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First of all a heartiest Congratulation to all of you for clearing your CA intermediate examination and you're welcome to our website where you can check all your queries regarding your Articleship,Career etc.In this Blog post we are providing some important for technical round question for CA Articleship in Direct Tax domain here in this post you got to know about all the question that will be asked in technical round of all the big 4s and big 20 firm for your CA articleship
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CA Articleship Direct Tax audit question
CA Articleship technical round questions with answer for big 4s,big 20 for Direct Tax
1. Explain the section 44AD/44ADA/44AE ?
Section 44AD: Presumptive Taxation for Business: This section is applicable to eligible resident individuals, Hindu Undivided Families (HUFs), and partnerships (other than LLPs) who are engaged in a business other than the business of plying, hiring, or leasing goods carriages. Under this scheme, the eligible taxpayer can declare income at a prescribed rate (currently 6% or 8% of the total turnover or gross receipts) and is deemed to have earned a profit at that rate. This eliminates the need for detailed maintenance of books of accounts. However, the taxpayer is still required to maintain records of certain financial transactions.
Section 44ADA: Presumptive Taxation for Professionals: This section is applicable to resident individuals, HUFs, and partnerships (other than LLPs) who are engaged in professions referred to in Section 44AA(1) (like legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, etc.). Similar to Section 44AD, under this scheme, the eligible professional can declare income at a prescribed rate (currently 50% of the total gross receipts) and is deemed to have earned a profit at that rate. Detailed maintenance of books of accounts is not required, but certain financial records must be maintained.
Section 44AE: Presumptive Taxation for Goods Carriages: This section applies to taxpayers who own and operate goods carriages. The section prescribes a deemed income based on the tonnage capacity of the goods carriage. The income is calculated on a per-vehicle basis and is determined by the Central Government. The aim is to simplify the taxation process for small transporters.
2. What is section 44AB ?,When Tax Audit is applicable ?
Section 44AB of the Income Tax Act in India deals with the provisions related to tax audit. It outlines the criteria under which a person or entity is required to get their accounts audited by a Chartered Accountant (CA) and obtain an audit report. Tax audit is a process through which the financial records and statements of a taxpayer are examined to ensure that they comply with the provisions of the Income Tax Act.
Here are the key points and thresholds specified in Section 44AB:
Business Turnover: If a person is engaged in business and the total turnover or gross receipts from such business exceed Rs. 1 crore in a financial year, they are required to get their accounts audited under Section 44AB.
Profession Gross Receipts: If a person is engaged in a profession (such as legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, etc.) and the gross receipts exceed Rs. 50 lakh in a financial year, they are required to get their accounts audited.
Presumptive Taxation: If a person opts for the presumptive taxation scheme under Section 44AD or Section 44ADA (as explained in the previous response), and their total income exceeds the maximum amount not chargeable to tax (i.e., the basic exemption limit), then they are required to get their accounts audited.
Specified Businesses: Certain specified professions and businesses, even if their turnover or gross receipts do not exceed the above-mentioned limits, are still required to undergo tax audit. These include professionals like doctors, lawyers, accountants, technical consultants, etc., who declare profits lower than the prescribed limits under the presumptive taxation scheme.
3. What is Section 43B ?
Section 43B of the Income Tax Act in India pertains to certain deductions that are allowed only on actual payment, regardless of when they are accounted for in the books of accounts. This section aims to ensure that certain specified expenses are only allowed as deductions when they are actually paid, ensuring a stricter alignment between the taxable income and the financial statements.
Specified Payments: Section 43B applies to specific types of payments, which are often related to employee benefits and statutory dues. These include:
- Employer contributions to provident funds (PF), superannuation funds, or other similar funds for employees.
- Payments to employee welfare funds.
- Any sum payable by the employer as bonus or commission to employees.
- Any sum payable by the employer in lieu of any leave at the credit of the employee.
- Any sum payable by the employer as interest on loans or advances obtained from specified funds or institutions for the purpose of house building or residential purposes.
- Any sum payable by the employer as interest on any loan or borrowing from any public financial institution or State Financial Corporation or State Industrial Investment Corporation.
Deduction on Actual Payment: Under Section 43B, deductions for the above-specified payments are allowed only when they are actually paid during the financial year, regardless of the accounting method used by the taxpayer. This means that even if these expenses are accounted for in the books of accounts on an accrual basis, they will be allowed as deductions only when the actual payment is made.
4. Last date for tax audit ?
The last date for tax audit in India is generally September 30th of the assessment year. The assessment year is the year immediately following the financial year in which the income is earned. For example, if the financial year is April 1, 2020, to March 31, 2021, the assessment year would be 2021-2022.
5. Can presumptive income be less than 6% or 8% ?
Yes, under the provisions of Section 44AD and Section 44ADA of the Income Tax Act in India, taxpayers have the option to declare a presumptive income that is lower than the prescribed percentage rates (currently 6% or 8%, respectively) of their total turnover or gross receipts. However, there are certain conditions and implications to be aware of:
Section 44AD (Businesses other than goods carriage): Taxpayers engaged in eligible businesses other than the business of plying, hiring, or leasing goods carriages can declare a presumptive income at 6% of the total turnover or gross receipts. They have the option to declare income higher than 6% if they wish, but not lower.
Section 44ADA (Professionals): Professionals such as doctors, lawyers, accountants, etc., can declare a presumptive income at 50% of the total gross receipts. Like in Section 44AD, they can declare higher income if they choose, but not lower.
In both cases, if a taxpayer declares a presumptive income lower than the prescribed percentage rates, they may be subject to additional scrutiny and potential questioning from the tax authorities. This is because the presumptive income provisions are intended to provide a simplified method of taxation, but declaring an unusually low income might raise concerns about tax evasion or underreporting of income.
It's important to note that while taxpayers have the option to declare a higher income than the prescribed rates, declaring a lower income might not always be advisable unless there are legitimate reasons and accurate documentation to support such a declaration. Taxpayers should consult with a qualified tax professional to determine the most appropriate approach based on their specific circumstances and to ensure compliance with tax laws.
6. Tell me something about new tax regime 115 BAC ?
Section 115BAC is a provision introduced in the Income Tax Act of India that offers taxpayers the option to choose between the existing tax regime and a new tax regime with revised tax rates and a different structure of deductions and exemptions. This provision was introduced in the Finance Act, 2020, and it provides individuals and Hindu Undivided Families (HUFs) the flexibility to select the tax regime that suits them best based on their financial situation.
Here are some key features of the new tax regime under Section 115BAC:
Revised Tax Rates: The new tax regime offers lower tax rates compared to the existing regime. The tax rates are structured in such a way that taxpayers can choose to pay lower taxes by foregoing certain deductions and exemptions.
Up to Rs.3 lakh: Nil
Rs.3 lakh-Rs.6 lakh: 5%
Rs.6 lakh-Rs.9 lakh: 10%
Rs.9 lakh-Rs.12 lakh: 15%
Rs.12 lakh-Rs.15 lakh: 20%
Above Rs.15 lakh: 30%
Optional Choice: Taxpayers can opt for either the existing tax regime with deductions and exemptions or the new tax regime without deductions and exemptions, whichever is more beneficial for them. The choice needs to be made on an annual basis while filing the income tax return.
Removal of Deductions and Exemptions: Under the new tax regime, several deductions and exemptions available under the existing regime are not applicable. Some of the commonly foregone deductions include House Rent Allowance (HRA), standard deduction, deductions under Section 80C, 80D, etc.
Simplified Tax Computation: The new tax regime aims to simplify the tax computation process by removing the need to track and claim various deductions and exemptions.
Tax Planning Considerations: Taxpayers need to carefully assess their financial situation and potential tax liability under both regimes before making a decision. Individuals with significant deductions and exemptions might find the existing regime more advantageous, while those with fewer deductions may benefit from the lower tax rates in the new regime.
Applicability: The new tax regime is applicable to individuals and HUFs, including resident and non-resident individuals. It does not apply to certain categories of taxpayers, such as partnership firms, companies, etc.
It's important to note that the choice between the existing tax regime and the new tax regime is a personal decision and should be based on individual circumstances, income sources, and financial goals. Taxpayers are advised to consult with tax professionals or financial advisors to determine the most suitable option for them and to ensure compliance with tax laws. Additionally, please note that tax laws and provisions may change, so it's recommended to refer to the latest updates from the Income Tax Department or consult a tax professional for the most accurate and current information.
7. Capital gain exemption rule under section 54 ?
Here are some key points about the capital gain exemption rule under section 54:
Eligibility: The exemption is available to an individual or Hindu Undivided Family (HUF) who has earned long-term capital gains from the sale of a residential property.
Type of Property: The capital gains should arise from the sale of a residential property. This exemption is not applicable to commercial properties.
Timeframe for Investment: To claim the exemption, the taxpayer must invest the capital gains in another residential property either one year before the sale or two years after the sale. Alternatively, the taxpayer can also construct a residential property within three years from the date of the sale.
Exemption Amount: The amount of exemption is the lower of either the capital gains or the cost of the new residential property. In other words, if the investment in the new property is equal to or greater than the capital gains, the entire capital gains become exempt from tax.
Lock-in Period: The new residential property purchased or constructed using the capital gains is subject to a lock-in period of three years. It cannot be sold within this period; otherwise, the capital gains exemption claimed earlier could be revoked.
Multiple Properties: If the taxpayer has multiple properties and wants to claim the exemption under section 54, they should ensure that they invest in only one new residential property. If they invest in multiple properties, the exemption will not be available.
Conditions: The taxpayer should not own more than one residential property, other than the new property being acquired, on the date of the sale of the original property.
8. What types of investment,expenditure allowed as deduction in 80C ?
Life Insurance Premiums: Premiums paid for life insurance policies, whether for yourself, your spouse, or your children, are eligible for deduction under Section 80C.
Employee Provident Fund (EPF): Contributions made to your Employee Provident Fund account are eligible for deduction under this section.
Public Provident Fund (PPF): Contributions made to your PPF account are eligible for deduction. The interest earned and the maturity amount are also tax-free.
National Savings Certificate (NSC): Investment in NSC is eligible for deduction.
Sukanya Samriddhi Yojana (SSY): Contributions towards the SSY account for the benefit of a girl child are eligible for deduction.
5-Year Fixed Deposit with Banks/Post Office: Investment in a 5-year fixed deposit with a bank or post office is eligible for deduction.
Repayment of Principal on Home Loan: The principal portion of your home loan EMI is eligible for deduction under Section 80C.
Equity-Linked Saving Scheme (ELSS): Investments made in ELSS mutual funds, which are equity-linked tax-saving funds, qualify for deduction.
Tuition Fees: Tuition fees paid for up to two children's education are eligible for deduction. This includes school, college, or university fees.
Senior Citizens Savings Scheme (SCSS): Investments in SCSS for senior citizens are eligible for deduction.
Pension Funds: Contributions to certain pension funds, like the National Pension System (NPS), are eligible for deduction.
Post Office Time Deposit: Investments made in Post Office Time Deposit (5-year deposit) are eligible for deduction.
Housing Loan Principal Repayment: The principal component of your housing loan EMI is eligible for deduction.
Infrastructure Bonds: Some specified infrastructure bonds also qualify for deduction.
Additional Tier 1 Bonds: Certain bonds issued by banks also qualify for deduction.
9. Question can be asked for any Chapter- VI A Deduction
Section 80C Deductions:
Life Insurance Premiums
Employee Provident Fund (EPF) Contributions
Public Provident Fund (PPF) Contributions
National Savings Certificate (NSC)
Sukanya Samriddhi Yojana (SSY)
5-Year Fixed Deposits
Repayment of Home Loan Principal
Equity-Linked Saving Scheme (ELSS) Investments
Tuition Fees for Children's Education
Senior Citizens Savings Scheme (SCSS)
Pension Funds (like National Pension System or NPS)
Post Office Time Deposit
Housing Loan Principal Repayment
Infrastructure Bonds
Additional Tier 1 Bonds
Section 80CCC Deductions:
Contributions to Pension Funds
Section 80CCD Deductions:
Employee Contributions to NPS
Employer Contributions to NPS (up to a certain limit)
Section 80CCG Deductions:
Rajiv Gandhi Equity Savings Scheme (only for certain eligible individuals)
Section 80D Deductions:
Premiums Paid for Medical Insurance (Health Insurance) Policies
Premiums Paid for Health Insurance of Parents
Section 80DD Deductions:
Expenses Incurred for the Maintenance of a Disabled Dependent
Section 80DDB Deductions:
Expenses Incurred for Medical Treatment of Specified Diseases
Section 80E Deductions:
Interest on Education Loan
Section 80EE Deductions:
Interest on Home Loan for First-Time Homebuyers
Section 80EEA Deductions:
Interest on Home Loan for Affordable Housing
Section 80G Deductions:
Donations to Charitable Institutions (eligible for deduction)
Section 80GG Deductions:
Rent Paid (when HRA is not received)
Section 80GGA Deductions:
Donations for Scientific Research or Rural Development
Section 80GGC Deductions:
Donations to Political Parties
Section 80TTA Deductions:
Interest on Savings Bank Accounts
Section 80TTB Deductions:
Interest on Deposits for Senior Citizens
Section 80U Deductions:
Deduction for a Person with Disability
10. Deduction under different types of Heads of Income
Salary
Standard Deduction: A standard deduction of a specific amount (50,000) is available for salaried individuals. This deduction is meant to cover general expenses incurred in connection with employment. Please verify the current standard deduction amount, as it may have changed.
Professional Tax: This tax is imposed by some state governments in India. The amount of professional tax paid during the year can be deducted from the salary income.
Entertainment Allowance: A portion of the entertainment allowance received by government employees can be claimed as a deduction under Section 16(ii) of the Income Tax Act.
Tax on Employment: If the employer pays the income tax on behalf of the employee, that tax amount can be deducted from the employee's salary income.
House Property
Standard Deduction: A standard deduction of 30% of the annual value is allowed to cover expenses related to repairs, maintenance, and collection of rent.
Interest on Home Loan: Interest paid on a home loan for a self-occupied or let-out property is eligible for deduction under Section 24(b). The maximum deduction allowed for self-occupied property is up to ₹2 lakh per financial year. There is no maximum limit for let-out properties.
11. Tell Something About AS - 22 ?
Objective: The primary objective of AS 22 is to prescribe the accounting treatment for income taxes, ensuring that they are recognized and presented accurately in the financial statements.
Scope: AS 22 applies to all taxes on income, regardless of the jurisdiction imposing the taxes. This includes both current and deferred taxes.
Recognition of Tax Expenses: The standard provides guidelines for recognizing tax expenses in the financial statements based on the principles of accrual accounting.
Current Tax: Current tax liabilities or assets are recognized for the amount of income taxes payable or recoverable for the current financial year.
Deferred Tax: Deferred tax liabilities or assets are recognized for the future tax consequences of temporary differences between the carrying amount of assets and liabilities in the financial statements and their tax base. These temporary differences can result in taxable or deductible amounts in future periods.
Measurement: Current and deferred taxes are measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Offsetting: Deferred tax assets and liabilities are not offset unless there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
Presentation: Tax expenses (current and deferred) are typically presented as part of the determination of the net profit or loss for the period.
Disclosure: AS 22 requires specific disclosures in the financial statements to provide information about current and deferred tax assets and liabilities, unrecognized deferred tax assets, and certain other details.
12. What is Form 16,26AS ?
Form 16 and Form 26AS are important documents related to income tax in India. They provide information about a taxpayer's income, taxes deducted at source (TDS), and other related details. Here's what each form represents:
Form 16:
Form 16 is a certificate issued by an employer to their employees. It provides a summary of the income earned by the employee during the financial year and the taxes deducted by the employer on behalf of the employee. Form 16 consists of two parts: Part A and Part B.
Part A: This section contains details of the employer, the employee's PAN (Permanent Account Number), and the TAN (Tax Deduction and Collection Account Number) of the employer. It also includes a summary of the TDS deducted by the employer and deposited with the government.
Part B: This section provides details of the employee's salary, allowances, deductions, and exemptions. It also indicates the tax payable or refundable by the employee based on the information provided.
Form 16 is crucial for filing income tax returns as it helps taxpayers accurately report their income and taxes paid.
Form 26AS:
Form 26AS is a consolidated tax credit statement that provides a comprehensive view of the taxes credited to a taxpayer's account. It includes details of TDS, TCS (Tax Collected at Source), and other tax payments made by the taxpayer or on their behalf. Form 26AS is accessible online through the Income Tax Department's e-filing portal.
The form includes information related to:
TDS on salary, interest, rent, etc.
TCS collected by sellers, such as on sale of goods
Advance tax and self-assessment tax payments made by the taxpayer
Refunds generated during the financial year
Details of high-value transactions reported to the tax department
Form 26AS helps taxpayers cross-verify the TDS and other tax credits claimed in their tax return with the records available with the tax department. This ensures that accurate information is provided while filing income tax returns.
Both Form 16 and Form 26AS play a vital role in the income tax process, aiding taxpayers in correctly calculating and reporting their income, deductions, and taxes paid. It's important to ensure that the information in these forms is accurate and matches the taxpayer's records before filing income tax returns.
These are questions asked in Big 4 and Big 20 Firms for Articleship in Direct Tax I hope this may be helpful for you may you acheive your desired goal in life
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