Test: Income Tax - UGC NET MCQ

- The Assertion is true; a Hindu Undivided Family (HUF) is indeed recognized as a separate tax entity under income tax law.

- The Reason is also true; however, it does not accurately explain the assertion since the tax law differentiates between individual income and HUF income in certain.

- Therefore, the correct option is B, because both statements are true, but the reason does not correctly explain the assertion.

The assessment year serves the specific purpose of taxing the income that was earned in the previous year. For instance, the income generated during the financial year 2022-23 is subject to taxation in the assessment year 2023-24, which runs from April 1, 2023, to March 31, 2024. Understanding this distinction is crucial for taxpayers to comply with tax regulations effectively.

Circulars issued by the CBDT are important tools for addressing specific issues and clarifying uncertainties related to the provisions of the Income Tax Act. While they are binding on the department, they do not have the same legal weight for taxpayers, who may benefit from favorable circulars. This means that taxpayers can refer to these circulars for guidance, but they cannot be compelled to follow them if they find them unfavorable. It's fascinating to note that these circulars often help in interpreting complex tax laws and provide clarity in situations where the legislative text might be ambiguous.

Statement 1 is incorrect because exemption for income means that specific income does not contribute to the total income calculation, so it is not counted. This is a fundamental aspect of exemption.

Statement 2 is correct as deductions can be claimed from specific income categories or from the Gross Total Income, allowing for a reduction in the taxable income.

Therefore, the correct answer is Option B: 2 Only.

- The Assertion is correct; income tax is indeed imposed on various entities classified as 'persons,' including individuals, firms, and companies.

- The Reason is false; not all entities classified as 'persons' are required to be profit-oriented (e.g., local authorities and artificial juridical persons like universities).

- Since the reason does not correctly explain the assertion, the correct option is C.

- The Assertion is correct because the Income-tax Act, 1961 does define capital gains as part of income.

- The Reason is false because capital gains can be derived from the sale of various types of assets, not limited to personal property.

- Therefore, while both statements are true, the Reason does not correctly explain the Assertion.

Statement 1 is correct because "Gross Total Income" does indeed refer to the total of all income computed under the five heads of income: Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital Gains, and Income from Other Sources, as outlined in the Income-tax Act, 1961.
Statement 2 is incorrect because Total Income is calculated after applying the deductions available under sections 80C to 80U. Therefore, the correct answer is Option A: 1 Only.

The Income-tax Act, 1961 is the fundamental legislative framework that governs income tax in India. Enacted on April 1, 1962, this Act outlines the rules for determining taxable income, tax obligations, and various procedures related to assessment and appeals. It consists of numerous sections that provide a comprehensive legal structure for income tax administration in the country. Understanding this Act is crucial for anyone studying income tax law in India. An interesting fact is that the Act has been amended multiple times over the years, reflecting changes in economic conditions and government policy.

- The Assertion is true because all individuals who fall under the purview of the Income Tax Act must adhere to tax assessment procedures, regardless of income level.

- The Reason is also true, but it is misleading. While there are thresholds for certain tax obligations, the assertion that only those above a certain income threshold must comply with assessment procedures is incorrect. Therefore, the Reason does not correctly explain the Assertion.

The primary legal basis for the Central Government's authority to levy income tax in India is outlined in Section 4 of the Income-tax Act, 1961. This section provides the framework for taxation, including the determination of tax rates and the entities that are subject to taxation. It establishes the legal foundation upon which tax liabilities are assessed and ensures compliance with the prescribed laws. An interesting fact is that the Income-tax Act, enacted in 1961, has undergone numerous amendments to adapt to changing economic conditions and policy objectives, reflecting the dynamic nature of tax legislation in India.