Samacheer Kalvi Class 11 Commerce Solutions Chapter 32 Direct Taxes

I. Choose the Correct Answer

 

Question 1. Income Tax is
(a) a business tax
(b) a direct tax
(c) an indirect tax
(d) none of these
Answer: (b) a direct tax
In simple words: Income tax is a direct tax, meaning the person who earns the income pays it directly to the government. The tax burden cannot be passed on to someone else.

🎯 Exam Tip: Remember that direct taxes are paid by the person on whom they are levied, such as income tax, while indirect taxes are collected from one person but borne by another, like GST.

 

Question 2. Period of assessment year is
(a) 1 st April to 31 st March
(b) 1st March to 28th Feb
(c) 1st July to 30th June
(d) 1st Jan. to 31st Dec
Answer: (a) 1 st April to 31 st March
In simple words: The assessment year is a 12-month period that starts on April 1st and ends on March 31st of the next year. This is the year when your income from the previous year is evaluated and taxed.

🎯 Exam Tip: Always remember that the assessment year follows the previous year, and both consist of 12 months, beginning on April 1st.

 

Question 3. The year in which income is earned is known as
(a) Assessment Year
(b) Previous Year
(c) Light Year
(d) Calendar Year
Answer: (b) Previous Year
In simple words: The 'previous year' is the specific year in which a person actually earned their income. The tax on this earned income is then calculated and paid in the next year, which is called the assessment year.

🎯 Exam Tip: Clearly differentiate between the previous year (income earned) and the assessment year (income taxed) to avoid confusion.

 

Question 4. The aggregate income under five heads is termed as
(a) Gross Total Income
(b) Total Income
(c) Salary Income
(d) Business Income
Answer: (b) Total Income
In simple words: When all the money earned from different sources is added up and then allowed reductions are taken out, the final amount left is called 'Total Income'. This is the amount that is actually used to calculate the tax you need to pay.

🎯 Exam Tip: Understand that Gross Total Income is calculated before deductions, while Total Income is the figure after all permissible deductions, on which tax is finally computed.

 

Question 5. Agricultural income earned in India is
(a) Fully Taxable
(b) Fully Exempted
(c) Not Considered for Income
(d) None of the above
Answer: (b) Fully Exempted
In simple words: In India, any money made from farming activities, like selling crops or rent from agricultural land, is not subject to income tax. This rule helps farmers and supports the agricultural sector.

🎯 Exam Tip: Remember that agricultural income in India is usually fully exempt from income tax, making it a distinct category in tax laws.

II. Very Short Answer Questions

 

Question 1. What is Income tax?
Answer: Income tax is a direct tax where the tax is calculated on the earnings, profits, or gains made by a person. This includes individuals, partnership firms, companies, and other similar entities. It is a main source of government revenue.
In simple words: Income tax is a direct payment made to the government from the money people and businesses earn.

🎯 Exam Tip: Define income tax by highlighting its direct nature and stating that it is levied on income, gains, and profits.

 

Question 2. What is meant by the previous year?
Answer: The year in which a person earns income is known as the previous year. This period is also called the financial year. The income earned during this year is assessed and taxed in the subsequent assessment year.
In simple words: The previous year is the year when you earned your money.

🎯 Exam Tip: Clearly state that the previous year is the period when income is *earned*, not when tax is paid.

 

Question 3. Define the term person?
Answer: Under the Income-tax Act, the term 'person' is broadly defined. It includes individuals, Hindu Undivided Families (HUF), firms, companies, local authorities, associations of persons (AOP), bodies of individuals (BOI), or any other artificial juridical persons. This broad definition ensures various entities are covered.
In simple words: In tax rules, a 'person' means anyone who can earn money, like a single person, a family group, a business, or a company.

🎯 Exam Tip: For the definition of 'person', list at least five different types of entities that are included under the Income-tax Act.

 

Question 4. Define the term assessed?
Answer: As per Section 2(7) of the Income Tax Act, 1961, the term "assessee" refers to a person by whom any tax or other sum of money is due under the Act. An assessee can be an individual, HUF, firm, company, local authority, AOP, BOI, or any other artificial juridical person. This term identifies the taxpayer.
In simple words: An 'assessee' is the person or group who needs to pay tax or any other due amount under the tax law.

🎯 Exam Tip: Remember that an 'assessee' is fundamentally the person who is liable to pay tax according to the Income Tax Act.

 

Question 5. What is an assessment year?
Answer: The term 'assessment year' is defined under section 2(9) of the Income Tax Act. It is the year in which the tax for income earned in the previous year is paid. It typically spans 12 months, beginning on April 1st of every year and concluding on March 31st of the subsequent year. This is also when tax returns are filed.
In simple words: An assessment year is when you pay the tax for the money you earned in the year before. It always starts on April 1st.

🎯 Exam Tip: Clearly state that the assessment year is the period when tax is determined and paid, always following the previous year.

III. Short Answer Questions

 

Question 1. What is Gross Total Income?
Answer: Gross Total Income (GTI) is the total income obtained after combining earnings from various heads of income and adjusting for past and present losses. This is the sum before any deductions are made under Section 80B(5). The main heads include:

• Income from Salaries
• Income from House Property
• Income from Business or Profession
• Income from Capital Gain
• Income from Other Sources

This represents the overall earning capacity.
In simple words: Gross Total Income is all your earnings added together from different sources like salary, business, and investments, before any tax deductions are subtracted.

🎯 Exam Tip: Define Gross Total Income as the aggregate of income from the five heads, adjusted for losses, and emphasize that it is *before* Chapter VI-A deductions.

 

Question 2. List out the five heads of Income.
Answer: The five main heads of income under which income is categorized for tax purposes are:
1. Income from ‘Salaries’ [Sections 15 - 17]
2. Income from ‘House Property’ [Sections 22 - 27]
3. Income from ‘Profits and Gains of Business or Profession’ [Sections 28 - 44]
4. Income from ‘Capital Gains’ [Sections 45 - 55]
5. Income from ‘Other Sources’ [Sections 56 - 59]
These categories help to systematically calculate total income.
In simple words: Your income is grouped into five main types for tax: money from your job, money from rented house, money from your business, money from selling assets, and money from other ways.

🎯 Exam Tip: Memorize the five heads of income as they form the basic structure for income tax calculation.

 

Question 3. Write a note on Agricultural Income.
Answer: According to Section 2(1A) of the Income Tax Act 1961, agricultural income includes any rent or revenue earned from land located in India that is used for farming purposes. This type of income is generally fully exempted from income tax, meaning it is not taxed. This encourages agricultural activities.
In simple words: Agricultural income is money made from farming land in India, like rent or selling crops, and it usually doesn't have to be taxed.

🎯 Exam Tip: Explain that agricultural income from land in India used for farming is exempt from income tax, as per Section 2(1A).

 

Question 4. What do you mean by Total income?
Answer: Total Income is the final amount on which tax liability is calculated at specific rates, after making certain deductions. It is derived from the Gross Total Income. The calculation steps are:
1. Gross Total Income
2. Less: Deductions (Sec. 80C to 80U)
3. Total Income (T.I.)
This figure is crucial for determining the final tax payable.
In simple words: Total income is the amount you pay tax on. It is calculated by taking your total earnings and subtracting certain allowed reductions.

🎯 Exam Tip: Clearly differentiate Total Income from Gross Total Income by mentioning that it is the amount *after* allowed deductions under Chapter VI-A.

 

Question 5. Write short notes on:
a. Direct Tax:
b. Indirect Tax:
Answer:
a. Direct Tax: A direct tax is a tax imposed on a person's income or wealth and is paid directly by that person to the Government. The burden of this tax cannot be shifted to another individual. Examples include Income Tax, Wealth Tax, Capital Gains Tax, and Banking Cash Transaction Tax (BCTT). In India, direct taxes are managed by the Central Board of Direct Taxes (CBDT). This ensures accountability.
b. Indirect Tax: An indirect tax is levied on goods or services, typically collected by the seller from the buyer, and then paid to the Government. The burden of this tax can be shifted from the seller to the consumer. A prime example is Goods and Services Tax (GST). These taxes are usually included in the price of products.
In simple words: A direct tax is paid by you straight to the government on your income or wealth. An indirect tax is paid on things you buy, like GST, where the seller collects it from you and gives it to the government.

🎯 Exam Tip: When explaining direct and indirect taxes, ensure you define them, provide examples, and clarify who bears the final burden of the tax.

IV. Long Answer Questions

 

Question 1. Elucidate any five features of Income Tax.
Answer: Here are five key features of Income Tax in India:
1. Levied as Per the Constitution: Income tax is levied in India based on Entry No. 82 of List I (Union List) in the Seventh Schedule to Article 246 of the Constitution of India. This means the central government has the power to impose it.
2. Levied by Central Government: The Central Government charges income tax on all incomes, except for agricultural income. However, the power to tax agricultural income is given to the State Government under Entry 46 of List II (State List). This ensures a division of power.
3. Direct Tax: Income tax is a direct tax because the person earning the income is responsible for both depositing the tax and bearing its ultimate burden. They cannot transfer this burden to another person.
4. Annual Tax: Income tax is an annual tax. This means it is charged on the income earned during a specific financial year. Each year's income is treated separately for taxation purposes.
5. Tax on Person: Income tax is imposed on the income earned by a 'person', as defined by the Income-tax Act. These 'persons' include individuals, Hindu Undivided Families, firms, companies, local authorities, and other artificial juridical persons. They are known as 'assessees'.
In simple words: Income tax in India is a direct tax set by the Constitution and collected by the Central Government, generally every year. It applies to different types of income earners.

🎯 Exam Tip: When discussing features, always include legal basis (Constitution), who levies it, its nature (direct), periodicity (annual), and on whom it is imposed.

 

Question 2. Define Tax. Explain the term direct tax and indirect tax with an example.
Answer:
Definition of Tax: A tax is a mandatory financial contribution that a government imposes to raise revenue. It can be levied on the income or property of individuals and organizations, or on the production costs or sales prices of goods and services. Taxes are essential for funding public services.
a. Direct Tax: A direct tax is paid directly by an individual or organization to the government that imposes it. The taxpayer directly bears the burden and cannot shift it. For example, a taxpayer pays income tax or real property tax to the government. This makes the payer and the burdened party the same.
b. Indirect Tax: An indirect tax is levied on goods or services. It is collected by the seller from the buyers and then paid by the seller to the government. The tax burden is effectively shifted from the seller to the consumer in the supply chain. Goods and Services Tax (GST) is a common example of an indirect tax. Such taxes are often included in the product's price.
In simple words: A tax is money everyone must pay to the government. Direct tax is paid by you straight from your income, like income tax. Indirect tax is added to the price of things you buy, like GST, and the shop owner pays it to the government.

🎯 Exam Tip: Provide a clear definition of tax and then contrast direct and indirect taxes by explaining who bears the ultimate burden and who pays it to the government, with relevant examples.

 

Question 3. List out any ten kinds of incomes chargeable under the head income tax.
Answer: Here are ten types of incomes that are subject to income tax:
1. Profits and gains earned from business or profession.
2. Dividend income received.
3. Voluntary contributions received by charitable/religious trusts, universities, educational institutions, hospitals, or electoral trusts (effective from April 1, 2010). These help in their operations.
4. Value of perquisites or profits in lieu of salary that are taxable under Section 17, and social allowances or benefits given to meet personal expenses or for performing official duties.
5. Export incentives, such as duty drawback, cash compensatory support, or income from the sale of licenses.
6. Interest, salary, bonus, commission, or remuneration earned by a partner from their firm.
7. Capital gains that are chargeable under Section 45.
8. Profits and gains from a banking business run by a co-operative society with its members.
9. Winnings from lotteries, crossword puzzles, races (including horse races), card games, and other forms of gambling or betting.
10. Deemed income under Sections 41 or 59.
In simple words: Income tax applies to many types of earnings, like money from business, stock dividends, special job benefits, money from export deals, a partner's salary from a firm, profit from selling property, winnings from games like lotteries, and other special kinds of income defined by tax laws.

🎯 Exam Tip: For listing incomes, remember the broad categories and specific examples like lottery winnings or capital gains, which are often tested. Aim to list at least five distinct types.

 

Question 4. Discuss the various kinds of assessments.
Answer: The term 'assessments' typically refers to the process by which an assessee's income is determined and tax liability is computed. However, the question here seems to refer to the different types of 'assessees' or entities that are subject to assessment. These include:

• Individual: A single person.
• Partnership firm: A business owned by two or more individuals.
• Hindu Undivided Family (HUF): A family unit recognized under tax law.
• Companies: Corporate entities.
• Association of Persons (AOP): A group of individuals or entities coming together for a common purpose.
• Body of Individual (BOI): A group of individuals without a common purpose or intention to earn income.

Each type of assessee has specific rules for income calculation and taxation.
In simple words: Tax rules apply to different kinds of income earners. These include single people, business groups like partnerships, family units, companies, and other organized groups of people.

🎯 Exam Tip: When asked about kinds of assessments, focus on the types of entities (assessees) for whom income is assessed, as different rules apply to each category.

11th Commerce Guide Direct Taxes Additional Important Questions and Answers

I. Choose the Correct Answer

 

Question 1. How many heads of income are there to compute Gross total income?
(a) Six
(b) Five
(c) Four
(d) Three
Answer: (b) Five
In simple words: For calculating your total income before any deductions, the tax rules group all your earnings into five main categories.

🎯 Exam Tip: Remember that there are precisely five heads of income under the Income Tax Act, which is a fundamental aspect of tax computation.

 

Question 2. Income Tax Act came into force on
(a) 1.4.1932
(b) 1.4.1962
(c) 1.4.1947
(d) 1.4.1954
Answer: (b) 1.4.1962
In simple words: The current Income Tax Act that we use in India started on April 1st, 1962.

🎯 Exam Tip: Knowing the exact date of the Income Tax Act's commencement is important for historical and legal context.

 

Question 3. The compensation received for loss of trading asset is a
(a) Capital receipt
(b) Revenue receipt
(c) a casual receipt
(d) None of the options
Answer: (a) Capital receipt
In simple words: When a business asset is lost and money is received as compensation, it is considered a 'capital receipt'. This is usually a one-time payment, not regular income.

🎯 Exam Tip: Distinguish capital receipts (related to assets/capital structure) from revenue receipts (related to day-to-day operations).

 

Question 4. The legislative powers of the Union Government and the State Governments are given in the \_ of the Indian Constitution.
(a) Article 246 (VII schedule)
(b) Article 246 (VI schedule)
(c) Article 264 (VII schedule)
(d) Article 446 (VII schedule)
Answer: (a) Article 246 (VII schedule)
In simple words: The Indian Constitution, specifically Article 246 along with the Seventh Schedule, clearly spells out which taxes the central government can collect and which taxes the state governments can collect. This division helps in clear governance.

🎯 Exam Tip: Remember Article 246 and the Seventh Schedule as the constitutional basis for the division of taxation powers between the Union and State governments.

 

Question 5. Tax charged on Long Term Capital Gain is
(a) 20%
(b) 15%
(c) 25%
(d) 30%
Answer: (a) 20%
In simple words: If you sell an asset after holding it for a long time and make a profit, the tax you pay on that profit is typically 20%.

🎯 Exam Tip: Know the standard tax rate for Long Term Capital Gains (LTCG), which is a key figure in investment tax planning.

II. Very Short Answer Questions

 

Question 1. What do you mean by Tax?
Answer: Tax is a mandatory financial contribution that individuals and businesses pay to the government. This money is used by the government to fund public services and expenses like infrastructure development, defense, and public welfare programs. It's a key source of state revenue.
In simple words: A tax is a compulsory payment to the government to help fund public services.

🎯 Exam Tip: Provide a basic, clear definition of tax, highlighting its compulsory nature and purpose for government revenue and public services.

 

Question 2. What is the reason for collecting tax?
Answer: Taxes are collected primarily to generate revenue for the government. This revenue is then used to cover various expenses, including civil administration, internal and external security, building infrastructure like roads and hospitals, education, and other public welfare activities. Without taxes, governments cannot provide these essential services.
In simple words: Taxes are collected to give the government money for things like roads, schools, security, and running the country.

🎯 Exam Tip: Focus on the public welfare aspect of taxation, listing common government expenditures funded by taxes.

III. Short Answer Questions

 

Question 1. Who do income tax is treated as annual tax?
Answer: Income tax is treated as an annual tax because it is specifically calculated on the income earned during a particular financial year. Each year's income is separately assessed and taxed, making it a recurring yearly obligation for taxpayers. This ensures regular revenue collection.
In simple words: Income tax is called an 'annual tax' because it is charged on the money earned in one specific year, and this happens every year.

🎯 Exam Tip: Explain that income tax is annual because it is levied on the income earned *during* a specific financial year, making it a recurring yearly liability.

 

Question 2. What are all the tax rates prescribed for LTCG, STCG, and lottery income?
Answer: The Income Tax Act prescribes specific tax rates for different types of income:

• Tax on long-term capital gain (LTCG) is 20% (as per Section 112).
• Tax on short-term capital gain (STCG) on shares covered under Securities Transaction Tax (STT) is 15% (as per Section 111A).
• Tax on lottery income is 30% (as per Section 115BB).

These rates ensure different types of income are taxed appropriately.
In simple words: Long-term profits from selling assets are taxed at 20%, short-term profits from selling shares are taxed at 15%, and money won from lotteries is taxed at 30%.

🎯 Exam Tip: Clearly state the specific tax rates for LTCG, STCG on shares, and lottery income, mentioning the relevant sections if possible, as these are common figures in tax problems.

 

Question 3. What do you mean by the previous year?
Answer: According to Section 3 of the Income Tax Act 1961, the "previous year" is the financial year in which income is earned. It usually consists of a period of 12 months, starting on April 1st of every year and ending on March 31st of the following year. This year is immediately followed by the assessment year, where the income is taxed.
In simple words: The previous year is the 12-month period when you earn money, starting from April 1st. The tax on this money is paid in the next year.

🎯 Exam Tip: Define the previous year as the year of earning income, specifying its start and end dates and its direct relation to the assessment year.

IV. Long Answer Questions

 

Question 1. Write a note on the structure of the Indian Taxation system:
Answer: The Indian taxation system is one of the most extensive and structured systems globally. The power to levy taxes is derived directly from the Indian Constitution. The tax administration clearly distinguishes between the Central Government, State Governments, and local bodies. Article 246 of the Seventh Schedule of the Indian Constitution outlines the legislative powers, including taxation, for both the Union government and the State Governments. This clear division of power helps in efficient tax collection and administration, ensuring that each level of government has specific taxation rights.
In simple words: India's tax system is well-organized, with tax powers coming from the Constitution. It clearly separates who can collect taxes: the Central Government, State Governments, and local bodies, ensuring specific responsibilities for each.

🎯 Exam Tip: Describe the Indian taxation system as structured, based on the Constitution (Article 246, Seventh Schedule), with clear divisions of power among different levels of government.

 

Question 2. Write a note on Heads of Income under Income Tax Act:
Answer: Section 14 of the Income Tax Act 1961 outlines that an assessee's total income is computed by dividing it into five distinct heads of income. Each head has its own specific method for calculating income. These five heads are:
1. Income from ‘Salaries’ [Sections 15-17]
2. Income from ‘House Property’ [Sections 22-27]
3. Income from ‘Profits and Gains of Business or Profession’ [Sections 28-44]
4. Income from ‘Capital Gains’ [Sections 45-55]
5. Income from ‘Other Sources’ [Sections 56-59]
This categorization helps in organizing and streamlining the assessment of different types of earnings.
In simple words: The Income Tax Act puts all your earnings into five main groups to calculate tax correctly. These groups are salaries, money from rented house, business profits, money from selling assets, and other types of income.

🎯 Exam Tip: Explain that income is categorized into five heads for systematic computation, listing each head and briefly noting that each has specific calculation rules.

 

Question 3. Write a note on slab rate of Income-tax charged on Individual:
Answer: Income tax for individuals is calculated based on a slab rate system, meaning different tax percentages apply to different income brackets. This progressive system ensures that higher earners pay a larger proportion of their income as tax. For the Assessment year 2018-2019, the following rates were charged:

This slab system allows for a fair distribution of the tax burden.
In simple words: Individual income tax is charged using 'slab rates', which means different parts of your income are taxed at different percentages. For example, income up to a certain amount is not taxed, while income above that is taxed at increasing rates.

🎯 Exam Tip: When explaining slab rates, mention that income is taxed in layers, with different percentages applied to different income brackets, ensuring to cite the relevant tax percentages.