NISM Series X-B Chapter 13: Tax Provisions for Special Cases Practice Questions

Question 1

Which of the following incomes, exempt under the head 'Salary', is NOT available as an exemption if an assessee opts to pay tax under the new tax regime (Section 115BAC)?

Accepted Answer

Leave Travel Concession under Section 10(5). As per Annexure 2 (A) 'Income exempts under the head ‘Salary’', 'Leave Travel Concession' under Section 10(5) is explicitly stated as 'No' for availability in the New Tax Regime. Gratuity, Recognized Provident Fund amounts, and Pension to gallantry award winners are marked as 'Yes'

Question 2

Based on the provided text, at what rate is the Health and Education Cess calculated?

Accepted Answer

4% of income tax and surcharge. As per Section 1.4 of the provided text, "The amount of income tax and the applicable surcharge, shall be further increased by health and education cess calculated at the rate of 4% of such income tax and surcharge."

Question 3

A non-resident individual receives interest income of Rs. 5,00,000 from rupee-denominated bonds of an Indian company, as referred to in Section 194LD. Calculate the total tax liability including health and education cess.

Accepted Answer

Rs. 26,000. 1. As per Section 115A, interest on rupee-denominated bonds of an Indian company or Government Securities or municipal debt securities as referred to in Section 194LD, received by a Non-resident or Foreign Co., is taxed at a special rate of 5%.
2. Income tax = 5% of Rs. 5,00,000 = Rs. 25,000.
3. Health and Education Cess is calculated at 4% of the income tax (and applicable surcharge, which is nil in this case).
4. Health and Education Cess = 4% of Rs. 25,000 = Rs. 1,000.
5. Total tax liability = Income tax + Health and Education Cess = Rs. 25,000 + Rs. 1,000 = Rs. 26,000

Question 4

Mr. R sold 4,000 equity shares of a listed company on 10th October 2024 for ₹775 per share. These shares were originally inherited by him, and the fair market value as on 31st January 2018 was ₹700 per share. He also received 1,000 bonus shares for these shares on 1st March 2024. Assuming all shares are held in Demat form and are subject to STT, and applying the FIFO method as demonstrated in the text, calculate the taxable long-term capital gains under Section 112A for the sale on 10th October 2024.

Accepted Answer

₹1,75,000. 1.  **Identify the shares sold:** Mr. R sold 4,000 shares.
2.  **Determine the Cost of Acquisition per share (as per Caselet 2 methodology):** For shares acquired before 31st January 2018, the cost is taken as the lower of the Fair Market Value (FMV) on 31st January 2018 and the actual sale consideration per share.
    *   FMV on 31st January 2018 = ₹700
    *   Sale consideration per share = ₹775
    *   Lower of (₹700, ₹775) = ₹700. So, the cost of acquisition per share is ₹700.
3.  **Calculate Total Cost of Acquisition:**
    *   Total Cost = 4,000 shares * ₹700/share = ₹28,00,000.
4.  **Calculate Total Sale Consideration:**
    *   Total Sale Consideration = 4,000 shares * ₹775/share = ₹31,00,000.
5.  **Calculate Long Term Capital Gain (LTCG) before exemption:**
    *   LTCG = Total Sale Consideration - Total Cost of Acquisition = ₹31,00,000 - ₹28,00,000 = ₹3,00,000.
6.  **Apply Exemption under Section 112A:** As per Section 112A, long-term capital gains from the transfer of equity shares (subject to STT) are taxable at 12.5% in excess of ₹1.25 lakhs.
    *   Taxable LTCG = LTCG - Exemption Limit = ₹3,00,000 - ₹1,25,000 = ₹1,75,000

Question 5

Mr. A inherited 5000 shares of XYZ Ltd. from his father. The Fair Market Value (FMV) of these shares on January 31, 2018, was Rs. 750 per share. He later received 5000 bonus shares on February 20, 2024. On May 15, 2025, Mr. A sold 2000 of these bonus shares for Rs. 700 per share. The transfer of these shares was chargeable to Securities Transaction Tax (STT). Calculate the taxable Long-Term Capital Gains (LTCG) for Mr. A from this sale for the relevant financial year.

Accepted Answer

Rs. 12,75,000. As per Section 112A, Long-Term Capital Gains (LTCG) arising from the transfer of equity shares (if STT is paid) are taxable at 12.5% on the amount exceeding Rs. 1.25 lakhs.
1. Sale consideration for 2000 bonus shares: 2000 shares * Rs. 700/share = Rs. 14,00,000.
2. Cost of acquisition for bonus shares allotted after April 1, 2001, is Nil.
3. Gross LTCG = Sale consideration - Cost of acquisition = Rs. 14,00,000 - Nil = Rs. 14,00,000.
4. Exemption limit under Section 112A: Rs. 1,25,000.
5. Taxable LTCG = Gross LTCG - Exemption limit = Rs. 14,00,000 - Rs. 1,25,000 = Rs. 12,75,000

Question 6

As per the Income-tax Act, what is the special tax rate applicable to income from the transfer of any Virtual Digital Asset (VDA) under Section 115BBH?

Accepted Answer

30%. Section 2.1 'In case of capital gains' and Section 2.4 'In case of other incomes' both state that income from transfer of any Virtual Digital Asset (VDA) under Section 115BBH is taxed at a special rate of 30%

Question 7

An individual is found to have undisclosed income as referred to in Sections 68, 69, 69A, 69B, 69C, and 69D. What special tax rate will be applied to this income as per Section 115BBE?

Accepted Answer

60%. Section 2.4 'In case of other incomes' specifies that undisclosed income as referred to in Sections 68, 69, 69A, 69B, 69C and 69D, chargeable under Section 115BBE, is taxed at a special rate of 60%. While a table on page 314 lists 'Unexplained income chargeable to tax under Section 115BBE' at 25%, the more specific provision in Section 2.4 details the 60% rate for undisclosed income referring to specific sections (68-69D), which takes precedence for such cases

Question 8

An assessee opts to pay tax under the new tax regime of Section 115BAC. If their 'other income' exceeds ₹5 crores, what is the maximum surcharge rate applicable on such income?

Accepted Answer

25%. The text states: 'From the financial year 2023-24, the surcharge rates on other income for assessee opting to pay tax under the new tax regime of Section 115BAC shall not exceed 25%. Thus, the income exceeding Rs. 5 crores shall be subject to the surcharge rate of 25% if the assessee opts for the new tax regime of Section 115BAC.' Option D is the Health and education cess, which is applied on income tax and surcharge, not the surcharge rate itself

Question 9

Which of the following exemptions under the head 'Salary' is NOT available if an assessee opts to pay tax under the new tax regime of Section 115BAC?

Accepted Answer

Leave Travel Concession under Section 10(5). According to Annexure 2 (A) 'Income exempts under the head 'Salary'', Leave Travel Concession under Section 10(5) is explicitly marked as 'No' for availability in the New Tax Regime. Gratuity, Pension, and Voluntary Retirement Compensation are available

Question 10

Mr. P, a resident individual aged 40 years, has a total income of ₹4,00,000 for the financial year 2024-25, consisting entirely of income taxable at normal slab rates. He opts for the old tax regime. Assuming the applicable tax slab is 5% for income between ₹2,50,001 and ₹5,00,000, calculate the rebate available to him under Section 87A.

Accepted Answer

₹7,500. 1.  **Calculate Income Tax for FY 2024-25 (Old Tax Regime):**
    *   Total income = ₹4,00,000.
    *   Assuming income up to ₹2,50,000 is exempt (as implied by Caselet 3).
    *   Income taxable in the 5% slab = ₹4,00,000 - ₹2,50,000 = ₹1,50,000.
    *   Income Tax = ₹1,50,000 * 5% = ₹7,500.
2.  **Calculate Rebate under Section 87A (Old Tax Regime):**
    *   As per Caselet 3, the rebate under Section 87A for the old tax regime is the lower of the actual tax payable or ₹12,500.
    *   Rebate = lower of (₹7,500, ₹12,500) = ₹7,500

Question 11

What is the special tax rate applicable to income from the transfer of any Virtual Digital Asset (VDA) for any person, as per Section 115BBH of the Income-tax Act?

Accepted Answer

30%. As per Section 115BBH, income from the transfer of any Virtual Digital Asset (VDA) is chargeable to tax at a special rate of 30% for any person

Question 12

Which of the following incomes is NOT exempt under the new tax regime of Section 115BAC?

Accepted Answer

Leave Travel Concession under Section 10(5). As per Annexure 2(A) 'Income exempts under the head 'Salary'', Leave Travel Concession under Section 10(5) is explicitly marked as 'No' for availability in the New Tax Regime. Gratuity, Amount received from recognized Provident Fund, and Voluntary Retirement Compensation are all available (Yes) under the new tax regime

Question 13

After the abolition of dividend distribution tax, what is the status of exemption under Section 10(34) and Section 10(35) for dividends distributed by a company or a mutual fund?

Accepted Answer

No exemption is available under these sections.. The text explicitly states: 'After the abolition of dividend distribution tax, no exemption is available under Section 10(34) and Section 10(35) for the dividend distributed by a company or a mutual fund, as the case may be.'

Question 14

Mr. Sharma sold equity shares of a listed company on which Securities Transaction Tax (STT) was paid. The Long-Term Capital Gains (LTCG) from this sale amounted to ₹3,50,000. What would be the income tax payable on this LTCG under Section 112A?

Accepted Answer

₹28,125. As per Section 112A, Long-Term Capital Gains (LTCG) arising from the transfer of equity shares (where STT is paid) are taxable at 12.50% only on the amount exceeding ₹1,25,000.
1. Total LTCG = ₹3,50,000
2. Exemption limit = ₹1,25,000
3. Taxable LTCG = ₹3,50,000 - ₹1,25,000 = ₹2,25,000
4. Income Tax = ₹2,25,000 × 12.50% = ₹28,125

Question 15

What is the special tax rate applicable to income from the transfer of any Virtual Digital Asset (VDA) as per the Income-tax Act sections mentioned in the text?

Accepted Answer

30%. As per Section 2.1 ('In case of capital gains') and Section 2.4 ('In case of other incomes'), Section 115BBH specifies a Tax Rate of 30% for 'Income from transfer of any Virtual Digital Asset (VDA)'

Ch.13: Tax Provisions for Special Cases

What You Will Learn in This Chapter

Multiple Choice Questions (15)

Ready to Test Yourself Under Exam Conditions?