Answer: A. Reduces income under a rule. A deduction reduces income as allowed by a specific tax provision; it does not automatically reduce tax by the same amount.
Which condition makes an expense deductible?
A It was paid in cash
B A provision allows it
C It appears in banking records
D It is a large expense
Answer: B. A provision allows it. An expense is deductible only when the applicable law permits it and its conditions are satisfied.
Can every personal payment be claimed as a tax deduction?
A Yes, all payments qualify
B Only card payments qualify
C No, eligibility rules apply
D Yes, without limits
Answer: C. No, eligibility rules apply. Personal payments do not qualify automatically; a provision must allow the claim.
Before claiming a deduction, what should be verified?
A Only the payment method
B The bank’s branch name
C The employer’s address
D Eligibility, limit, and period
Answer: D. Eligibility, limit, and period. Check the applicable provision, taxpayer eligibility, tax period, regime, and any limit.
How does a deduction differ from a rebate?
A Deduction reduces income
B Rebate reduces income
C Both reduce gross receipts
D Both are tax payments
Answer: A. Deduction reduces income. A deduction reduces income under its rules, while a rebate reduces calculated tax when eligible.
What does an eligible tax exemption generally do?
A Credits tax already paid
B Excludes qualifying income
C Raises gross income
D Replaces an eligible deduction
Answer: B. Excludes qualifying income. An exemption excludes specified qualifying income from tax when legal conditions are met.
Why can deductions vary between tax regimes?
A Income sources disappear
B Tax years are identical
C Each regime has different rules
D Every claim is doubled
Answer: C. Each regime has different rules. Available deductions and exemptions differ between the old and default regimes.
Why keep receipts for a deduction claim?
A To increase the legal limit
B To replace the tax return
C To change the tax rate
D To support eligibility and amount
Answer: D. To support eligibility and amount. Records help substantiate that the payment qualifies and that the claimed amount is accurate.
Which amount generally changes when an allowed deduction is claimed?
A Taxable income
B Tax already withheld
C Residential status
D Gross salary received
Answer: A. Taxable income. An allowed deduction generally affects the income computation, subject to statutory rules.
A deduction of ₹20,000 is allowed from ₹80,000 of income. What is the simplified balance?
A ₹1,00,000
B ₹60,000
C ₹20,000
D ₹80,000
Answer: B. ₹60,000. Subtracting an assumed eligible ₹20,000 deduction from ₹80,000 gives ₹60,000 before other provisions.
Does a ₹10,000 deduction always lower tax by ₹10,000?
A Yes, in every case
B Only for salaried people
C No, it reduces income
D Only in the old regime
Answer: C. No, it reduces income. A deduction reduces income; the resulting tax effect depends on rates, regime, and other provisions.
When might a payment fail to qualify despite being genuine?
A The receipt is printed
B The payment is online
C The amount is small
D A statutory condition is unmet
Answer: D. A statutory condition is unmet. A genuine payment can still be ineligible if the statute’s conditions are not met.
Under section 123 of the 2025 Act, what aggregate limit applies to specified savings deductions?
A ₹1.5 lakh
B ₹50,000
C ₹2 lakh
D ₹5 lakh
Answer: A. ₹1.5 lakh. The Income Tax Department says section 123 retains an aggregate ₹1.5 lakh deduction for specified savings instruments, subject to its rules.
Which taxpayers are identified for the section 123 savings deduction?
A Every company
B Individuals and HUFs
C Only nonresidents
D All partnerships
Answer: B. Individuals and HUFs. The Department describes the section 123 aggregate deduction for individuals and Hindu undivided families.
Can section 123 be claimed under the default regime?
A Yes, without conditions
B Only by companies
C No, that deduction is excluded
D Yes, twice per year
Answer: C. No, that deduction is excluded. The Department states that section 123 is not allowed under the default new regime provided by section 202.
What kind of payments can fall under section 123?
A Any household purchase
B Unverified cash gifts
C All loan repayments
D Specified savings instruments
Answer: D. Specified savings instruments. The section covers qualifying specified savings payments, not arbitrary purchases or expenses.
Which examples does the Department mention for qualifying section 123 payments?
A Insurance, provident fund, tuition
B Rent, groceries, travel
C Fuel, dining, clothing
D Phone bills and gifts
Answer: A. Insurance, provident fund, tuition. Official guidance gives life insurance, provident fund, and tuition fees as examples of qualifying payment types, subject to conditions.
Is the ₹1.5 lakh section 123 limit separate for every investment?
A Yes, for each instrument
B No, it’s one total limit
C Only for insurance
D Only for tuition
Answer: B. No, it’s one total limit. The Department describes ₹1.5 lakh as an aggregate deduction limit for the specified savings instruments.
Can a taxpayer claim more than the applicable statutory cap?
A Yes, with extra receipts
B Only when paid online
C No, the cap still applies
D Yes, under every regime
Answer: C. No, the cap still applies. Supporting evidence does not remove a statutory cap; only the amount permitted by law may be claimed.
Under the 2025 Act, total deductions under section 122 are limited by what?
A Tax already paid
B Total bank balance
C Gross household spending
D Gross Total Income
Answer: D. Gross Total Income. The Department explains that total deductions under section 122 cannot exceed Gross Total Income.
What is the usual role of Gross Total Income in a deduction calculation?
A A base before eligible deductions
B The final tax payable
C The amount of TDS
D A taxpayer’s net worth
Answer: A. A base before eligible deductions. Gross Total Income is a computation base against which eligible deductions are applied subject to law.
What does the total-income figure represent after permitted deductions?
A All money in bank accounts
B Income computed under tax rules
C Tax withheld by employers
D All household receipts
Answer: B. Income computed under tax rules. Total income is computed under applicable provisions after relevant deductions and adjustments.
If a taxpayer has two eligible claims, should each limit be checked?
A No, only one limit matters
B Only the larger claim counts
C Yes, check every applicable limit
D Limits apply to refunds
Answer: C. Yes, check every applicable limit. Each deduction has its own conditions and limits, and aggregate caps may also apply.
Why is the applicable tax regime important before claiming a deduction?
A It changes the receipt date
B It removes documentation needs
C It sets the taxpayer’s age
D Some claims are regime-restricted
Answer: D. Some claims are regime-restricted. The applicable regime determines whether particular deductions and exemptions are available.
What should a taxpayer compare before choosing a regime?
A Tax results using eligible claims
B Only the highest slab rate
C Only monthly salary
D The number of receipts
Answer: A. Tax results using eligible claims. The Department recommends comparing computations under both regimes because the better choice varies by taxpayer.
Which official resource can compare tax calculations and deductions?
A PAN status tracker
B Income Tax calculator
C GST invoice search
D Company name lookup
Answer: B. Income Tax calculator. The Department’s calculator accepts income and deduction inputs and can compare the old and new regimes.
What does the official calculator need for a meaningful deduction estimate?
A Only a bank password
B An estimated refund figure
C Correct Act, period, and inputs
D Last year’s final tax
Answer: C. Correct Act, period, and inputs. The calculator asks users to select the applicable Act and period and enter relevant income and deduction details.
Can deduction information in a calculator replace supporting records?
A Yes, the estimate is proof
B Only for online payments
C Yes, if amount is rounded
D No, verify the underlying documents
Answer: D. No, verify the underlying documents. A calculator estimate relies on inputs and does not establish that a claim meets its legal conditions.
For some deductions under Part C of Chapter VIII, what filing condition applies under the 2025 Act?
A Return by prescribed due date
B Return only after refund
C No return is required
D A paper receipt alone
Answer: A. Return by prescribed due date. The Department says timely furnishing of the return is a statutory precondition for deductions under that part.
Why can a late return affect a deduction claim?
A The bank changes the amount
B Timely filing may be required
C The tax year disappears
D The payment becomes income
Answer: B. Timely filing may be required. For specified deductions, timely filing is part of statutory eligibility.
What does a valid payment receipt establish by itself?
A Automatic tax eligibility
B The final deduction amount
C Evidence of payment only
D The chosen regime
Answer: C. Evidence of payment only. A receipt helps prove payment but does not by itself establish all eligibility conditions.
Which payment should be reported as a deduction?
A Every amount paid
B Any rounded estimate
C All cash withdrawals
D Only an eligible, supported amount
Answer: D. Only an eligible, supported amount. Claims should reflect actual eligible amounts supported by records and allowed under the applicable rules.
Can the same expense be claimed twice under separate provisions?
A No, avoid duplicate claims
B Yes, if receipts differ
C Only for salaried taxpayers
D Yes, under two regimes
Answer: A. No, avoid duplicate claims. A single payment should not be duplicated across claims unless a specific law expressly permits the treatment.
How should a taxpayer treat an expense with unclear eligibility?
A Claim it automatically
B Check current official rules
C Copy a friend’s return
D Increase it to the limit
Answer: B. Check current official rules. Confirm eligibility under current official guidance before claiming an unclear expense.
Why should deduction rules be tied to a tax year?
A Receipts expire each month
B Banks reset all payments
C Rules and provisions can change
D Income is always constant
Answer: C. Rules and provisions can change. The applicable Act, provisions, and eligibility rules depend on the relevant tax period.
Which law generally governs a return for AY 2026–27 covering FY 2025–26?
A Income-tax Act, 2025
B Goods and Services Tax Act
C Companies Act, 2013
D Income-tax Act, 1961
Answer: D. Income-tax Act, 1961. The Department says FY 2025–26 income is filed for AY 2026–27 under the 1961 Act.
Which law applies to Tax Year 2026–27 deductions?
A Income-tax Act, 2025
B Income-tax Act, 1961 only
C No income-tax law
D Companies Act, 2013
Answer: A. Income-tax Act, 2025. The Income-tax Act, 2025 applies to Tax Year 2026–27 and later tax years.
What happens to a qualifying old-law deduction during a transition?
A Every old claim is cancelled
B Savings rules may preserve it
C It becomes a tax credit
D It automatically doubles
Answer: B. Savings rules may preserve it. Transition provisions can preserve eligible old-law claims or proceedings; the specific provision and facts control.
Why retain proof even when a deduction is prefilled online?
A Prefilling guarantees approval
B It raises the deduction cap
C Check accuracy and eligibility
D It replaces the original payment
Answer: C. Check accuracy and eligibility. Prefilled data should be reconciled with source records and does not itself confirm legal eligibility.
A donation is deductible only when what condition is met?
A Any charity is named
B The donation is in cash
C The amount is rounded
D Recipient and payment qualify
Answer: D. Recipient and payment qualify. Donation deductions depend on the recipient’s eligibility, payment details, limits, and other statutory conditions.
When might a health-insurance payment qualify as a deduction?
A When statutory conditions are met
B Whenever a policy exists
C Only if paid in cash
D Without taxpayer documents
Answer: A. When statutory conditions are met. Health-insurance deductions are available only for qualifying payments and taxpayers under applicable rules.
Interest on an education loan is deductible when what applies?
A Any loan is educational
B The claim meets law’s conditions
C The lender sends a message
D The student has no income
Answer: B. The claim meets law’s conditions. Education-loan interest relief depends on conditions set by the applicable tax provision.
If an amount exceeds a deduction cap, what can generally be claimed?
A The full payment always
B The cap plus a rebate
C Only the permitted amount
D Nothing from any category
Answer: C. Only the permitted amount. A deduction claim is limited to the amount allowed by the provision and any applicable aggregate cap.
Does proving an expense automatically make it deductible?
A Yes, proof is enough
B Only if digitally paid
C Only for businesses
D No, legal eligibility is required
Answer: D. No, legal eligibility is required. Evidence supports a claim, but the expense must also qualify under the law.
What should be reconciled before filing a deduction claim?
A Receipts, statements, and records
B Only the refund estimate
C Only the tax slab
D The website’s page title
Answer: A. Receipts, statements, and records. Reconcile receipts and statements with source records to catch missing, duplicated, or incorrect amounts.
Why should deductions be entered under the correct category?
A All claims use one rule
B Different rules can apply
C Categories only change labels
D The portal ignores categories
Answer: B. Different rules can apply. Tax rules and form schedules vary by deduction type, so correct classification matters.
If a chosen regime does not permit a deduction, what should be done?
A Claim it anyway
B Hide it from the return
C Compare eligible regime choices
D Add it to TDS
Answer: C. Compare eligible regime choices. Compare lawful regime options using accurate facts; do not claim a deduction unavailable under the selected regime.
What is the safest source for a current deduction rule?
A An undated social post
B A generic forum answer
C An unrelated bank page
D Income Tax Department guidance
Answer: D. Income Tax Department guidance. Use current official guidance for the applicable Act, tax year, and taxpayer circumstances.
What is the key idea behind a tax deduction?
A A rule-based income adjustment
B A guaranteed cash refund
C A reduction in every receipt
D A replacement for filing
Answer: A. A rule-based income adjustment. A deduction is a rule-based reduction in the income computation, not an automatic refund or substitute for filing.
A taxpayer paid ₹1.2 lakh into qualifying savings plus ₹60,000 into another section 123 item. What is the maximum aggregate claim?
A ₹1.8 lakh automatically
B ₹1.5 lakh, if eligible
C ₹60,000 only
D No deduction is possible
Answer: B. ₹1.5 lakh, if eligible. The aggregate section 123 limit is ₹1.5 lakh; the taxpayer must still meet all eligibility and regime conditions.