Helps students and staff to understand concepts in Income tax. It is very much helpful to students who study for ICWA, CA, CS, CFA

1. Conceptual Objective type questions:-Check the
answers at the end after you answer all questions
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CA, ICWA,CS,CFA students have to read before
Income tax examination
Dedicated to ST. Joseph’s College of Commerce
students, Bangalore
1.Residential status does not depend on citizenship
of an individual.
2.If a person leaves India for good the previous
year becomes assessment year.
3.Income includes loss
4.Assesse includes person who has to receive
refund from income tax department.
5.Tax rates are fixed by the annual Finance Act
and not by the Income tax Act.
6.IF on the first day of April of the assessment
year, the new Finance Bill has not been placed on
the statute book, the provisions in force in the
preceding assessment year or provisions proposed
in the Finance Bill before Parliament, whichever
is more beneficial to the assessee, will apply until
the new provisions become effective.
7.For arriving at the total income of the
assessment year 2008-09 provisions of the Income
tax Act as on April1, 2008 are applicable. Any

2. amendment made with effect from April 2, 2008 is
wholly irrelevant.
8.For Each source of income different previous
year can not be followed.
9. Income of non resident from shipping , income
of bodies formed for short duration, income of a
person trying to alienate his assets with a view to
avoiding payment of tax, income of discontinued
business are the exceptions the normal assessment
year.
10.Income-tax is a direct tax.
11. The term income connotes a periodical
monetary return coming in with some sort of
regularity or expected regularity from definite
sources.
12. If Income is received in kind, its valuation is
made according to the rules prescribed in the
Income Tax Rules. If , however, there is no
prescribed rule, valuation thereof is made on the
basis of market value.
13.Illegal income is taxable.
14 Expenditure to illegal income is not deductible.
15.If there is a dispute to the title to the income
whoever claims will be taxed.
16.Mere relief or reimbursement of expenses is
not treated as income.
17.Where by an obligation, income is diverted
before it reaches the assessee it is diversion of
income and not taxable.

3. 18.The income is required to be applied to
discharge an obligation after such income reaches
the assessee, the same is merely an “application of
income” and income is chargeable to tax.
19.A surplus arising to a mutual concern cannot
be regarded as income chargeable to tax.
20.All Gifts together if exceed Rs.50,000 in the
previous year is taxable provided they are not
paid by relatives or received at the time of
marriage.
21.While income, profit and gains represent ‘plus
income, losses represent “minus income”.
22.Income should be real and not fictional.
Similarly income does not arise in a transaction
between head office and branch office even if
goods are invoiced at price higher than cost price.
23.Income do not accrue at the time of revaluation
of assets because income should be real and not
fictional.
24.Pin money received by wife or husband for
personal expenses and small saving made by
her/him for meeting household expenses is not an
income.
25.A receipt is sought to be taxed as income, the
burden lies upon the Department to prove that it
is within the taxing provision.
26. A receipt is in the nature of income, the
burden of proving it is not taxable, because it falls

4. within an exemption provided by the Act, lies
upon the assessee.
27.Capital receipts are exempted from tax unless
they are expressly taxable.
28. Revenue receipts are taxable, unless they are
expressly exempt from tax.
29.A receipt under a general insurance policy may
be a capital receipt, if the policy relates to capital
asset or may be a revenue receipt if the policy
relates to circulating asset.
30.Payment made by insurance company to
compensate for loss of use of any goods in which
the assessee does not carry on any business by the
assessee , but excess accrues due to fortuitous
circumstances or is wind fall then the accrual
would not be income arising from business and
therefore, not taxable under the Act.
31. Method of accounting is relevant in case of
profit and gains of business or profession and
income from other sources.
32. Method of accounting is irrelevant in case of
salaries, income from house property and capital
gains.
33.Rounding –off of income is done to the nearest
ten rupee. Rounding –off of tax to the ten
rupee.-
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5. Chapter-2: Residential status:
1.Residential Status is not depending on the
citizenship but depends on the number of days of
stay in India.
2.Residential status differs from previous year to
previous year.
3. A person can become a resident in two
countries.
4.Resident is a person who fulfils any one of the
basic conditions. Non-resident is a person who
does not fulfil any one of the basic conditions.
5.A person is deemed to be an Indian origin if he,
or either of his parents or any of his grandparents,
was born in undivided India.
6.Grand parents include both maternal and
paternal grandparents.
7.Physical presents in India in respect of such
broken period should be made on an hourly basis.
8.If hours of stay is not available then the day on
which he enters India as well as the day on which
he leaves India shall be taken into account as stay
of the individual in India.
9.A stay by an individual on a yacht moored in the
territorial waters of India would be treated as
presence in India for the purpose of this section.
10.Even a little bit control and management of its
affairs is in India (either by Kartha or manager)
such HUF becomes Resident.

6. 11. If affairs of HUF are completely from outside
India then such HUF is a non-resident.
12.In case of nonresident who purchases goods for
the purpose of export or collection of news and
views or shooting of cinematography films in
India, there shall be no income shall be deemed to
accrue or arise in India (section 9(1)).
13.Any allowance paid by Government of India
outside India such allowance to government
servant is fully exempted.
14. Any dividend paid by Indian company outside
India is deemed to accrue or arise in India.
15.Other than an Indian company, dividend shall
be deemed to accrue or arise at a place where the
register of members is kept.(Kusumben
D.Mahadevia v/s CIT.
16.Interest payable by the Central Government or
any State Government or by any Resident is
taxable in the hands of the recipient except such
money borrowed or debt incurred used by the
company outside India for business or any other
purposes to earn such income.
17.Interest payable by a non resident shall be
deemed to accrue /arise in India in the hands of
recipient if it is in respect of any debt incurred or
money borrowed and used for purposes of a
business or profession carried on by him in India.
18. Royalty payable by a resident except where the
payment is relatable to a business or profession

7. carried on by him outside India or any other
source of his income outside India.
19.Royalth payable by a Non resident if the
payment is relatable to a business carried on by
him in India or any other source of his income in
India.
20.Merely because income is included in a balance
sheet in India income need not accrue or arise in
India.
21.It is not essential to stay in the same place.
22.A stay in a yacht moored in the territorial
waters of India would be treated as presence in
India.
23.Maintaining dwelling house is irrelevant, but
physical presence in India is important.
Income from house property(section 22to 27)
1.It is the annual value of the property( not the
actual rent received or receivable ) considered for
income from house property.
2.Rent from vacant land does not attract under
the head .
3.House property used for OWN BUSINESS is not
considered under this head.
*4.He/she should be the OWNER of the
property.(need not be the owner of the land)
eg.Owner of appartment.

8. *5.House property either rented to someone for
commercial (including business) or for residential
or for self occupation.
6.There must be a building. Building includes a
large stadium with or without roof, rent from
swimming pool, rent from godown,music hall,
dance hall lecture hall, other public auditorium
*7. Residential building normally have roof. Non
residential building need not have roof.
8. Building area includes adjacent area like
approach roads, garage, garden, cattle shed etc.
*9.If property is transferred for inadequate
consideration either to spouse or minor children
the income from house property is calculated in
the hands of the transferee(wife or minor
children) but will be included in the hands of
transferor under section 64(1).
10. If part payment is made after making a
contract for sale for immovable property ,and
such house is occupied by the buyer it amounts to
transfer even though the property is not registered
(section 53A of the Transfer of property act).
11.If house property is rented to own employees
where renting is not their business such income is
under business ,not under house property.
12.If house property is rented to non employees or
activity which is not subservient and incidental to
one’s own business then such income is from
house property.

9. 13.Rent from bank ,postoffice, police station,
central excise office, railway staff quarters which
is for carrying on its business efficiently and
smoothly, such income comes under income from
business.
14.If house property is foreign country, annual
property will be computed as if property is
situated in India. Therefore municipal tax paid
during the previous year in foreign country is also
deductible.
15. Municipal taxes paid in the previous year and
interest payable are deductible.
16. Interest payable outside India without
deducting tax at source is not deductible.
17. Pre construction period means interest
payable up to 31st March preceding to the year of
completion.
18.Pre-construction period interest is deductible
only in the first five installments starting from 1st
April of the year of completion.
INCOME FROM CAPITAL GAIN: Section 45 to
54F
1.Gain on transfer of capital asset during previous
year comes under this section.

10. 2.Capital asset excludes the following: stock in
trade, personal effect, agricultural land in India,
gold bonds 1977 and 1980,national defense bonds
1980,Special bearer bonds, gold deposit bonds
1999.
3.Sale of personal computer, car, airplane,
personal furniture do not attract capital gain and
also not taxable under any other head.
4. Sale of agricultural land also does not attract
capital gain and also from any other head since it
is capital profit.
5.Agricultural land in India that is situated in an
area other than rural area or outside India
attracts capital gain if sold during the previous
year.
6.Longterm capital asset is an asset which is held
by the assessee (previous owner in case of gift or
will) more than 36 months. Incase of equity or
preference shares, UTI, mutual funds (ALL
quoted or not), Securities like debentures,
government securities (LISTED) held more than
12 months is considered as long term capital asset.
Otherwise it is short-term.
7.Debentures and government securities
(UNLISTED) held more than 36 months are
considered as long term.
8.Incase of shares or securities purchase or sale
date of purchase by broker or date of broker note

11. respectively is considered. Date of registration is
not important.
9.Tranfer includes sale, exchange or
relinquishment of the asset or the extinguishment
of any rights therein or the compulsory
acquisition thereof under any law.
10.Registration of immovable property is not
important but part payment and possession of the
immovable property is enough.
11. Transfer takes place when movable property is
delivered pursuant to a contract to sell.
12.Amalgamation, absorption, internal
reconstruction, external reconstruction, merger,
demerger the resulting company should be an
Indian company. In the above situations transfer
should be in the forma of kind and no cash should
be transferred.
13.Index is used if it is a long term capital asset.
But if the asset is short term or **debenture/bond
or depreciated asset whether longterm or short
term index cannot be used.
*14.Cost of improvement means any improvement
after 31st March 1981 only.
*15. Index is used incase of will or gift property
only from the date of the current owner’s
acquisition of the property. But to decide whether
such asset is long term or short term it depends on
the previous original owner.

12. 16.Distribution of capital asset at the time of
partial or complete partition shall not amount to
transfer hence not covered under capital gain.
17.Cost of acquisition before 1st April 1981 or
market value as on 1st April 1981 which ever is
beneficial to the assessee is considered.
*18.If Capital asset is converted into business
asset(stock in trade), the difference between
market value and cost of acquisition is computed
in the year of sale but taxed in the year of sale.
The difference between sale value of such stock in
trade and market value on the date of such
conversion is treated as business profit in the year
of sale.Index also only unto the date of conversion.
All the answers are true
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