Income Tax is governed under which schedule of the Indian Constitution? MCQ with Answer and Explanation

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Income Tax is governed under which schedule of the Indian Constitution?

A. 8th Schedule

B. 7th Schedule (Union List)

C. 7th Schedule (Concurrent List)

D. 7th Schedule (State List)

Answer: Option B

Solution (By JKSSB Mock Tests)

Taxes on income other than agricultural income fall under Entry 82 of List I (Union List) in the Seventh Schedule.

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Question #1

An amount paid for 'Goodwill' on purchase of a business is classified as:

A. Fictitious asset

B. Current asset

C. Deferred revenue expenditure

D. Intangible asset

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Correct Answer: Option D

Explanation:
Purchased goodwill is an intangible asset.

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Question #2

A partner's drawings are ₹12,000 drawn evenly throughout the year. Interest on drawings @ 10% p.a. would be:

A. ₹300

B. ₹550

C. ₹1,200

D. ₹600

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Correct Answer: Option D

Explanation:
If drawings are made evenly throughout the year, average period = 6 months. Interest = 12,000 × 10% × 6/12 = ₹600.

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Question #3

A: Interest on capital is allowed only out of profits. R: If the firm incurs a loss, no interest on capital is allowed. Choose the correct option.

A. Both A and R are true and R is the correct explanation of A

B. Both A and R are true but R is NOT the correct explanation of A

C. A is false but R is true

D. A is true but R is false

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Correct Answer: Option A

Explanation:
Interest on capital is an appropriation of profit, not a charge against profit. Therefore, it is only allowed if the firm makes a profit. If there is a loss, it is not allowed. R correctly explains A.

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