A

Key Points

• Sec. 90A
  • This section deals with double taxation relief for income arising in cases where a specified association has an agreement with a foreign country.
  • It allows for a mechanism to avoid double taxation through agreements between specified associations (e.g., trade or professional associations) and foreign governments.
  • The provision applies when such agreements are approved by the Central Government.
  • It is distinct from Sec. 90 and Sec. 91, which primarily deal with agreements between the Government of India and foreign countries.

Additional Information

• Sec. 90
  • This section provides for relief in cases of double taxation where India has entered into a Double Taxation Avoidance Agreement (DTAA) with a foreign country.
  • It primarily applies to situations involving agreements between the Government of India and foreign nations.
• Sec. 91
  • This section provides for unilateral relief from double taxation in cases where no DTAA exists between India and the foreign country.
  • It ensures that taxpayers are not unfairly taxed twice on the same income.
• Difference Between Sec. 90 and Sec. 90A
  • Sec. 90: Involves agreements between the Government of India and foreign countries.
  • Sec. 90A: Deals with agreements between specified associations (e.g., trade associations) and foreign countries, approved by the Central Government.
• Sec. 95
  • This section pertains to General Anti-Avoidance Rules (GAAR) and is unrelated to double taxation relief provisions.

The correct answer is - Tax Avoidance

Key Points

• Tax Avoidance
  • Refers to the practice of reducing or negating tax liability using methods that are within the boundaries of the law.
  • It involves utilizing provisions and loopholes in the tax laws to minimize tax payments while adhering to legal requirements.
  • Unlike tax evasion, tax avoidance has legal sanction and does not involve illegal activities.
  • Common examples include claiming deductions, exemptions, and utilizing tax-friendly investment options.
  • Governments often introduce such provisions to encourage savings, investments, or specific economic activities.

Additional Information

• Tax Planning
  • Involves arranging finances and investments to reduce tax liability while complying with tax laws.
  • It is a broader concept that includes tax avoidance as one of its strategies.
  • Examples include investing in tax-saving instruments like Public Provident Fund (PPF) or National Savings Certificate (NSC).
• Tax Deduction
  • Refers to specific amounts that can be subtracted from an individual's gross income to arrive at taxable income.
  • Examples include deductions under Section 80C for investments and Section 80D for health insurance premiums.
• Tax Concession
  • Represents benefits or relief provided by the government to encourage specific activities like education, housing, or charitable contributions.
  • Examples include concessions for senior citizens or exemptions for agricultural income.
• Tax Evasion
  • Involves deliberately avoiding tax payments through illegal means such as underreporting income or inflating expenses.
  • Tax evasion is a punishable offense as it violates tax laws.

The correct answer is - 115 BAA

Key Points

• Section 115 BAA
  • Introduced under the Income Tax Act, Section 115 BAA provides domestic companies the option to pay tax at a concessional rate of 22% (plus applicable surcharge and cess) without claiming certain deductions.
  • If a domestic company opts for taxation under Section 115 BAA, the provisions of Minimum Alternative Tax (MAT) under Section 115JB do not apply.
  • This section aims to simplify the tax structure and reduce the tax burden for eligible companies while ensuring they forego specific deductions such as those under Section 10AA or Chapter VI-A deductions.
  • It is applicable to companies that are not opting for exemptions or incentives under other sections.

Additional Information

• Minimum Alternative Tax (MAT)
  • MAT is applicable under Section 115JB and ensures companies with low taxable income due to exemptions/deductions still pay a minimum tax.
  • The MAT rate is typically 15% of the book profit (plus surcharge and cess).
  • However, companies opting for Section 115 BAA or Section 115 BAB are exempt from MAT provisions.
• Section 115 BAB
  • Introduced for new manufacturing companies, Section 115 BAB allows taxation at a concessional rate of 15% (plus surcharge and cess).
  • Like Section 115 BAA, companies under Section 115 BAB are also exempt from MAT provisions.
• Eligibility for Section 115 BAA
  • Available to domestic companies that do not claim incentives/exemptions such as SEZ benefits (Section 10AA) or additional depreciation.
  • Companies must comply with conditions specified under the section to avail of the concessional tax rate.

The correct answer is - Beauty Care Services

Key Points

• Harbor Rules under Section 92CB
  • These rules are applicable only to specified international transactions under the Income Tax Act.
  • They provide a safe harbor, meaning if certain conditions are met, the transfer pricing declared by the taxpayer is accepted by tax authorities.
• Applicability
  • Primarily applicable to transactions related to Software Development Services, Information Technology Enabled Services, and Manufacture and Export of Core Auto Components.
  • Beauty Care Services are not covered under the specified categories for harbor rules applicability.
• Reason for Non-applicability
  • Beauty Care Services are typically domestic services and do not fall under the scope of international transactions as defined in Section 92CB.
  • Harbor rules are designed to address transfer pricing issues in specific industries where international transactions are common.

Additional Information

• What are Safe Harbor Rules?
  • Safe harbor refers to provisions that reduce or eliminate tax compliance risks for taxpayers.
  • Under Section 92CB, taxpayers can declare pre-determined margins for certain international transactions, ensuring minimal scrutiny by tax authorities.
• Key Transactions Covered
  • Software Development Services: Includes development, testing, and maintenance services for software products.
  • Information Technology Enabled Services: Includes services like customer support, data processing, and back-office operations.
  • Manufacture and Export of Core Auto Components: Covers companies involved in manufacturing and exporting critical components for automobiles.
• Exclusions
  • Transactions that are domestic in nature or do not involve international transfer pricing fall outside the scope of Section 92CB.
  • Examples include services like Beauty Care, which are not international transactions.

The correct answer is - ₹ 1,25,000

Key Points

• Section 80U provides tax deduction benefits to individuals with disabilities.
• Eligibility Criteria:
  • This section is applicable to taxpayers who are certified by an authorized medical authority as having a disability.
  • The disability must be at least 40% to qualify for the deduction.
• Deduction Limit:
  • If the taxpayer suffers from a disability that is less than 40%, no deduction is applicable under Section 80U.
  ₹ 1,25,000.

Additional Information

• Definitions under Section 80U:
  • Disability: Includes blindness, low vision, hearing impairment, locomotor disability, mental retardation, and mental illness.
  • Severe Disability: Refers to a condition where the disability is 80% or more.
• Certification:
  • The taxpayer must obtain a valid certificate from a medical authority as prescribed under the Income Tax Rules.
  • The certificate should specify the percentage of disability.
• Additional Deduction for Severe Disability:
  • If the disability is classified as severe (80% or more), the deduction limit increases to ₹ 1,25,000.

The correct answer is an Excise tax.

• Tax can be divided into two categories.
• Excise Tax: Excise taxes can be used to price an externality or discourage consumption of a product that imposes costs on others.
• They can also be employed as a user fee to generate revenue from people who use particular government services, revenue which should be used to maintain that government service.
• At the moment, excise duty is charged at 12.36% but it varies based on the kind of products.
• Goods and Service Tax, on the other hand, has standard rates at 0%, 5%, 12%, 18%, and 28% depending upon the kind of product.
• GST has now subsumed a number of indirect taxes including excise duty.
• This means excise duty, technically, does not exist in India except on a few items such as liquor and petroleum.

Key Points

• First is Direct Tax such as Income tax, wealth tax, and corporation tax.
• The second is Indirect Tax such as Sales tax, Excise duty, and customs duty.
• Indirect tax means that tax that reaches the government indirectly.
• Such tax is completely opposite to direct tax.
• The tax levied by the state on consumption, import, export, production, etc. is an indirect tax.
• Excise Duty is a type of Indirect Tax which is imposed on all production or manufacturing of goods.

Additional Information

•  The Appointments Committee of the Cabinet (ACC) has appointed Shri J B Mohapatra as Chairman, Central Board of Direct Taxes (CBDT).

The correct answer is GST.Key Points

• Goods and Services Tax (GST) 
  • It is a value-added tax which is a single tax on the supply of goods and services from the manufacturer to the consumer.
  • It is an important indirect tax regime implemented in India from 1st July 2017.
  • It is governed by the Goods and Services Tax Council. The Finance Minister of India is its chairman.
  • It is a value-added tax which is a single tax on the supply of goods and services from the manufacturer to the consumer.​

Additional Information

• ​Direct tax -
  • It is a tax that is paid directly by an individual or organization to the entity which has imposed it.
  • There are different types of direct taxes -
    • Income Tax, Tax on Corporates, Wealth Tax, Tax on Inheritance (Estate), Income Tax, Corporate Income Tax, Tax on Capital Gains, etc.

The correct answer is Both I and II.

Key Points

• Direct taxes
  • It includes taxes that cannot be transferred to another person, for example, income tax is paid directly by an individual to the government.
  • Ex: Income Tax, Corporate Tax, Wealth Tax, Estate Tax, Gift Tax, Fringe Benefits Tax, Securities transaction tax.
• Indirect tax
  • It is another type of tax that can be shifted to another person.
  • Excise Duty, Sales Tax, Customs Duty, Entertainment Tax, Service Tax, Value added tax.

The correct answer is Up to ₹2,50,000

Key Points

Rates of Income Tax under the old regime:

Additional InformationThe tax rates under the New Tax Regime as per section 115BAC are as under:

The correct answer is the Income-tax.

• A progressive tax is directly related to the taxpayer's ability to pay.
• Every year, we have to pay a fixed portion of our income to the central government in the form of income tax.

Key Points

• As per the rule of the central government for Income tax, a certain tax is applicable on the income of all people as per slab.
• Every business and person is supposed to pay the tax and the return is to be submitted every year.
• Total funds collected through tax are used by the government for services as well as to fulfill the requirements for the country's development. 

Additional Information

• The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963.
• The officials of the Board in their ex-officio capacity also function as a Division of the Ministry dealing with matters relating to levy and collection of direct taxes. 

The correct answer is 'GST, custom duty'

Key PointsLet's have a look at all options:

From the above table, we can see that only option 4 is correct.

Thus, the correct answer is GST, custom duty.Additional Information

•  Indirect Tax:
  • ​Indirect tax is an indirect tax collected by a single entity in the supply chain (usually a producer or retailer) and paid to the government but passed on to consumers as part of the purchase price of the goods or services.
  • Ultimately, it is the consumer who pays the tax by way of overpaying for the product.
• Direct Tax:
  • ​Direct tax is a tax that a person or organization pays directly to the entity that has levied it.
  • A particular taxpayer pays direct tax to the government for various purposes.
  • There are also types of indirect tax such as sales tax, where the tax is levied on the seller but is paid by the buyer.

Hint

• Trick to remember Direct Taxes:

Wepro.co.in

• We  - Wealth Tax
• pro - Property Tax
• co - Corporate Tax
• in - Income Tax

• Trick to remember Indirect Taxes

EXCUSE ME

• EX - Excise Duty
• CU - Custom Duty
• SE - Service Tax
• M - Market Tax/ VAT
• E - Entertainment Tax

The correct answer is the Income-tax.

• A progressive tax is directly related to the taxpayer's ability to pay.
• Every year, we have to pay a fixed portion of our income to the central government in the form of income tax.

Key Points

• As per the rule of the central government for Income tax, a certain tax is applicable on the income of all people as per slab.
• Every business and person is supposed to pay the tax and the return is to be submitted every year.
• Total funds collected through tax are used by the government for services as well as to fulfill the requirements for the country's development. 

Additional Information

• The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963.
• The officials of the Board in their ex-officio capacity also function as a Division of the Ministry dealing with matters relating to levy and collection of direct taxes. 

The correct answer is Income tax.

Key Points

• Direct Taxes -  
  • The tax that is directly paid to the Government, is directly imposed on the taxpayer and the liability of tax cannot be passed on to other taxpayers.  
  • Some of the examples of Direct taxes are Income-tax, Corporate tax, Minimum Alternate Tax, Dividend Distribution Tax, Securities Transaction Tax, Capital gains Tax .etc.

​​Additional Information

• Indirect Taxes -
  • Indirect Tax is a tax imposed on an individual or entity which is passed on to other individuals.
  • The is imposed on products or services which are used by the customer.
  • Common examples of indirect taxes are Goods and services taxes, excise duties, sales tax, etc.
• Goods and Services Tax -
  • The GST is an indirect tax that replaced many indirect taxes such as excise duty, Value added tax, and service taxes in India.
  • The Goods and Services Act was passed in parliament on 29th March 2017 and came into effect from 1st July 2017.

The correct answer is Corporation tax.

Key Points

• Corporate tax
  • Corporate tax is the single largest source of income to the government of India.
  • According to the Budget for 2019-20 presented in Parliament by Finance Minister Nirmala Sitharaman, Goods and Services Tax collections will contribute 19 paise in every rupee revenue.
  • Corporation tax is the single largest source of income, contributing 21 paise to each rupee earned.
  • Corporate tax rates vary widely by country, leading some corporations to shield earnings within offshore subsidiaries or to redomicile within countries with lower tax rates.

Additional Information

• Custom duties
  • Customs duty refers to the tax imposed on goods when they are transported across international borders. 
  • It is the tax that is levied on the import and export of goods. 
  • The government uses this duty to raise its revenues, safeguard domestic industries, and regulate the movement of goods.
• Service tax
  • Service tax is a tax levied by the government on service providers on certain services.
• Non-tax revenue
  • Non-tax revenue is the recurring income earned by the government from sources other than taxes.

The correct answer is Training by employer.Key Points

• Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees or refresher courses attended by the employees shall be tax-free.
• The amount given by the employer to employees’ children as a scholarship is a tax-free perquisite.
• Tax paid by the employer on non-monetary perquisites of the employee shall be exempt in the hands of the employee.

Additional Information 

• What are Perquisites?
  • In addition to the cash component of salary, the employees are also given non-cash benefits by the employer. These non-cash benefits are generally known as ‘Perquisites’.
  • Perquisites provided by the employer to an employee are subject to tax under the head “Income under head Salary”. 
  • But not all the perquisites are taxable, some perquisites are specifically exempted from income tax.