Posted inUGC NET Commerce PYQ’S Paper 2: 3rd January 2026 Shift 1 UGC-NET Unit-10 Income-tax and Corporate Tax Planning PYQ's

Unit 10 Income-tax and Corporate Tax Planning PYQ’s 3rd January 2026 Shift 1

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3rd January 2026 Shift 1:

Examination:UGC NET
Subject:COMMERCE (Paper 2)
Exam cycle:3rd January 2026 Shift 1
Types of Paper:PYQ’s (Previous Year Questions)
Which Unit?Unit 10 Income-tax and Corporate Tax Planning

Question No.1

Where a company incurs any expenditure (not being expenditure in the nature of cost of any land or building) on any notified skill development project, then such company can claim as deduction under section 35CCD:

  1. Only 25% of such expenditure
  2. Only 50% of such expenditure
  3. Only 75% of such expenditure
  4. 100% of such expenditure
Solutions:

The correct answer is – 100% of such expenditure

Key Points

  • Deduction under Section 35CCD
    • Section 35CCD allows companies to claim a deduction for expenditure incurred on notified skill development projects.
    • The deduction is equal to 100% of the expenditure incurred, provided it is not in the nature of costs for land or building.
  • Eligibility
    • Only companies that incur expenditure on notified skill development projects are eligible for the deduction.
    • Expenditure must directly relate to skill development activities.

Additional Information

  • Notified Skill Development Projects
    • These are projects specifically approved by the Central Government to enhance employability by providing skill training to individuals.
    • Examples include training for specific industries such as manufacturing, IT, or healthcare.
  • Expenditure Exclusions
    • Costs related to land or building acquisition are explicitly excluded from this deduction.
    • Only direct costs incurred on training and skill development are eligible.
  • Objective of Section 35CCD
    • The purpose is to incentivize companies to invest in skill development, thereby addressing the skill gap in various sectors.
    • This aligns with the government’s initiatives for employment generation and economic growth.

Question No.2

Match List – I with List – II.

List – I (Tax Deducted at Source)List – II (Sections of Income Tax Act)
A. Deduction of Tax at Source on Fees for Professional or Technical ServicesI. Section 194A
B. Deduction of Tax at Source from Payment of life Insurance PolicyII. Section 194B
C. Deduction of Tax at Source from Winnings from Lotteries or Crossword PuzzlesIII. Section 194DA
D. Deduction of Tax at Source from Interest other than Interest on SecuritiesIV. Section 194J

Choose the correct answer from the options given below :

  1. A-I, B-II, C-III, D-IV
  2. A-IV, B-III, C-II, D-I
  3. A-I, B-II, C-IV, D-III
  4. A-II, B-I, C-III, D-IV
Solutions:

The correct answer is – A-IV, B-III, C-II, D-I

Key Points

  • Tax Deducted at Source (TDS) sections
    • Section 194J: Applicable for deduction of tax at source on fees for professional or technical services.
    • Section 194DA: Applies to deduction of tax at source from payment of life insurance policy.
    • Section 194B: Related to deduction of tax at source from winnings from lotteries or crossword puzzles.
    • Section 194A: Pertains to deduction of tax at source from interest other than interest on securities.
  • Matching List I with List II
    • Option A: Fees for professional or technical services corresponds to Section 194J.
    • Option B: Payment of life insurance policy corresponds to Section 194DA.
    • Option C: Winnings from lotteries or crossword puzzles corresponds to Section 194B.
    • Option D: Interest other than interest on securities corresponds to Section 194A.

Additional Information

  • What is Tax Deducted at Source (TDS)?
    • TDS is a mechanism where tax is deducted at the source of income.
    • It ensures that tax is collected in advance and acts as a measure to reduce tax evasion.
    • Sections under the Income Tax Act define TDS rules for specific types of payments.
  • Key sections under TDS:
    • Section 194J: Professional services include consultancy, technical services, or any services notified by the government.
    • Section 194DA: Deduction is made when maturity proceeds of life insurance policies are taxable.
    • Section 194B: Applicable for lottery winnings above Rs. 10,000.
    • Section 194A: Deduction is required for interest payments except for interest on securities.

Question No.3

Match List – I with List – II.

List – IList – II
A. Standard Deduction under Section 16(ia)I. Income under the head Capital Gains
B. Standard Deduction under Section 24II. Income under the head Profits and Gains of Business or Profession
C. Depreciation Allowance under Section 32III. Income Under the Head Income from House Property
D. Exemption Under Section 54 for Profit on transfer of house property used for residenceIV. Income Under the Head Salaries

Choose the correct answer from the options given below:

  1. A-I, B-II, C-III, D-IV
  2. A-IV, B-III, C-II, D-I
  3. A-III, B-IV, C-II, D-I
  4. A-III, B-IV, C-I, D-II
Solutions:

The correct answer is – A-IV, B-III, C-II, D-I

Key Points

  • Standard Deduction under Section 16(ia)
    • This deduction falls under the head Income Under the Head Salaries.
    • It allows a fixed deduction from gross salary income, irrespective of actual expenses incurred.
  • Standard Deduction under Section 24
    • This deduction applies to Income Under the Head Income from House Property.
    • A standard deduction of 30% is allowed on the net annual value of the property.
  • Depreciation Allowance under Section 32
    • This deduction is applicable under Income Under the Head Profits and Gains of Business or Profession.
    • It allows depreciation on fixed assets used in the business for reducing taxable income.
  • Exemption Under Section 54
    • This exemption pertains to Income Under the Head Capital Gains.
    • It is available for the reinvestment of capital gains arising from the sale of residential house property into another residential property.

Additional Information

  • Section 16(ia) – Salaries
    • Introduced to provide relief to salaried taxpayers, this deduction is a fixed amount irrespective of other exemptions.
    • It enhances net take-home salary by reducing taxable income.
  • Section 24 – Income from House Property
    • Allows deductions for both standard deduction (30%) and interest paid on loans taken for house property.
    • Helps in reducing taxable income from rental earnings or deemed income from vacant house property.
  • Section 32 – Profits and Gains of Business
    • Depreciation is calculated based on written down value of assets and prescribed rates.
    • Assets like buildings, machinery, and vehicles used in the business qualify for depreciation.
  • Section 54 – Capital Gains
    • Exemption is available only if the new house property is purchased within 1 year before or 2 years after the sale, or constructed within 3 years.
    • Promotes reinvestment of capital gains into residential properties.

Question No.4

Arrange the following in ascending order of sections of Income Tax Act related to permissible deduction from Gross Total Income:

A. Deduction in respect of Medical Insurance Premia

B. Deduction in respect of Royalty Income of Author

C. Deduction in respect of Payment of Interest on Loan taken for Higher Education

D. Deduction in respect of Interest on Deposits in Saving Accounts

E. Deduction in respect of Donations to Certain Funds, charitable Institutions, etc.

Choose the correct answer from the options given below:

  1. A, B, C, D, E
  2. E, D, C, B, A
  3. A, C, E, D, B
  4. A, C, E, B, D
Solutions:

The correct answer is – A, C, E, B, D

Key Points

  • Section-wise sequence of deductions
    • Deduction in respect of Medical Insurance Premia is covered under Section 80D.
    • Deduction in respect of Payment of Interest on Loan taken for Higher Education falls under Section 80E.
    • Deduction in respect of Donations to Certain Funds, charitable Institutions, etc. is specified in Section 80G.
    • Deduction in respect of Royalty Income of Author applies to Section 80QQB.
    • Deduction in respect of Interest on Deposits in Saving Accounts is categorized under Section 80TTA.
  • The correct ascending order based on section numbers is A (80D), C (80E), E (80G), B (80QQB), D (80TTA).

Additional Information

  • Section 80D
    • Allows deduction for medical insurance premia paid for self, spouse, dependent children, or parents.
    • Maximum deduction is Rs. 25,000 (Rs. 50,000 for senior citizens).
  • Section 80E
    • Permits deduction of interest paid on loans taken for higher education.
    • No maximum limit; deduction allowed for 8 consecutive years or until loan repayment, whichever is earlier.
  • Section 80G
    • Provides deductions for donations to eligible charitable organizations.
    • Deduction can be 50% or 100% of the donation amount, subject to prescribed limits.
  • Section 80QQB
    • Offers deduction for royalty income earned by authors of literary, artistic, or scientific works.
    • Maximum deduction is Rs. 3,00,000.
  • Section 80TTA
    • Allows deduction for interest earned on deposits in savings accounts.
    • Maximum deduction is Rs. 10,000 for individuals and HUFs.

Question No.5

Mr. A, a resident in India, aged 60 years, earned agricultural income of ₹ 5,00,000 and non-agricultural income of ₹ 3,80,000 for assessment year 2025-26. The tax liability of Mr. A assuming that he does not opt to be taxed under the old tax regime is :

  1. ₹ 38,000
  2. ₹ 3,640
  3. ₹ 8,000
  4. Nil
Solutions:

The correct answer is – Nil

Key Points

  • Agricultural Income
    • Agricultural income is exempt from tax as per Section 10(1) of the Income Tax Act, 1961.
    • The ₹ 5,00,000 earned by Mr. A from agricultural income is not included in the total taxable income.
  • Non-Agricultural Income
    • Mr. A’s non-agricultural income for the assessment year 2025-26 is ₹ 3,80,000.
    • As per the new tax regime, an individual with taxable income below the basic exemption limit of ₹ 3,00,000 is not liable to pay tax.
  • Senior Citizen Exemption
    • Mr. A is 60 years old, qualifying him as a senior citizen under the Income Tax Act.
    • The basic exemption limit for senior citizens is ₹ 3,00,000 under the new tax regime.

Additional Information

  • New Tax Regime
    • The new tax regime introduced in Budget 2020 provides lower tax rates but disallows most exemptions and deductions.
    • Under the new tax regime, the basic exemption limit for senior citizens is ₹ 3,00,000.
  • Calculation of Taxable Income
    • Total income = Non-agricultural income = ₹ 3,80,000.
    • Since ₹ 3,80,000 exceeds the exemption limit of ₹ 3,00,000, tax is calculated only on the excess ₹ 80,000.
    • At 5% tax rate (as per the new tax regime slab for income ₹ 2,50,001 to ₹ 5,00,000), tax liability = ₹ 80,000 × 5% = ₹ 4,000.
    • However, the rebate under Section 87A applies, providing a maximum rebate of ₹ 12,500 for individuals with income up to ₹ 5,00,000. Thus, the tax liability becomes Nil.

Question No.6

Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).

Assertion (A): Section 91 provides for grant of unilateral relief in the case of resident taxpayers on income which has been taxed in India as well as in the country with which there is no Double Taxation Avoidance Agreement.

Reason (R): The relief under section 91 is granted by allowing to the tax payer a deduction from tax liability of an amount equal to the tax calculated at the average Indian rate of tax or the amount of tax calculated at the rate of tax of that other country on the doubly taxed income, whichever is higher.

In the light of the above statements, choose the most appropriate answer from the options given below:

  1. Both (A) and (R) are correct and (R) is the correct explanation of (A)
  2. Both (A) and (R) are correct but (R) is not the correct explanation of (A)
  3. (A) is correct but (R) is not correct
  4. (A) is not correct but (R) is correct
Solutions:

The correct answer is – (A) is correct but (R) is not correct

Key Points

  • Section 91
    • Section 91 of the Income Tax Act provides unilateral relief to resident taxpayers to avoid double taxation.
    • This applies when the income is taxed in India and in a country without a Double Taxation Avoidance Agreement (DTAA).
    • The assertion (A) correctly states this provision, making it true.
  • Reason (R) is incorrect
    • Reason (R) incorrectly states that the relief under Section 91 is calculated by allowing the higher of the tax calculated at the average Indian rate of tax or the tax calculated at the rate of the other country.
    • In reality, the relief is calculated as the lower of the two rates, not the higher.
    • This makes Reason (R) factually incorrect.
  • Correct Matching
    • Since Assertion (A) is correct and Reason (R) is incorrect, the most appropriate answer is that (A) is correct but (R) is not correct.

Additional Information

  • Double Taxation Avoidance Agreement (DTAA)
    • DTAA is an agreement signed between two or more countries to prevent double taxation of the same income.
    • Under DTAA, taxpayers can avail benefits such as exemptions or reduced tax rates on income earned in the other country.
    • Section 91 applies only when there is no DTAA between India and the other country.
  • Average Indian Rate of Tax
    • This is the total income tax paid in India divided by the total income, expressed as a percentage.
    • It is used to calculate relief under Section 91 along with the tax rate of the other country.
  • Unilateral Relief
    • Relief provided by one country (in this case, India) to avoid double taxation when no treaty exists.
    • This ensures fair taxation and prevents undue hardship to taxpayers.

Question No.7

Which of the following statements are correct for tax Evasion ?

A. All methods by which tax liability is illegally avoided is termed as tax evasion

B. Tax evasion takes into account loopholes of Law

C. Tax evasion is tax godging within framework of Law

D. Tax evasion has legal sanction

E. Tax evasion is intentional attempt to avoid payment of tax after the liability to tax has arisen

Choose the correct answer from the options given below :

  1. B and D Only
  2. B, C and D Only
  3. A, E and C Only
  4. A and E Only
Solutions:

The correct answer is – A and E Only

Key Points

  • Tax evasion refers to the illegal avoidance of tax payments.
  • Statement A: All methods by which tax liability is illegally avoided are categorized under tax evasion.
  • Statement E: Tax evasion involves an intentional attempt to avoid paying taxes after the liability has arisen.
  • These statements clearly define the concept of tax evasion and highlight its unlawful nature.

Additional Information

  • Tax evasion differs from tax avoidance:
    • Tax avoidance is legal and involves using loopholes or provisions in the law to reduce tax liability.
    • Tax evasion, on the other hand, is illegal and involves practices such as under-reporting income or concealing financial transactions.
  • Legal sanctions: Tax evasion does not have legal sanction and often leads to penalties, fines, or legal prosecution.
  • It is a deliberate act violating the tax laws of the country, unlike legitimate methods of reducing taxes within the framework of the law.

Question No.8

An assessee who declares his business/professional income in accordance with the provisions of Section 44 AD(1) or Section 44 ADA(1), must pay up to 100 percent of advance tax payable on or before:

  1. December 15 of the previous year
  2. January 15 of the previous year
  3. February 15 of the previous year
  4. March 15 of the previous year
Solutions:

The correct answer is – March 15 of the previous year

Key Points

  • Advance Tax Payment for Section 44AD/44ADA
    • As per Section 44AD(1) and Section 44ADA(1), businesses or professionals opting for the presumptive taxation scheme are required to pay advance tax for the entire financial year in a single installment.
    • The advance tax must be paid in full on or before March 15 of the preceding financial year.
  • Applicability
    • This rule applies to individuals or entities covered under the presumptive taxation scheme, provided their turnover or gross receipts do not exceed the prescribed limit.

Additional Information

  • Presumptive Taxation Scheme Overview
    • Section 44AD: Applicable to eligible businesses with a turnover of up to Rs. 2 crore.
    • Section 44ADA: Applicable to professionals such as doctors, lawyers, and architects with gross receipts of up to Rs. 50 lakh.
    • Under these sections, income is presumed at a specified percentage of gross receipts/turnover, and detailed maintenance of accounts is not required.
  • Advance Tax Applicability
    • For those not under presumptive taxation, advance tax is paid in four installments (15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15).
    • However, for presumptive scheme assessees, the entire advance tax must be paid in a single installment by March 15.

Question No.9

For assessment year 2025-26, ‘Health and Education Cess’ shall be levied at the rate of:

  1. 1% on Income Tax
  2. 2% on Income Tax
  3. 3% on Income Tax
  4. 4% on Income Tax
Solutions:

The correct answer is – 4% on Income Tax

Key Points

  • Health and Education Cess
    • The Health and Education Cess is a levy imposed by the Government of India to fund health and education initiatives.
    • It is calculated as 4% of the income tax payable by the taxpayer for the respective financial year.
    • This cess is applied to all taxpayers, including individuals, HUFs, firms, and companies.
  • Applicable for Assessment Year 2025-26
    • The 4% rate for Health and Education Cess remains consistent for the assessment year 2025-26, as per the existing tax laws.
    • This rate is uniformly applied across all income categories, without any exemption or variation.

Additional Information

  • Components of the Cess
    • The cess is divided into two main components:
      • Health Cess: Allocated for health-related schemes and facilities in India.
      • Education Cess: Used to fund primary and secondary education initiatives.
  • Key Difference Between Tax and Cess
    • Unlike taxes, a cess is levied for a specific purpose, and the proceeds are earmarked for that purpose only.
    • The revenue collected through the Health and Education Cess cannot be used for any purpose other than health and education.
  • Legal Basis
    • The imposition of the Health and Education Cess is governed by the provisions of the Finance Act.
    • Changes, if any, to the rate or scope of this cess are announced during the Union Budget.

Question No.10

Arm’s length price as per section 92 F of the Income Tax Act is the price applied or proposed to be applied when :

  1. two related persons enter into a transaction in uncontrolled conditions.
  2. two unrelated persons enter into a transaction in controlled conditions.
  3. two related persons enter into a transaction in controlled conditions.
  4. two unrelated persons enter into a transaction in uncontrolled conditions.
Solutions:

The correct answer is – two unrelated persons enter into a transaction in uncontrolled conditions

Key Points

  • Arm’s Length Price
    • As per Section 92F of the Income Tax Act, the term arm’s length price refers to the price that would be charged between two unrelated persons.
    • The transaction should occur under uncontrolled conditions, meaning no external influence or special relationship affects the price.
    • This ensures that the price reflects the fair market value of the goods or services exchanged.
  • Purpose of Arm’s Length Price
    • It is used to ensure that transactions between associated enterprises (related parties) are conducted at a fair and unbiased market value.
    • This concept is crucial in transfer pricing regulations to prevent tax evasion or profit shifting.

Additional Information

  • Uncontrolled Conditions
    • These refer to market conditions where no special relationship (e.g., related parties) exists between the transacting entities.
    • Prices are determined purely by market demand and supply forces.
  • Related vs. Unrelated Persons
    • Related persons: Have a special relationship (e.g., parent-subsidiary, controlled entities) that may influence pricing.
    • Unrelated persons: Independent entities with no special relationship or control over each other.
  • Transfer Pricing Rules
    • These are regulations ensuring that transactions between related parties comply with the arm’s length principle.
    • The objective is to prevent manipulation of prices to avoid taxes or shift profits.
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