Interview for Direct Tax

1-What are the amendments in Income tax Act –

Why Changes done – Previous Income tax 1961 was very difficult and lenthy in read and
understand even for professionals and New Income tax 2025 is simple and conscious.

- Elimination of explanations and provisos

- Number of sections from 819 down to 536, and the accompanying rules from 511 down to
333.
- Not without standing replace with Irrespective of
- In accordance with replace with as per
- TDS rates captured in form of table instead of multiple sections

What are the changes done – (Key Changes)

1-The concept of “Tax Year” has replaced “Previous year” and “Assessment year”
2-Due date for filing ITR for Assessee having business income, but subject to tax audit –
extended to 31st Aug (Applicable for AY 2026-27 also)
3-Updated return can be filled in cases where there is reduction of losses.
4-Buy back tax changes – The FY 2025-26 Rule: The "Deemed Dividend" Era (Applicable for buybacks from
October 1, 2024, to March 31, 2026) Under the rules introduced previously, the company paid no
buyback tax. Instead, the tax burden was shifted entirely to the shareholder in a very
aggressive manner:

 Taxed as Dividend: The entire buyback proceeds you received were treated as
"Deemed Dividend" under "Income from Other Sources."
 Slab Rates: This amount was taxed at your applicable income tax slab rate (which
could be up to 30%).
 Cost of Acquisition: You wee not allowed to deduct the price you originally paid for
the shares. Instead, your original purchase price was treated as a "Capital Loss,"
which you could only carry forward to set off against future capital gains.

The Current Rule: Return to Capital Gains

(Effective from April 1, 2026 onwards)

Because the deemed dividend rule created massive cash-flow issues for investors (paying
30% tax on the gross receipt while sitting on a capital loss), the recent Finance Act 2026
restored buybacks to a classical Capital Gains framework for retail investors.

 Taxed on Gains Only: You are now only taxed on the actual profit. (Capital Gain =
Buyback Proceeds minus Cost of Acquisition).
 Capital Gains Rates: For non-promoter retail investors, this is taxed like a normal
share sale: 12.5% for Long-Term Capital Gains (listed shares held over 12 months)
and 20% for Short-Term Capital Gains.
 For promoters – Tax rate is as follows (Effectivly taxed at slab rate but cost of
acquisition available)
 Listed shares – STCG – Domestic company – 20%+2% = 22% and others 20%
+10% =30%
 Other securities – STCG – Applicable rates
 Listed or Unlisted securtites – LTCG – Domestic – 12.50%9.50%=22% and others
12.50%+17.50% = 30%

5-Changes in MAT (From Tax year 2026-2027)

- Rate Reduced from 15% to 14%

- MAT now made final tax – No more credit accumation.
- MAT credited generated Upto March 31, 2026 available in new regime as well, max
year can be 25% of tax libility.

6-Single TCS rate of 2% introduced (Except for 20% in case of LRS for non-education
and non-medical purpose)

7-Decriminalisation & procedural relief: Several technical/procedural defaults (non-

production of documents, minor TDS lapses) removed from the criminal/prosecution
framework and converted into monetary fees; broader immunity from penalty/prosecution
extended for certain misreporting cases where additional tax is paid; assessment and
penalty proceedings are being integrated, and search-related block assessments involving
third parties restricted to a single year to reduce sprawling, multi-year litigation.

8-NRI property transactions simplified: Buyers purchasing immovable property from an

NRI seller can now deduct TDS under Section 194-IA using a PAN-based challan,
removing the earlier requirement to obtain a separate TAN.

9-STT (Securities Transaction Tax) rates increased, raising transaction costs particularly
for F&O traders — a revenue and (implicitly) speculative-tradingmoderation measure.

10-Structural Renumbering (The End of the 190 Series-The biggest shift for corporate
accounting is the complete elimination of legacy sections like 194C, 194J, 194-I, and 192.

 Section 392: Now governs all TDS on Salary.

 Section 393: A single, massive tabular section that replaces all non-salary TDS
provisions. Payments are now tracked by numeric codes (1001–1067) rather than
alphabetic sections.
 Section 394: Consolidates all TCS provisions
Some concepts –

Revised Tax Slabs (New Regime)

The new tax regime remains the default, and the slabs have been widened to provide relief to
middle-income earners:

Income Range Tax Rate

₹0 to ₹4 Lakhs Nil

₹4,00,001 to ₹8 Lakhs 5%

₹8,00,001 to ₹12 Lakhs 10%

₹12,00,001 to ₹16 Lakhs 15%

₹16,00,001 to ₹20 Lakhs 20%

₹20,00,001 to ₹24 Lakhs 25%

Major Relief and Exemptions

 Zero Tax up to ₹12 Lakhs: The tax rebate under Section 87A has been increased
from ₹25,000 to ₹60,000. This means resident individuals with a taxable income of up
to ₹12 Lakhs will pay zero income tax.
 Standard Deduction: The standard deduction for salaried employees has been
increased from ₹50,000 to ₹75,000. Factoring this in, a salaried individual earning up
to ₹12.75 Lakhs effectively pays no tax.
Mandatory ITR Filing — Who Must File?

1. Based on Income Level

As per Section 139(1) of the Income Tax Act, 1961, every individual is required to file an
ITR if their income exceeds ₹2,50,000.

2. Companies & Firms

Companies (private, public, domestic, or foreign) and firms (including LLPs and other
partnerships) must file mandatorily regardless of income, profit, or loss, for every financial
year.

3. Residents with Foreign Assets

Any resident individual with foreign assets, financial interests in entities outside India, or
signing authority in a foreign account must file, regardless of income level.

4. NRIs Earning in India

An NRI is required to file a return if they have earned or received any income in India. NRIs
must also file if they want to claim a refund for excess taxes paid or carry forward losses.

5. Businesses & Professionals

If you run a business — sole proprietorship, partnership, LLP, or private limited company —
your ITR filing requirements are more detailed than a salaried employee's

⚡ High-Value Transactions — Mandatory Even if Income is Below the Limit

Under the 7th Proviso to Section 139(1), several high-value financial activities now mandate
ITR filing, including:

 Aggregate electricity bill payments exceeding ₹1 lakh

 Total TDS or TCS of ₹25,000 or more (₹50,000 for senior citizens)
 Spending over ₹2 lakh on foreign travel
 Deposits exceeding ₹1 crore into current bank accounts or ₹50 lakh into savings
accounts
 Businesses with turnover over ₹60 lakh or professional receipts above ₹10 lakh
 Beneficial ownership of any foreign asset
📅 Key Deadlines for FY 2025-26
Category Due Date

Salaried individuals / Non-audit cases 31st July 2026

Businesses requiring tax audit Or company 31st October 2026

Belated / revised return 31st December 2026

Updated return (ITR-U) Up to 4 years from end of AY

✅ Filing is Recommended Even if Not Mandatory

Even if your income is below the exemption limit, filing ITR can establish a good financial
record for future needs — such as loan applications, visa processing, and claiming TDS
refunds.

Penalty for not filing: Late filing attracts a fee of up to ₹5,000 under Section 234F, plus
interest on unpaid taxes. Would you like help choosing the right ITR form for your specific
situation?

What is an Updated Return (ITR-U)?

ITR-U is a form introduced under Section 139(8A) of the Income Tax Act that allows
taxpayers to correct errors or omissions in their previously filed ITR, or file a missed ITR if
they failed to file it within the due date and the belated/revised return deadline. IndiaFilings

It is a compliance opportunity, not a tool to reduce tax liability or claim extra refunds.
Carajput

👤 Who Can File ITR-U?

Any taxpayer who has:

 Made an error or omitted income in their original return

 Missed filing the ITR entirely
 Filed a belated or revised return with incorrect details
⏳ Time Limit (Updated as per Budget 2025)

The time limit to file an updated return under Section 139(8A) is extended to 4 years from 2
years starting April 2025, from the end of the relevant assessment year. Tax2Win

Assessment Year Last Date to File ITR-U

AY 2022-23 (FY 2021-22) 31st March 2026

AY 2023-24 (FY 2022-23) 31st March 2027

AY 2024-25 (FY 2023-24) 31st March 2029

AY 2025-26 (FY 2024-25) 31st March 2030

💰 Additional Tax / Penalty on ITR-U

Filing ITR-U is not free — you pay an additional tax based on how late you file:

Filed Within Additional Tax

12 months from end of AY 25% of tax + interest

12–24 months 50% of tax + interest

24–36 months 60% of tax + interest

36–48 months 70% of tax + interest

Tax2Win

Tip: Filing earlier saves money — the penalty increases every year.

🚫 When ITR-U CANNOT Be Filed

There are specific scenarios where filing an updated return is not permitted:

 Tax liability adjustments: If the updated return results in reducing the tax liability or
increasing the refund, it cannot be filed.
 Pending or completed assessments: If an assessment is already pending or has been
completed, updated returns cannot be filed. Bajaj Finserv
✅ Key Benefits of Filing ITR-U

Voluntary filing through ITR-U demonstrates good faith, reducing the chances of future
scrutiny or prosecution. TaxBuddy

In short, ITR-U is a second chance given by the government to correct past mistakes and
stay tax-compliant — but it comes with a cost that grows the longer you wait. Would you like

📋 Types of ITR Forms — Complete Guide

There are seven ITR forms (ITR-1 to ITR-7), and the correct form depends on factors like
income source, income amount, and taxpayer category (individual, HUF, company, etc.).
Cleartax

🟢 ITR-1 — SAHAJ (Simplest Form)

Who can file:

ITR-1, popularly known as Sahaj, is the simplest ITR form designed for resident individual
taxpayers with straightforward income profiles. For AY 2026-27, ITR-1 can be used by a
resident individual whose total income does not exceed ₹50 lakh during FY 2025-26.
Computaxonline

New for AY 2026-27:

Taxpayers can now disclose up to 2 house properties in ITR-1. Until AY 2025-26, only one
house property was permitted, and taxpayers with more than one property were required to
file ITR-2. Additionally, ITR-1 can now be used even in cases of co-ownership. EZTax

Income sources allowed: Salary/Pension, up to 2 house properties, interest income, and

LTCG up to ₹1.25 lakh.

🟢 ITR-2

Who can file:

ITR-2 is for individuals and HUFs who do not have income from business or profession. It is
applicable to taxpayers earning income from capital gains, more than two house properties,
and holding foreign assets or foreign income. ClearTax

Includes: Salaried individuals with LTCG above ₹1.25 lakh, NRIs, pensioners with foreign
assets, those with dividend income.
🟢 ITR-3

Who can file:

ITR-3 is for individuals and HUFs having income from business and profession. The return
may include income from house property, salary/pension, capital gains, and other sources, as
well as remuneration received from a partnership firm (not from LLPs). Cleartax

Note: Individuals and HUFs not having income by way of business or profession or
partnership firm are not eligible to file ITR-3. Cleartax

🔵 ITR-4 — SUGAM (Presumptive Taxation)

Who can file:

ITR-4 is filed by resident individuals and HUFs declaring business income under the
presumptive basis and total income does not exceed ₹50 lakhs. Cleartax

Key difference from ITR-3: If a business that has been filing ITR-4 under the presumptive
scheme crosses the turnover threshold during FY 2025-26, they are no longer eligible for the
scheme and must file ITR-3 for AY 2026-27 with complete books of account.
Computaxonline

🟢 ITR-5

Who can file:

ITR-5 is for entities like LLPs, partnership firms, AOPs (Association of Persons), and BOIs
(Body of Individuals). Entities not eligible include individuals, HUFs, companies, and trusts
filing under ITR-7. Ebizfiling

🔴 ITR-6

Who can file: All companies registered in India (private limited, public limited, domestic, or
foreign companies) — except companies claiming exemption under Section 11
(trusts/charitable institutions).

⚫ ITR-7

Who can file: Entities filing returns under Sections 139(4A), 139(4B), 139(4C), or 139(4D)
— these include:

 Charitable and religious trusts

 Political parties
 Scientific research institutions
 Universities and colleges
Advance Tax — Short Summary
📌 What is Advance Tax?

Advance tax is income tax paid in instalments during the financial year in which the income
is earned, rather than as a lump sum after the year ends. It is sometimes called "pay-as-you-
earn" tax. Numerral

Key point: Advance tax is not an additional tax — it is simply your regular income tax paid
in advance, in instalments, instead of one shot at year-end. Numerral

👤 Who Must Pay?

It applies to taxpayers whose total tax liability after TDS exceeds ₹10,000 in a financial
year. This applies to income that doesn't have TDS automatically deducted — such as
earnings from rent, capital gains, lottery winnings, interest on fixed deposits, and freelance
work. Bajaj Finserv

🚫 Who is Exempt?

If you're 60 years or older and do not have income from business or profession, you're
exempt from paying advance tax — even if your total tax liability exceeds ₹10,000.
FinGuruIndia

📅 Due Dates & Instalments (FY 2026-27)

Instalment Due Date % of Tax to be Paid

1st 15th June 15%

2nd 15th September 45% (cumulative)

3rd 15th December 75% (cumulative)

4th 15th March 100% (cumulative)

Special Rule: For presumptive taxpayers (under Section 44AD/44ADA), 100% advance tax
is payable in one single instalment by 15th March. FinGuruIndia

🔍 TAX AUDIT — SHORT SUMMARY

📌 What is it?

Mandatory examination of books of accounts by a Chartered Accountant under Section

44AB to ensure correct income reporting and tax compliance.
👤 Who Must Audit?
Category Limit

Business (Normal) Turnover > ₹1 Crore

Business (95%+ Digital) Turnover > ₹10 Crore

Professionals Receipts > ₹50 Lakh

Presumptive (44AD/44ADA) If income declared below prescribed %

📄 Forms at a Glance
Form Purpose

3CA Audited under other law also

3CB Audited only under Income Tax

3CD Detailed statement — 44 clauses

3CE Non-residents / foreign companies

📋 Key Clauses of Form 3CD

Clause Topic

8 Applicable section of 44AB

11 Books of accounts maintained

13 Method of accounting

14 Stock valuation method

21 Cash payments above limit

26 Deemed income

31 Loans/deposits (Sec 269SS/269T)

34 TDS/TCS compliance

40 GST vs IT turnover match

44 Cash vs digital expenditure

📅 Due Dates (AY 2026-27)
Activity Date

Audit Report (3CA/3CB/3CD) 30 Sept 2026

ITR Filing (Audit cases) 31 Oct 2026

Transfer Pricing cases 30 Nov 2026

⚠️ Penalty (Sec 271B)

0.5% of turnover or ₹1,50,000 — whichever is lower

1️⃣ DOMESTIC COMPANIES

🔵 Normal Tax Rates
Turnover Base Tax Rate

Turnover ≤ ₹400 Crore (FY 2023-24) 25%

Turnover > ₹400 Crore 30%

Nexdigm

🟢 Special / Concessional Rates

Section Who Rate

Sec 115BAA Existing domestic companies (no exemptions/deductions) 22%

Sec 115BAB New manufacturing companies (set up after Oct 2019) 15%

Sec 115BA Certain domestic companies 25%

OPEN

➕ Surcharge — Domestic Companies

For resident companies, surcharge is applicable at the rate of 0%, 7%, or 12%, depending on
total income. PwC Tax Summaries

Total Income Surcharge Rate

Up to ₹1 Crore Nil

₹1 Crore to ₹10 Crore 7%

 Total Income Surcharge Rate

Above ₹10 Crore 12%

Special Note: In the case of a domestic company which has opted for the new tax regime
under Section 115BAA or 115BAB, surcharge is flat 10% regardless of quantum of income.
Taxmann

2️⃣ FOREIGN COMPANIES

🔴 Tax Rates
Type of Income Tax Rate

Royalty / Technical fees (Govt agreement) 50%

Royalty / Technical fees (other) 40%

Any other income 40%

➕ Surcharge — Foreign Companies

For non-resident companies, surcharge is applicable at the rate of 0%, 2%, or 5%, depending
on total income. PwC Tax Summaries

Total Income Surcharge Rate

Up to ₹1 Crore Nil

₹1 Crore to ₹10 Crore 2%

Above ₹10 Crore 5%

3️⃣ HEALTH & EDUCATION CESS

Health and Education Cess is levied at the rate of 4% irrespective of the amount of total
income — applicable on (Tax + Surcharge) for all companies

Here is a quick summary comparing the presumptive taxation schemes under Section 44AD
and 44ADA of the Income Tax Act:
44AD AND 44ADA -

Section 44ADA
Feature Section 44AD (Businesses)
(Professionals)

Specified Professionals
Target
Eligible Businesses (Doctors, Lawyers, CAs,
Audience
Architects, etc.)

Resident Individuals, HUFs, Resident Individuals,

Eligible
Partnership Firms (excluding Partnership Firms
Taxpayers
LLPs) (excluding LLPs)

Up to ₹2 Crore Up to ₹50 Lakh

Maximum
Limit

(₹3 Crore if cash receipts are ≤ (₹75 Lakh if cash receipts

5%) are ≤ 5%)

8% of gross turnover

Presumptive
50% of total gross receipts
Income Rate

(6% for digital/bank transactions)

Not required (unless declaring Not required (unless

Maintenance of
income lower than the prescribed declaring income lower than
Books
8%/6%) the prescribed 50%)

Professionals, agency businesses, Businesses, non-specified

Key Exclusions
commission/brokerage earners professions
 For Direct Tax Associate/Senior Associate at Bansi S. Mehta & Co., the interview is
likely to focus on two areas:

1. Your direct tax knowledge

2. Why you want to move from banking (Credit Manager) back to taxation

Since you are a CA with 1.5 years of experience at ICICI Bank, expect many questions
around your career transition.

Questions on Career Shift

Q1. Why do you want to leave ICICI Bank?

Suggested Answer:

ICICI Bank has given me valuable experience in credit appraisal, financial statement
analysis, and risk assessment. However, my long-term interest has always been in taxation.
During my articleship, I worked extensively on income tax compliance, assessments, and
litigation matters. I want to build a specialized career in Direct Tax, and therefore I am
looking to transition back into this domain.

Q2. Why Direct Tax after 1.5 years in Credit?

Suggested Answer:

Credit analysis strengthened my understanding of financial statements and business

operations. These skills are highly relevant in taxation. My long-term goal is to build
expertise in tax advisory and litigation, which is why I want to return to Direct Tax.

Q3. Why should we hire you despite your banking experience?

Suggested Answer:

I have a combination of direct tax exposure from articleship and commercial understanding
from banking. The banking experience has improved my analytical skills, client interaction,
and financial assessment abilities, which can add value in tax advisory and litigation
assignments.

Questions You Should Ask the Interviewer

1. What would be my primary responsibilities in the Direct Tax team?
2. What percentage of work is compliance versus litigation?
3. Will there be opportunities to appear before tax authorities?
4. What is the typical career progression in the tax practice?
 "I regularly follow CBDT notifications, tax updates from professional firms, Finance Act
amendments, and taxation webinars. I also revise important provisions periodically to keep
my direct tax knowledge current."

"You have been working in banking for the last 1.5 years. How have you kept yourself
updated with Direct Tax developments?"

You can answer:

"Although I have been working as a Credit Manager at ICICI Bank, I have continued to stay
connected with Direct Tax developments. I regularly follow Finance Act amendments, CBDT
notifications, circulars, and important judicial pronouncements through professional websites
and tax updates. I also read articles published by leading CA firms and attend webinars on
taxation whenever possible. My articleship experience was primarily in taxation and
litigation, so I have maintained my interest in the subject and have been revising key
provisions such as TDS, capital gains, assessments, and reassessment provisions. This has
helped me stay updated despite being in a banking role."

What is Section 43B and what expenses are covered?

Section 43B provides that certain deductions are allowed only on actual payment basis (not on
accrual), regardless of the accounting method:
 Taxes, duties, cess payable to government
 Employer contribution to PF, gratuity fund, superannuation fund
 Bonus/commission to employees
 Interest on borrowings from public financial institutions/banks
 Leave encashment
 Payment to Indian Railways for use of assets
 MSME payments (amendment): From AY 2024-25, amounts payable to MSME suppliers must be
paid within specified time limits u/s 15 of MSMED Act, otherwise disallowed u/s 43B.
 Payment before due date of filing return → allowed in year of accrual.

What is Section 40(a)(ia) and its consequences?

Section 40(a)(ia) disallows 30% of expenses payable to residents if TDS was not deducted or
was deducted but not deposited by due date of filing return.
 Applicable to expenses like salary, contract payments, rent, interest, professional fees, etc.
 If TDS deducted/paid in subsequent year → 30% is allowed as deduction in that subsequent
year.
 If deductee has paid tax on such income → no disallowance (deductee must furnish declaration).
 For non-residents, Sec 40(a)(i) disallows the entire expense if TDS not deducted.

How is capital gain computed on slump sale u/s 50B?

 Slump sale = transfer of one or more undertakings for a lump sum consideration without
individual values assigned to assets/liabilities.
 Net Worth = Aggregate of WDV of depreciable assets + book value of other assets − book value
of all liabilities (ignoring revaluation).
 Capital gain = Consideration − Net Worth.
 Held for >36 months → LTCG; ≤36 months → STCG. Taxed at normal rates (not at special
rates).
 Cost Inflation Index (CII) benefit not available on slump sale.

What is Section 194Q and how is it different from Section 206C(1H)?

 Sec 194Q (TDS): Buyer deducts 0.1% TDS on purchase of goods if buyer's turnover > ₹10 crore
in previous year AND purchase from a seller exceeds ₹50 lakh in current year.
 Sec 206C(1H) (TCS): Seller collects 0.1% TCS on receipt of sale consideration exceeding ₹50
lakh if seller's turnover > ₹10 crore.
 Key difference: If Sec 194Q applies, Sec 206C(1H) does NOT apply (194Q overrides). If buyer
fails to deduct, seller continues to collect TCS.
 Both have a threshold of ₹50 lakh per buyer/seller and apply to goods only (not services).

What are Income Computation and Disclosure Standards (ICDS) and their applicability?

ICDS are standards notified by CBDT u/s 145(2) for computation of income under Profits & Gains
of Business or Profession and Income from Other Sources.
 Applicable to all taxpayers (excluding individuals/HUF not required to get accounts audited)
following mercantile system of accounting.
 10 ICDS notified: Accounting Policies, Valuation of Inventories, Construction Contracts, Revenue
Recognition, Tangible Fixed Assets, Effects of Changes in FER, Government Grants, Securities,
Borrowing Costs, Provisions/Contingent Liabilities/Assets.
 Does not apply for computation of MAT.

What is GAAR (General Anti-Avoidance Rule)?

GAAR under Chapter X-A (Sec 95–102) empowers tax authorities to disregard, re-characterise,
or deny tax benefits from an "impermissible avoidance arrangement".
 Arrangement is impermissible if its main purpose is to obtain a tax benefit AND it lacks
commercial substance, or abuses tax provisions, or lacks bona fide purpose.
 Consequences: disregard the arrangement, deny treaty benefits, reallocate income/deductions.
 Threshold: tax benefit > ₹3 crore.
 GAAR overrides DTAA (except grandfathered FII investments made before 1 Apr 2017).
 Specific Anti-Avoidance Rule (SAAR) prevails over GAAR where SAAR exists.