Income Tax Law and practice Two marks question answers

1. Who is assessee?
The Assessee means a person by whom any tax or any other sum money is payable under the Income Tax
Act.
2. What is assessment year?
Assessment year means a period of 12 months commencing on 1st April every year and ending on 31st
march next year. It is a financial year immediately succeeding the previous year.
3. Who is resident individual?
An individual is said to be resident of India during any previous year if he fulfils any one of the basic and
additional conditions.
4. Who is eligible to get deduction under section 16 relating to entertainment allowance? And state the
maximum amount of deduction.
Only Government employee is eligible to get deduction under section 16 relating to entertainment
allowance and Maximum amount of deduction allowable is Rs. 5,000.
5. What do you mean by Gratuity?
Gratuity is a one time payment made at the time of retirement to an employee by his employer for long
and meritorious services rendered by him.
6. What is perquisites?
Perquisites is an extra benefit received by an employee from his employer in addition to basic salary. It
may be received in cash or in kind. E.g. Rent free Accommodation, Facility of Car, Supply of Gas,
Electricity, Water etc.
7. What do you mean by annual value?
Annual value under the head income from house property income tax is payable by the assessee on the
annual value of property.
8. How do you treat unrealised rent, when realised while computing income from house property?
Unrealised Rent realised subsequently will be deemed to be income & taxable in the year of receipt.
However a deduction of 30% of unrealised subsequently is allowed.
9. Who is Specified employee?
An employee is to be a specified employee if - i) He is director of the company; or ii) He has substantial
interest in the company or iii) His salary in monetary terms is more than Rs. 50,000 per annum.
10. State the previous of Income Tax Act 1961 relating to recognised provident fund.
Provisions of Income Tax Act 1961 Relating to Recognised Provident Fund
Employees Contribution Allowed as deduction under section 80 C
Employers Contribution Exempted up to 12 % of salary
Interest Exempted up to 9.5%.
Refund Exempted.
11. What is bad debts? How do you treat bad debts recovered which is previously discovered, while
computing income from business.
Bad debts is loss suffered in business when a debtor fails to pay money payable by him. While computing
income from Business bad debts recovered which were previously allowed are allowed as deduction in the
previous year.
12. What is depreciation? State any two methods of depreciation.
Depreciation means loss or permanent fall in the value of an asset because of wear and tear or
obsolescence.
Methods: 1. Straight line method 2. Written down value method.
13. When the income tax was levied in India for the first time? 1) in 1961 2) in 1886 3) in 1918 4) in 1860.
14. Income Tax is 1) A Direct Tax 2) Indirect Tax 3) Business tax 4) None of these.
15. What is Assessment?
Assessment means is a process of determining the correctness of total income of an assessee &
determining the amount of tax payable by him.
16. State any two professional receipts of a medical practitioner.
1) Consultation fees 2) Sale of medicines.
17. State any four expanses which are disallowed in computing income from business.
1) Income tax paid 2) Wealth tax paid 3) interest on capital 4) Drawings 5) Salary to partners 6)
Municipal tax.
18. What is profession?
Profession means the activities for earning livelihood, which require intellectual skill or manual skill. The
work of doctor, Lawyer, Engineer, Chartered Accountant etc. is in the nature of profession.
19. What is Direct Tax?
Direct Taxes are taxes that are directly paid to the Government by the taxpayer. It charges the persons
directly by the Government.
20. Expand the Following: 1) CBDT 2) TDS
1) CBDT: The Central Board of Direct Taxes 2) TDS: Tax Deducted at Source.
21. What is Public Provident Fund?
Public Provident fund means the funds for self employed people like doctors, lawyers, accountant, actors,
traders, pensioners may also enjoy the benefit of deduction u/s 80C in this fund.
22. What do you mean by Block of Assets?
Block of Assets is used for charging same rate of depreciation to a particular class of assets having same
or similar Characteristics. Income tax Act Prescribed different rates for charging depreciation for different
blocks of assets.
23. How do you treat more than one house used for self-occupation?
When the owner of the house property occupies two or more houses for his residential purpose the annual
value of any one house as chosen by assessee will be treated as Nil and remaining SOP Houses will be treated
as deemed to be LOP and Accordingly income from such house property will be calculated.
24. Give two examples of obligations of employee paid by employer.
Examples of employee’s obligations paid by employer u/s 17 (2) (iv)Which are taxable in case of all
assessee:
1) Hotel bill of employee paid by employer. 2) Club bills of employee paid by employer. 3) Employee’s
children education fees paid by employer etc.
25. What are the deductions allowable U/s 16?
While computing income from salary the following deductions are allowable: 1) Standard deductions u/s
16 (ia) 2) Entertainment allowance u/s 16 (ii) 3) Tax on employment or professional tax u/s 16(iii).
26. Give examples four of agricultural income.
Agricultural income examples: 1) Rent from agricultural land 2) Income from growing flowers 3) income
from conversion of timber into planking 4) income from horticulture 5) income from processing tobacco
leaves.
27. What is standard rent of property?
Standard rent of property means it is the maximum rent which a person can legally recover from his
tenant under control Act.
28. What are the deductions allowable U/s 24 of the Income Tax Act 1961 in computing income from house
property?
The following are the deductions allowed U/s 24 which are to be deducted from annual value to get the
income from house property. a) Standard deduction b) interest on loan taken for purchase, construction,
repairs etc. house property.
29. How do you treat share of profits received from the firm of which he is a partner?
Share of profits received from the firm of which he is a partner is not taxable in case of partners or it is
exempt from tax.
30. What is total income?
Total income means the income calculated under five heads minus permissible U/s 80C to 80U.
31. Who is liable to pay income tax?
A person is liable to pay income tax if the total income exceeds non – taxable limit during the previous
year.
32. What is Previous year?
Previous year means the year in which the income is earned is called as previous year or it is the
financial year immediately preceding the assessment year.
33. Who is not ordinary resident individual?
An individual is said to be not ordinary resident in India in any previous year, if he satisfies any of the
two basic conditions but fails to satisfy both the subsequent conditions.
34. What is gross total income?
Gross total income means the aggregate income under the five heads income is called as Gross total
income.
35. Give two examples of Direct taxes and indirect taxes.
Direct tax: Income tax, Gift Tax, Wealth tax Indirect tax: GST, Excise duty, VAT etc.
36. How do you treat the receipt of key man insurance policy amount?
Receipts on keyman insurance policy including bonus is taxable under the head profits and gains of
business or profession.