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Direct Tax Laws and International Taxation MCQs for CMA Final
Chapter-wise Direct Tax Laws and International Taxation MCQs with answers and explanations. Try the sample questions below, then practise a set of 10 with instant right/wrong.
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Q1 · Transfer. Pricing.
Which of the following is correct regarding the Transfer Pricing provisions under Section 92 of the Income-tax Act, 1961?
- (a) Transfer pricing provisions apply only to transactions between two domestic companies
- (b) Transfer pricing provisions require international transactions to be computed at arm's length price
- (c) Transfer pricing provisions apply only to transactions with entities in Nepal and Bhutan
- (d) Transfer pricing provisions allow the taxpayer to freely fix any price for related-party transactions
Show answer ↓
Answer: (b) Transfer pricing provisions require international transactions to be computed at arm's length price
(b) is correct: Section 92 requires income from international transactions between associated enterprises to be determined at arm's length price. (a) is wrong because cross-border transactions are the core scope; domestic specified transactions are dealt with separately under the specified domestic transaction rules, not the basic rule here.
Q2 · Assessment of Income and Computation of Tax Liability of Various Entities
A non-resident company earns royalty income from an Indian company. Which of the following is the correct statement regarding its taxability in India as per Section 9 of the Income-tax Act, 1961?
- (a) Royalty income is deemed to accrue or arise in India if paid by a resident Indian, so it is taxable in India
- (b) Royalty income is never taxable in India for a non-resident
- (c) Royalty income is taxable only if the non-resident has a physical office in India
- (d) Royalty income is taxable only if received in India in cash
Show answer ↓
Answer: (a) Royalty income is deemed to accrue or arise in India if paid by a resident Indian, so it is taxable in India
(a) is correct: Section 9(1)(vi) deems royalty payable by a resident to be income accruing in India, so it is taxable for the non-resident. (b), (c) and (d) are wrong because the deeming provision does not depend on a physical office or on the mode of receipt.
Q3 · Income Computation and Disclosure Standards (ICDS)
Under the Income Computation and Disclosure Standards (ICDS), which of the following is correct?
- (a) ICDS applies to taxpayers following the mercantile system of accounting for computing income under the head Profits and Gains of Business or Profession
- (b) ICDS applies only to individuals who maintain cash-basis books
- (c) ICDS overrides the Income-tax Act and the judgments of courts in all cases
- (d) ICDS applies only to banking companies
Show answer ↓
Answer: (a) ICDS applies to taxpayers following the mercantile system of accounting for computing income under the head Profits and Gains of Business or Profession
(a) is correct: ICDS applies to taxpayers computing business or professional income on the mercantile system of accounting. (b) is wrong because cash-basis taxpayers are outside its scope; (c) is wrong because ICDS cannot override the Act, and (d) is wrong because it applies to all such taxpayers, not only banks.
Q4 · Assessment of Income and Computation of Tax Liability of Various Entities
Under Section 115BAA, a domestic company opting for the concessional regime pays tax at 22% plus surcharge and cess. What is the rate of surcharge applicable to such a company, irrespective of its total income?
- (a) 7%
- (b) 12%
- (c) 10%
- (d) Nil
Show answer ↓
Answer: (c) 10%
(c) is correct: companies opting for Section 115BAA pay a flat 10% surcharge whatever their income, giving an effective rate of about 25.168%. 7% and 12% are the slab-based surcharges for companies under the normal provisions, so (a) and (b) are wrong.
Q5 · Different Aspects of Tax Planning
A company opting for Section 115BAA has brought forward MAT credit under Section 115JAA. Which of the following is correct?
- (a) MAT credit can be set off against tax under Section 115BAA
- (b) MAT credit lapses and cannot be utilised once Section 115BAA is opted for
- (c) MAT credit can be carried forward and used after 5 years
- (d) MAT credit is refunded to the company
Show answer ↓
Answer: (b) MAT credit lapses and cannot be utilised once Section 115BAA is opted for
(b) is correct: a company opting for Section 115BAA cannot claim MAT credit, so the credit lapses. Option (a) is wrong because MAT provisions do not apply to Section 115BAA companies at all.
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