Prepare for FAA 2026 with these Important MCQs on Taxation and Tax Laws, specially prepared by Exam Waves. Practice key questions on direct and indirect taxes, Income Tax, residential status, PAN, tax terms, Advance Tax, ITR, and other important concepts.
Q1. Consider the following statements regarding Direct Taxes and Indirect Taxes:
- Direct Taxes are taxes in which incidence and impact fall on the same person.
- Income Tax, Corporate Tax, Gift Tax and Property Tax are examples of Direct Taxes.
- Indirect Taxes are taxes in which incidence and impact fall on two different persons.
- GST, Custom Duty, Excise Duty, VAT and Service Tax are given as examples of Indirect Taxes.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q2. Consider the following statements regarding the nature of taxes and Assessment Year:
- Direct Taxes are progressive in nature.
- Indirect Taxes are regressive in nature.
- An Assessment Year is a period of 12 months.
- The Assessment Year starts on 1st April every year and falls immediately after the Previous Year.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q3. Consider the following statements regarding Previous Year, Assessment Year and New Income:
- Previous Year refers to the year in which income is earned before the Assessment Year.
- Income earned in one year is generally assessed in the next year.
- In the case of a new source of income, the Previous Year begins from the date when the new source of income comes into existence.
- Assessment Year always precedes the Previous Year.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q4. Consider the following statements regarding an Assessee and administration of Tax Laws:
- An Assessee is a person who is liable to pay tax on aggregate income.
- The Finance Ministry is associated with the administration of Tax Laws.
- CBDT stands for Central Board of Direct Taxes.
- CBIC stands for Central Board of Indirect Taxes and Customs.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q5. Consider the following statements regarding Income Tax and PAN:
- Income Tax is charged as per Section 4.
- Rates of Income Tax are prescribed in the Finance Act as well as the Income Tax Act.
- PAN stands for Permanent Account Number.
- PAN is a 10-digit alphanumeric number.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q6. Consider the following statements regarding an Individual and Hindu Undivided Family (HUF):
- An Individual refers to a natural person or human being.
- Deities are assessable as juridical persons.
- A HUF is a family to which Hindu law applies.
- A HUF includes persons lineally descended from a common ancestor along with their wives and unmarried daughters.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q7. Consider the following statements regarding Hindu Undivided Family (HUF):
- Buddhists, Sikhs and Jains can also form a HUF.
- A HUF is formed only by family members.
- It is created automatically at the time of marriage.
- Persons completely unrelated to the family can freely constitute a HUF together.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q8. Consider the following statements regarding Company and Firm for taxation purposes:
- A Domestic Company is covered under Section 2(22A) of the Income Tax Act.
- A Foreign Company is covered under Section 2(23A).
- A Firm is defined under Section 4 of the Indian Partnership Act, 1932.
- A Firm is treated as a separate entity for Income Tax purposes.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q9. Consider the following statements regarding Association of Persons (AOP), Body of Individuals (BOI) and Local Authority:
- An AOP is a group of individuals who join together for a common purpose.
- In an AOP, income is produced through their joint activity.
- A BOI consists only of individuals.
- A Local Authority is defined under Section 3(31) of the General Clauses Act.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q10. Consider the following entities given as examples of Local Authorities:
- Municipal Corporation
- District Board
- Cantonment Board
- Hindu Undivided Family
Which of the above are examples of Local Authorities?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q11. Consider the following statements regarding Artificial Juridical Person:
- It is not a natural person.
- It is treated as a separate legal entity.
- It may include idols, universities and Bar Council.
- It is restricted only to human beings having taxable income.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q12. Consider the following Heads of Income under Section 14:
- Salaries
- Income from House Property
- Profits and Gains of Business or Profession
- Capital Gains
- Income from Other Sources
Which of the following correctly represents the Heads of Income given in the topic?
A) 1, 2 and 3 only
B) 1, 2, 3 and 4 only
C) 2, 3, 4 and 5 only
D) 1, 2, 3, 4 and 5
Answer: D
Q13. Consider the following statements regarding Surcharge and Residential Status:
- Surcharge is levied on the amount of Income Tax.
- Health and Education Cess is stated as 4%.
- Residential Status determines whether a person is treated as Resident or Non-Resident.
- Residential Status has no connection with the conditions relating to stay in India.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q14. Consider the following conditions relating to Resident of India:
- A person may be considered resident if he stays in India for 182 days or more during the Previous Year.
- Another condition considers a stay of 60 days in the Previous Year.
- Under the second condition, the person must also have stayed for 365 days or more during the preceding four years.
- A person must necessarily satisfy both conditions simultaneously in every case.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q15. Consider the following statements regarding Resident and Ordinarily Resident (ROR):
- A person must first be considered Resident.
- The person should have been resident in India in at least 2 out of the last 10 Previous Years.
- The person should have stayed in India for 730 days or more during the preceding 7 years.
- A person satisfying none of the conditions of Section 6 is treated as ROR.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q16. Consider the following statements regarding Advance Tax and Income Tax Return (ITR):
- Advance Tax is tax paid in advance during the financial year.
- Advance Tax is paid on income earned in that year.
- An Income Tax Return shows the gross taxable income of a salaried person for the financial year.
- ITR is exclusively a certificate issued by an employer to an employee.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
Q17. Consider the following statements regarding important Tax Terms:
- Ad Valorem is a method of taxation in which tax is levied as a percentage of the value of goods.
- Section 80C provides exemptions on specific investments and expenses, helping to reduce taxable income.
- Surcharge is an additional tax charged on individuals whose income exceeds the limit set by the government.
- Tax Slabs represent ranges of income levels that determine the applicable tax rate for individuals.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q18. Consider the following Advance Tax instalments given in the topic:
- Up to 15 June — 15%
- Up to 15 September — 45%
- Up to 15 December — 75%
- Up to 15 March — 100%
Which of the above are correctly matched?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: D
Q19. Consider the following statements regarding Self-Assessment Tax and Rebate:
- Self-Assessment Tax is levied on individuals who receive unexpected income from sources without TDS/TCS deductions.
- Rebate refers to a reduction in the total tax payable.
- Self-Assessment Tax and Rebate have exactly the same meaning.
- Rebate increases the total amount of tax payable.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: A
Q20. Consider the following statements regarding Form 26AS and Form 16:
- Form 26AS is a tax statement showing information related to taxes.
- Form 16 is a certificate issued by an employer to an employee.
- Form 16 provides details of the salary earned by an employee during the financial year.
- Form 26AS and Form 16 are described as identical documents issued only by an employer.
Which of the statements given above are correct?
A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4
Answer: B
