MCQ on Income Tax Law and Accounts Unit 1

Taxation Characteristics

• A regressive tax system is not characterized by a proportionate tax rate that increases with income.

Consumption Tax

• The main purpose of a consumption tax is to tax goods and services at the point of sale.

Toll Tax

• A toll tax is exemplified by a tax on the use of roads or bridges.

Bracket Creep

• Bracket creep occurs when taxpayers are pushed into higher tax brackets due to inflation, increasing their tax liability.

Income Tax History

• The first modern Income Tax in India was introduced by James Wilson in 1860.
• The Income Tax Act was enacted in India in 1961.

Income Tax Act 1961

• The main focus of the Income Tax Act 1961 is to consolidate and amend the laws related to income tax.
• The Act mentions five heads of income: Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital Gains, and Income from Other Sources.

Objectives of Taxation

• The primary objective of taxation is to raise revenue for the government.
• One objective of taxation is to discourage consumption of harmful goods by imposing higher taxes.
• A common way to regulate production through taxation is by imposing higher taxes on undesirable goods.
• Economic development can be measured through indicators such as GDP per capita.

Indian Economy

• The Indian household savings rate is relatively high.

Income Tax Definitions

• Assessment in the context of income tax refers to the process of determining the tax liability of a taxpayer.
• An Assessee is any person or entity whose tax liability is being assessed.
• Income, according to Sec.2 (24), includes dividends, capital gains, and profits from business or profession.
• A taxpayer's income is assessed for tax purposes at the end of the financial year.
• A Person, according to Sec.2 (7), includes an individual, Hindu Undivided Family, firm, local authority, company, or trust.