Answer: A. Tax on taxable income. Income tax is levied on taxable income under the applicable law and rates.
Why is income tax called a direct tax?
A Collected only at stores
B The taxpayer pays it directly
C Always paid in cash
D It applies only to imports
Answer: B. The taxpayer pays it directly. A direct tax is imposed on a taxpayer and paid to the government by that taxpayer.
Which central body administers India’s direct tax system?
A Reserve Bank of India
B Securities and Exchange Board
C Central Board of Direct Taxes
D Goods and Services Council
Answer: C. Central Board of Direct Taxes. The Central Board of Direct Taxes oversees India’s direct tax administration.
Under the Income-tax Act, 2025, what does tax year mean?
A A three-month quarter
B The calendar year only
C A fixed assessment date
D Twelve-month financial-year period
Answer: D. Twelve-month financial-year period. The Income Tax Department describes tax year as a twelve-month period within a financial year.
For Tax Year 2026–27, which framework applies?
A Income-tax Act, 2025
B Income-tax Act, 1961 only
C GST Act, 2017
D Companies Act, 2013
Answer: A. Income-tax Act, 2025. The department states that Tax Year 2026–27 and later years use the Income-tax Act, 2025.
How is income from FY 2025–26 treated for an ITR?
A Tax Year 2026–27
B AY 2026–27 under 1961 Act
C AY 2027–28 under new Act
D A calendar-year return
Answer: B. AY 2026–27 under 1961 Act. The department says an ITR for FY 2025–26 is filed for AY 2026–27 under the Income-tax Act, 1961.
Under the new framework, what terminology replaced previous year?
A It changed the financial year
B It removed tax returns
C It replaced previous-year terminology
D It made income tax optional
Answer: C. It replaced previous-year terminology. The 2025 Act uses tax year in place of previous year for its framework.
In the older Act framework, what did assessment year identify?
A Year a bank account opened
B Date a PAN was issued
C Year salary was earned only
D Year income was assessed
Answer: D. Year income was assessed. Under the 1961 Act, the assessment year follows the previous year in which income was earned.
Under the new Act, which concept is no longer used?
A Assessment year
B Financial year
C Tax year
D Total income
Answer: A. Assessment year. The Income Tax Department says the 2025 Act discontinues the assessment-year concept.
How does an income-tax return generally serve taxpayers?
A Apply for a bank loan
B Report income and tax details
C Register a company name
D Request a debit card
Answer: B. Report income and tax details. An income-tax return reports relevant income and tax information using the applicable form and rules.
Does every person file the same ITR form?
A Yes, one form suits all
B Only salary earners file
C No, form depends on eligibility
D Companies use personal forms
Answer: C. No, form depends on eligibility. Applicable forms depend on the taxpayer’s situation and current filing rules.
Why must taxpayers select the correct return form?
A Forms set identical tax rates
B It guarantees a refund
C It replaces income records
D Forms have different eligibility rules
Answer: D. Forms have different eligibility rules. Each ITR form has eligibility conditions and disclosures that need to match the taxpayer’s case.
How is total income determined under tax law?
A Income computed under tax rules
B Every cash receipt unchanged
C Only monthly salary
D A bank’s annual profit
Answer: A. Income computed under tax rules. Total income is determined using the applicable tax law, including relevant computation rules.
Tax-year total income is generally subject to tax under which basis?
A On bank deposits only
B On tax-year total income
C On every payment equally
D On gross receipts worldwide
Answer: B. On tax-year total income. The department states that tax is charged on a person’s total income for the tax year at rates prescribed by law.
Who determines the applicable tax rates for a tax year?
A Each employer separately
B A bank’s loan department
C Central law for that year
D A taxpayer’s chosen form
Answer: C. Central law for that year. The applicable rates are provided for the tax year by the relevant Central Act.
Tax liability refers to what amount?
A Money already saved in bank
B Total salary before deductions
C A refund received earlier
D Tax legally payable after computation
Answer: D. Tax legally payable after computation. Tax liability is the amount payable after applying the relevant computation and provisions.
How can tax paid during the year affect final dues?
A It is credited against liability
B It becomes a new deduction
C It changes the tax year
D It cancels reporting duties
Answer: A. It is credited against liability. Eligible tax payments such as withholding or advance payments are considered when calculating remaining tax due or refund.
When eligible payments exceed final liability, what may happen?
A A penalty is automatic
B A refund may be due
C Income becomes exempt
D The return is cancelled
Answer: B. A refund may be due. An excess payment may result in a refund, subject to return processing and applicable rules.
If final tax liability exceeds eligible payments, what may remain?
A A guaranteed refund
B An exemption certificate
C Tax payable
D A lower gross salary
Answer: C. Tax payable. A remaining balance may be payable after tax liability is compared with eligible credits and payments.
Tax deducted at source, or TDS, refers to what?
A A bank account fee
B A tax return type
C An annual insurance premium
D Tax withheld at source
Answer: D. Tax withheld at source. TDS is collected by deduction at source on specified payments under the applicable provisions.
Who generally deducts TDS on a specified payment?
A Payer or deductor
B Recipient’s bank only
C Taxpayer’s landlord
D Income Tax Tribunal
Answer: A. Payer or deductor. The payer responsible under the applicable provision deducts and deposits tax at source.
Reconciling TDS with tax records helps confirm what?
A To raise the tax rate
B To confirm credit is recorded
C To remove income reporting
D To change PAN ownership
Answer: B. To confirm credit is recorded. Reconciliation helps identify whether tax deducted and deposited appears correctly in the taxpayer’s records.
Advance tax generally refers to what?
A Tax charged only on imports
B A filing fee
C Tax paid during year
D A loan from government
Answer: C. Tax paid during year. Advance tax is tax paid during the year in installments when the rules require it.
When may advance tax apply in India?
A Only after a refund
B For every bank deposit
C Only for salaried workers
D When rules require prepayment
Answer: D. When rules require prepayment. Advance-tax requirements depend on the taxpayer’s estimated liability and current provisions.
Before filing, which payment may settle remaining tax?
A Remaining tax before filing
B A new PAN application
C A bank’s transaction fee
D A GST registration
Answer: A. Remaining tax before filing. Self-assessment tax generally settles any remaining income-tax amount after considering applicable payments before filing.
How can a taxpayer verify reported tax payments?
A Rely on a text
B Check official tax account records
C Use a friend’s statement
D Assume every payment posted
Answer: B. Check official tax account records. Taxpayers should verify tax-credit and payment details through official Income Tax Department records.
PAN serves what purpose in India’s tax system?
A Bank deposit insurance
B Company audit approval
C Taxpayer identification
D A universal travel visa
Answer: C. Taxpayer identification. PAN serves as an identifier in India’s tax and financial reporting systems under applicable rules.
Protecting PAN and e-filing credentials helps prevent what?
A They determine market returns
B They are public passwords
C They replace bank statements
D They contain sensitive identity access
Answer: D. They contain sensitive identity access. Protecting tax credentials helps reduce misuse of personal and financial information.
What does e-verification confirm after ITR filing?
A Confirming the filed return
B Changing the tax year
C Opening an investment account
D Requesting a new PAN
Answer: A. Confirming the filed return. E-verification authenticates a return submitted through the electronic filing process.
After submitting an ITR, which steps are useful?
A Assume refund is guaranteed
B Track processing and notices
C Delete all supporting records
D Submit the same return repeatedly
Answer: B. Track processing and notices. After filing, monitor the return’s status and official communications, and retain supporting records.
Does filing an ITR always mean tax is due?
A Yes, every return owes tax
B Only refunds require filing
C No, filing and payment differ
D Only businesses pay tax
Answer: C. No, filing and payment differ. Filing a return and having a payment due are separate questions governed by applicable rules.
Can tax remain due when TDS was deducted?
A No, TDS settles all cases
B Only companies can owe
C A return cancels the balance
D Other tax may remain due
Answer: D. Other tax may remain due. Withholding may not cover the final liability, so additional payment can be required.
An exemption generally does what?
A Excludes eligible income from tax
B Raises taxable income
C Guarantees a refund
D Changes a person’s PAN
Answer: A. Excludes eligible income from tax. An exemption excludes qualifying income from tax under applicable provisions and conditions.
Why distinguish exemptions from deductions?
A They always have equal effect
B They affect income calculation differently
C Both are tax payments
D Neither has conditions
Answer: B. They affect income calculation differently. Exemptions and deductions are different legal concepts with different eligibility and computation rules.
A tax rebate may reduce which amount?
A Gross salary
B PAN length
C Tax payable
D Financial-year duration
Answer: C. Tax payable. A rebate generally reduces tax payable when eligibility conditions are satisfied.
Do Indian tax rules stay identical across all years?
A Yes, permanently
B Only forms change
C Only PAN rules change
D No, laws and rates change
Answer: D. No, laws and rates change. Tax provisions and rates can change through legislation; check current official rules.
Why verify which law applies to a given income period?
A Transition rules may differ
B All years use one Act
C Forms decide legal dates
D Tax law follows bank location
Answer: A. Transition rules may differ. India’s transition between the 1961 and 2025 Acts depends on the relevant tax period and statutory rules.
For FY 2026–27, which tax-year term does the new Act use?
A Assessment Year 2026–27
B Tax Year 2026–27
C Previous Year 2025–26
D Calendar Year 2026 only
Answer: B. Tax Year 2026–27. The Income Tax Department identifies FY 2026–27 as Tax Year 2026–27 under the new Act.
Old and new Act terminology should not be mixed why?
A Both terms mean every date
B It changes the PAN
C It can confuse applicable periods
D It guarantees a lower rate
Answer: C. It can confuse applicable periods. The department explains that previous-year and assessment-year terminology belongs to the earlier Act framework.
In broad terms, what is a tax assessment?
A Issuing a bank passbook
B Approving a mortgage
C Registering a new employer
D Determining tax under law
Answer: D. Determining tax under law. An assessment determines the tax position under applicable provisions and procedures.
Does electronic filing guarantee an error-free ITR?
A No, taxpayer must review details
B Yes, software checks everything
C Only for salaried returns
D Yes, after OTP
Answer: A. No, taxpayer must review details. Taxpayers should review the entered information; electronic filing does not guarantee all reported details are correct.
Which official source provides current Indian income-tax rules?
A An old blog post
B Income Tax Department portal
C An unsolicited message
D A random calculator
Answer: B. Income Tax Department portal. The official Income Tax Department portal publishes current forms, guidance, and notices.
When official records show a mismatch, what should be done?
A Ignore it permanently
B Change unrelated income
C Follow portal guidance and reconcile
D Pay an unknown caller
Answer: C. Follow portal guidance and reconcile. Review the mismatch and follow the department’s official correction or response process.
Why keep salary, interest, and payment records?
A They guarantee a refund
B They remove filing conditions
C They replace a return
D They support accurate reporting
Answer: D. They support accurate reporting. Supporting records help taxpayers report income and payments accurately and respond to questions.
Does Form 16 replace an ITR in every case?
A No, filing rules still apply
B Yes, for all employees
C Only when TDS is nil
D Yes, after e-verification
Answer: A. No, filing rules still apply. Form 16 is a tax certificate; whether a return must be filed depends on applicable rules and facts.
What can a tax computation explain?
A A guaranteed future refund
B How liability was calculated
C The employer’s hiring plan
D A bank’s interest rate
Answer: B. How liability was calculated. A tax computation summarizes how income, eligible adjustments, rates, and payments lead to a liability or refund.
When online tax advice conflicts, how should taxpayers respond?
A Follow the newest comment
B Assume both are correct
C Verify with current guidance
D Share credentials for help
Answer: C. Verify with current guidance. Verify tax claims against current official sources, especially when rules or tax years differ.
Tax residence may affect what under income-tax rules?
A It sets every deduction automatically
B It replaces a return
C It changes the financial year
D It may affect income scope
Answer: D. It may affect income scope. Tax residence can affect the scope and treatment of income under applicable law.
Before tackling complex tax rules, what is a safe first step?
A Identify period and taxpayer facts
B Choose a random slab
C Copy another return
D Pay before checking
Answer: A. Identify period and taxpayer facts. Determine the relevant period, taxpayer type, and facts, then consult current official guidance or qualified advice.
Who should verify details in an ITR before filing?
A A bank teller
B The taxpayer
C An unknown caller
D A credit bureau
Answer: B. The taxpayer. The taxpayer should review reported information and supporting documents before submitting or verifying a return.