NISM Series X-B Chapter 6: Miscellaneous Aspects of Retirement Planning Practice Questions

Question 1

For Assessment Year 2024-25, Mr. Sharma, a resident individual, opts for the new tax regime under Section 115BAC. His total income is Rs. 6,50,000. What is the maximum tax rebate he can claim under Section 87A?

Accepted Answer

Rs. 25,000. As per Section 87A, from Assessment Year 2024-25 onwards, if a resident individual opts for the new tax regime under Section 115BAC and his total income is up to Rs. 7,00,000, he can claim a higher amount of tax rebate of up to Rs. 25,000. Mr. Sharma's income of Rs. 6,50,000 falls within this limit

Question 2

Which of the following assets, even if held for personal use by an assessee, is specifically NOT considered a 'personal effect' and therefore treated as a capital asset under the Income Tax Act, as per the provided text?

Accepted Answer

Jewellery. The text lists 'Personal Effects' as an exclusion from capital assets, including examples like 'wearing apparel, furniture, car, scooter, TV, refrigerator, musical instruments, gun, revolver, generator'. However, it then explicitly states: "However, the following assets, even if are meant for personal use, shall not be considered as personal effects and any gain arising from their sale shall be charged to tax: i. Jewellery..."

Question 3

Mr. A, an Indian resident, earns rental income from a house property located in the US. Both India (residence country) and the US (source country) impose tax on this income. According to the text, how do Double Taxation Avoidance Agreements (DTAAs) typically provide relief from such double taxation?

Accepted Answer

The residence country (India) allows a credit for the taxes paid to the source country (US).. The text states: 'In most cases DTAAs provide relief from double taxation by the residence country giving right to claim credit for taxes paid to the source country.' This means India, as the residence country, would provide credit for the taxes Mr. A paid in the US

Question 4

According to the provided text, which of the following investment categories is correctly matched with its taxation regime?

Accepted Answer

Tax saving Bank Fixed deposit for 5 years or more - ETE. As per the table in Section 7.16:
- Public Provident Fund (PPF) is EEE.
- Equity Linked Saving Schemes (ELSS) is EET.
- Tax saving Bank Fixed deposit for 5 years or more is ETE.
- Senior Citizen Savings Scheme (SCSS) is ETE.
Therefore, option C is the correct match

Question 5

Which of the following investments is explicitly categorised under the 'EET' taxation regime, where 'E' denotes Exempt and 'T' denotes Taxable, as per the provided text?

Accepted Answer

Equity Linked Saving Schemes (ELSS). The provided text's table of examples lists: EEE for Public Provident Fund, EET for Equity Linked Saving Schemes (ELSS), and ETE for Tax saving Bank Fixed Deposit for 5 years or more and Senior Citizen Savings Scheme

Question 6

Which of the following assets, typically held for personal use, is explicitly NOT considered a 'personal effect' and thus treated as a capital asset for tax purposes as per the Income Tax Act?

Accepted Answer

Jewellery. Section 8.2, under 'Exclusions' for 'Personal Effects', states that 'However, the following assets, even if are meant for personal use, shall not be considered as personal effects and any gain arising from their sale shall be charged to tax: i. Jewellery...'. Wearing apparel, furniture, and cars are listed as examples of personal effects that are excluded from capital assets

Question 7

Which of the following statements accurately describes the relationship between 'Gross Total Income' and 'Total Income' as per the Income Tax Act?

Accepted Answer

Total Income is computed after making deductions under Chapter VI-A from Gross Total Income.. Section 80B(5) defines 'Gross Total Income' as the total income computed before making any deduction under Chapter VI-A. Section 7.13 states that 'Total Income' is the balance income remaining after claiming various deductions from 'Gross Total Income'. Therefore, Total Income is computed after making deductions under Chapter VI-A from Gross Total Income

Question 8

Which of the following assets, if held by an assessee for personal use, would still be considered a 'capital asset' under the Income Tax Act, meaning any gain arising from its sale would be chargeable to tax?

Accepted Answer

A collection of antique paintings.. The text specifies that 'Personal Effects - Movable property held for personal use... is not treated as capital asset' and lists 'wearing apparel, furniture, car, scooter, TV, refrigerator, musical instruments, gun, revolver, generator, etc.,' as personal effects. However, it explicitly states an exception: 'the following assets, even if are meant for personal use, shall not be considered as personal effects and any gain arising from their sale shall be charged to tax: i. Jewellery (including ornaments...), drawings, paintings, sculptures, any work of art.' Therefore, a collection of antique paintings is a capital asset

Question 9

As per Section 2(29C) of the Income Tax Act, what is the Maximum Marginal Rate of Tax (MMR) for an individual, including surcharge and Health & Education Cess, as specified in the provided text?

Accepted Answer

42.744%. As per Section 7.17, the Maximum Marginal Rate (MMR) is calculated as: Highest slab rate applicable in case of Individual (30%) + Surcharge (30% * 37% = 11.1%) + Health & Education cess ({(30%)+(11.1%)} * 4% = 1.644%) = 42.744%

Question 10

Mr. A, a resident of India, earns rental income from a house property located in the United States. India follows a dual approach to taxation, while the US may apply source-based taxation. To avoid double taxation of this income, which mechanism do countries typically use, as described in the text?

Accepted Answer

DTAA, where the residence country typically gives credit for taxes paid to the source country.. The text states: "To avoid double taxation of income, countries enters into Double Taxation Avoidance Agreement (DTAA)." It further clarifies: "In most cases DTAAs provide relief from double taxation by the residence country giving right to claim credit for taxes paid to the source country."

Question 11

An investment scheme offers tax benefits at the time of making the investment (deposit) and at the time of withdrawal. However, the returns or interest generated from this investment during its tenure are subject to tax. Which taxation regime category best describes this investment?

Accepted Answer

ETE (Exempt-Taxable-Exempt). The text defines ETE as: 'if an investment provides tax benefit at the time of deposit and withdrawal but return on such investment is chargeable to tax then it will fall under the category of “ETE”'. The question describes tax benefit at deposit (first E) and withdrawal (third E), with returns being taxable (middle T), matching ETE

Question 12

As per Section 80B(5) of the Income Tax Act, ‘Gross Total Income’ means the total income computed in accordance with the provisions of the Income Tax Act before making any deduction under Chapter VI-A. Which of the following is the final step in computing Gross Total Income before applying Chapter VI-A deductions?

Accepted Answer

Setting off losses of the current year or earlier years.. The text states the steps for computing Gross Total Income are: Step 1: Calculate income under five heads of income, Step 2: Club income of other persons, Step 3: Set-off the losses of the current year or earlier years. Therefore, setting off losses is the final step before making any deductions under Chapter VI-A

Question 13

According to the Income Tax Act, which of the following items, despite being held for personal use, is explicitly NOT considered a 'personal effect' for the purpose of exclusion from capital assets, meaning any gain from its sale would be charged to tax?

Accepted Answer

Jewellery made of gold and precious metals.. The text under 'Exclusions' for Capital Assets states: 'Movable property held for personal use of the assessee or any member of his family... is not treated as capital asset. Example, wearing apparel, furniture, car, scooter, TV, refrigerator, musical instruments, gun, revolver, generator, etc., are personal effects, thus, they are not treated as capital assets.' However, it explicitly lists exceptions: 'However, the following assets, even if are meant for personal use, shall not be considered as personal effects and any gain arising from their sale shall be charged to tax: i. Jewellery (including ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals whether or not worked or sewn into any...).'

Question 14

According to the provided text, which of the following investments is categorized under the 'ETE' taxation regime, with the caveat that its first leg of 'E' is not available under the new tax regime?

Accepted Answer

Senior Citizen Savings Scheme (SCSS). Section 7.16 provides examples: Public Provident Fund (EEE), Equity Linked Saving Schemes (EET), and Tax saving Bank Fixed deposit for 5 years or more; Senior Citizen Savings Scheme (ETE). The note states: '* The first leg of E is not available under the new tax regime' applies to all listed examples. Therefore, SCSS is an ETE investment

Question 15

India follows a dual approach to taxation. Which of the following best describes this approach?

Accepted Answer

A person resident in India is liable to pay tax on his total worldwide income, and a person who is non-resident in India is liable to pay tax only on his Indian income.. The text states: 'India follows the dual approach whereby on one hand, a person resident in India is liable to pay tax in India on his total worldwide income. On the other hand, a person, who is non-resident in India during the year, is liable to pay tax only on his Indian income.'

Question 16

Based on the provided text, which of the following investments is categorized under the 'EEE' taxation regime?

Accepted Answer

Public Provident Fund (PPF). The text explicitly lists 'Public Provident Fund*' under the 'EEE' category in the table of examples for EEE, EET, and ETE investments. ELSS is EET, and Tax saving Bank FD and Senior Citizen Savings Scheme are ETE

Question 17

Mr. A, a resident of India, owns a house property in the US from which he earns rental income. Based on India's dual approach to taxation and the purpose of a Double Taxation Avoidance Agreement (DTAA), which of the following statements is most accurate regarding Mr. A's tax liability?

Accepted Answer

Mr. A will pay tax on his worldwide income in India, and the US may also tax the rental income as the source country, but DTAA will typically allow India (residence country) to give credit for taxes paid in the US (source country).. As per Section 7.15, India follows a dual approach where a resident in India is liable to pay tax on his total worldwide income. The US, as the source country, may also impose tax. This leads to double taxation. To avoid this, DTAAs are entered into, and 'In most cases DTAAs provide relief from double taxation by the residence country giving right to claim credit for taxes paid to the source country.' The example of Mr. A's rental income from the US property illustrates this principle

Question 18

As per the Income Tax Act, what is the Maximum Marginal Rate (MMR) of tax for an individual, considering the highest slab rate, surcharge, and Health & Education Cess as provided in the text?

Accepted Answer

42.744%. The calculation for MMR is provided in the text:
1. Highest slab rate applicable in case of Individual = 30%
2. Add: Surcharge [(B) = (A) * 37%] = 30% * 0.37 = 11.1%
3. Add: Health & Education cess [(C) = {(A)+(B)} * 4%] = (30% + 11.1%) * 0.04 = 41.1% * 0.04 = 1.644%
4. Maximum Marginal Rate (MMR) = 30% + 11.1% + 1.644% = 42.744%

Question 19

As per Section 80B(5) of the Income Tax Act, 'Gross Total Income' is defined as the total income computed in accordance with the provisions of the Act before making any deduction under which Chapter?

Accepted Answer

Chapter VI-A. Section 80B(5) explicitly states that ‘Gross Total Income’ means the total income computed in accordance with the provisions of the Income Tax Act before making any deduction under Chapter VI-A

Question 20

As per Section 80B(5) of the Income Tax Act, 'Gross Total Income' means the total income computed in accordance with the provisions of the Income Tax Act before making any deduction under which of the following Chapters?

Accepted Answer

Chapter VI-A. The text states: 'Section 80B(5) of the Income Tax Act provides that ‘Gross Total Income’ means the total income computed in accordance with the provisions of the Income Tax Act before making any deduction under Chapter VI-A.'

Question 21

For Assessment Year 2024-25, a resident individual opting for the new tax regime under Section 115BAC has a total income of Rs. 6,80,000. What is the maximum tax rebate this individual can claim under Section 87A?

Accepted Answer

Rs. 25,000. The text states: "from Assessment Year 2024-25 onwards, if a resident individual opts for the new tax regime under Section 115BAC and his total income is up to Rs. 7,00,000, he can claim a higher amount of tax rebate of up to Rs. 25,000." Since the individual's income of Rs. 6,80,000 is within the Rs. 7,00,000 limit for AY 2024-25 under the new tax regime, they can claim a rebate of up to Rs. 25,000

Question 22

Mr. A, a resident of India, earns rental income from a house property located in the US. Both India and the US have the right to tax this income based on their respective taxation principles. To avoid double taxation, which mechanism do countries typically employ, and how does it usually provide relief?

Accepted Answer

Countries enter into a DTAA, where the residence country gives credit for taxes paid to the source country.. The text states: 'To avoid double taxation of income, countries enters into Double Taxation Avoidance Agreement (DTAA).' It further clarifies: 'In most cases DTAAs provide relief from double taxation by the residence country giving right to claim credit for taxes paid to the source country.'

Question 23

As per Section 80B(5) of the Income Tax Act, ‘Gross Total Income’ means the total income computed in accordance with the provisions of the Income Tax Act before making any deduction under which Chapter?

Accepted Answer

Chapter VI-A. The text states: "Section 80B(5) of the Income Tax Act provides that ‘Gross Total Income’ means the total income computed in accordance with the provisions of the Income Tax Act before making any deduction under Chapter VI-A."

Question 24

Mr. Sharma, a resident individual, has a total income of ₹6,50,000 for Assessment Year 2024-25 under the new tax regime (Section 115BAC). His income includes ₹1,50,000 from long-term capital gains chargeable under Section 112A from the sale of equity-oriented mutual funds. If his tax liability before rebate is ₹20,000 (excluding tax on 112A income) plus tax on 112A income, what is the maximum rebate he can claim under Section 87A?

Accepted Answer

₹20,000. 1.  **Eligibility for Rebate:** For AY 2024-25, under the new tax regime, a resident individual with total income up to ₹7,00,000 can claim a rebate of up to ₹25,000 (Section 7.11). Mr. Sharma's total income is ₹6,50,000, which is within this limit, making him eligible for the rebate.
2.  **Rebate Restrictions:** Section 7.11 explicitly states: 'The rebate under Section 87A is not available from tax payable as per section 112A in respect of long-term capital gains arising from the transfer of equity shares, units of equity-oriented mutual funds...'
3.  **Calculation:**
    *   Mr. Sharma's total income is ₹6,50,000.
    *   This includes ₹1,50,000 from LTCG u/s 112A. The tax on this portion is not eligible for rebate.
    *   His tax liability *before rebate* is stated as ₹20,000 (excluding tax on 112A income).
    *   Since the rebate cannot be claimed against tax on 112A income, it can only be claimed against the other tax liability.
    *   The maximum rebate available for his income level is ₹25,000, but it cannot exceed the tax liability against which it can be claimed.
    *   Therefore, the maximum rebate he can claim is ₹20,000 (the tax payable *other than* u/s 112A)

Question 25

For Assessment Year 2024-25, a resident individual opts for the new tax regime under Section 115BAC. If their total income is Rs. 6,50,000, what is the maximum tax rebate this individual can claim under Section 87A?

Accepted Answer

Rs. 25,000. The text states: 'from Assessment Year 2024-25 onwards, if a resident individual opts for the new tax regime under Section 115BAC and his total income is up to Rs. 7,00,000, he can claim a higher amount of tax rebate of up to Rs. 25,000.' Since the individual's income of Rs. 6,50,000 is within this limit, the maximum rebate is Rs. 25,000

Question 26

An individual has a total taxable income of ₹25,00,000 and the total income tax payable (including surcharge and cess) is ₹5,87,500. What is the effective tax rate for this individual?

Accepted Answer

23.50%. As per Section 7.18, for an individual, the effective tax rate is computed as total income-tax as a percentage of total taxable income.
Effective tax rate = (Total income tax payable / Total taxable income) * 100
Effective tax rate = (₹5,87,500 / ₹25,00,000) * 100 = 0.235 * 100 = 23.50%

Question 27

What is the maximum tax rebate available under Section 87A for a resident individual who opts for the new tax regime under Section 115BAC and whose total income is up to Rs. 7,00,000 for Assessment Year 2024-25 onwards?

Accepted Answer

Rs. 25,000. As per Section 87A, from Assessment Year 2024-25 onwards, if a resident individual opts for the new tax regime under Section 115BAC and his total income is up to Rs. 7,00,000, he can claim a higher amount of tax rebate of up to Rs. 25,000

Question 28

From Assessment Year 2024-25 onwards, if a resident individual opts for the new tax regime under Section 115BAC, what is the maximum tax rebate amount they can claim if their total income is up to Rs. 7,00,000?

Accepted Answer

Rs. 25,000. As per Section 7.11, from Assessment Year 2024-25 onwards, if a resident individual opts for the new tax regime under Section 115BAC and their total income is up to Rs. 7,00,000, they can claim a higher amount of tax rebate of up to Rs. 25,000

Question 29

According to the Income Tax Act, which of the following assets, even if held for personal use by an assessee, is NOT considered a 'personal effect' and therefore any gain arising from its sale IS chargeable to tax as a capital gain?

Accepted Answer

Jewellery inherited from a family member. The text lists 'Personal Effects' as an exclusion from capital assets, giving examples like wearing apparel, furniture, car, and refrigerator. However, it explicitly states: 'However, the following assets, even if are meant for personal use, shall not be considered as personal effects and any gain arising from their sale shall be charged to tax: i. Jewellery...'. Therefore, jewellery is a capital asset, and its sale is taxable

Question 30

Which of the following assets, typically considered for personal use, is explicitly NOT treated as a personal effect and thus any gain arising from its sale would be chargeable to tax as per the provided text?

Accepted Answer

Jewellery owned by the assessee.. As per the 'Exclusions' section under 8.2 Capital asset, movable property held for personal use is generally not a capital asset (e.g., car, TV, wearing apparel). However, the text explicitly states: 'However, the following assets, even if are meant for personal use, shall not be considered as personal effects and any gain arising from their sale shall be charged to tax: i. Jewellery'

Ch.6: Miscellaneous Aspects of Retirement Planning

What You Will Learn in This Chapter

Multiple Choice Questions (30)

Case-Based Questions (1 sets)

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