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Top 30 Interview Questions and Answers for Income
Tax
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Introduction If you're looking for a job in the
Income Tax department. This blog will serve as a
resource for you as you prepare for Income Tax
Interview Questions and Answers. To work in the
Income Tax Department of the Government, one must
pass both the (Union Public Service Commission)
UPSC prelims and mains exams. Another option is
to pass the Income Tax Department Selection Test,
which comprises four papers. If the aspirants
pass any of these, they would be qualified for an
interview. Q-1. Give a brief introduction about
yourself This is the first question that many
interviewers ask. This is an icebreaker
question, and the interviewer will frame the next
question based on your response. It's a
broad-reaching question that covers a lot of
ground on the candidate. The interviewer asks
this question to make the candidate feel at ease
and to gain insight into the candidate. Never be
overly enthused when answering this question, but
always be honest. If it is answered correctly and
professionally, the chances of being recruited
increase. Q-2. Describe income tax in more
detail This Income Tax Interview Questions and
Answers serve as the foundation for an income
tax. The government levies income tax on
individuals' earnings to fund public
expenditures or outlays to achieve the goal of
social security. The tax is levied for the
fiscal year at the rates set by the Central
Government in the Union Budget for the fiscal
year before the current year. Q-3. How is the
Income Tax calculated? Income tax is determined
based on an individual's total income from
salary, company profits, capital gains, house
property, and other resources. Every fiscal
year, the income tax is determined using the tax
slab published by the government. Q-4 What do
you mean by Total Income?
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Total Income is the amount on which Income Tax is
paid, including any income that occurs, accrues,
is received, or earns in India. It excludes money
generated outside of the country. It is the
total amount earned by an individual or business,
including income from providing services or
employment, payments from pension schemes,
dividend income, and sales revenue. Total income
is determined for tax purposes, calculating an
individual's or organization's ability to make
debt payments, or determining a company's net
worth. Q-5. What is the difference between the
Financial Year, the Previous Year, and the
Assessment Year? The Financial Year runs from
April 1st to March 31st of each year. It is used
in enterprises and organizations to calculate
various financial evaluation statements every
year. The Assessment Year is the year
immediately following the fiscal year in which
the income from the preceding fiscal year is
assessed. The assessment year is used by the
government to assess the preceding year to
collect taxes. The previous year is the year in
which income is earned and becomes taxable in
the following assessment year. For example, if
the current evaluation year is 2020-2021, the
previous year is 2019-2020. Q-6. What exactly do
you mean by Assesses? An Assesses is a person
who is required to pay tax or any other quantity
of money under the Income Tax Act. It includes
anyone about any proceeding brought under this
Act for the assessment of his income or the
income of the other person in respect of whom he
is assessable, or any loss sustained by him or
such other person, or the amount refunded due to
him or such other person, as well as anyone who
is considered to be an assessee under any
provision of this Act. Q-7. How to decide the
residential status of profits or income
taxpayers?
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Individuals' residential status is classified as
Resident or Non-Resident under the terms of the
Income Tax Act. So, under Section 6(1), an
individual is said to be a resident of India in
any previous year if he meets any of the basic
conditions, namely, he is in India for at least
182 days in the previous year or he is in India
for at least 60 days in the relevant previous
year and at least 365 days in the four years
preceding that of the previous year. If a
person, regardless of nationality, fails to
comply with this condition, they are classified
as a non-resident. Q-8. How does an individual's
tax liability change as a result of his
residency? According to Section 5 of the Tax
Act, a private's responsibilities are affected by
his residence status and are also linked to the
place and time of receipt of the income. There
is a distinction between Indian and foreign
income since Indian income is always taxable in
India regardless of the individual paying the
tax's residency status. Q-9. What is Indian
Income? Indian income is defined as the money
obtained or deemed to have been received in
India during the previous year as well as the
money accrued or deemed to have accrued in India
during the same year. It is sometimes referred to
as "Indian income" if the money was received in
India during the prior year or was believed to
have been received there during the prior year,
or if the revenue was received abroad during the
prior year but accrued in India during the prior
year. Q-10. What types of revenue are included
in accumulated income? Accrued income is money
that has been earned but not yet received. Both
the accounting period in which the money is
produced and the period in which it will be
received must be used to record the income.
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Q-11. What is your knowledge of the fringe
benefits tax? The tax that an employer must pay
for the perks that are provided to his employer
in addition to the compensation is known as the
"Fringe Benefits Tax." It is paid instead of the
value of the fringe benefits that the employer
gave or is alleged to have provided to his
employees in the previous year. Q-12 What
exactly do you mean by "Capital Gain?" The
profit made from the sale of an asset is referred
to as capital gain. When an asset is sold, the
income or gain those results is the difference
between the selling price and the purchase
price. Short-term and long-term capital gains are
both possible. If an asset is held for less than
a year and then sold, it is considered a
short-term gain however, if the item is held for
more than a year to three years and then sold,
it is considered a long-term gain. Q-13 What
are your thoughts about AMT? The Alternative
Minimum Tax (AMT) is a tax that employs a
distinct set of principles to assess taxable
income after deductions. This is a method of
discouraging rich people from evading taxes. It
limits certain perks for higher- income tax
groups and reduces the taxpayer's normal tax
amount. If the tax benefits lower the total tax
below the AMT ceiling, the taxpayer must pay a
higher AMT amount. Q-14. In India, is it
possible to seek a refund for an overpayment of
taxes? Yes, there is a provision in India for
receiving a refund of overpaid taxes combined
with interest. When requesting a refund, one must
file an income tax return within a certain time
frame. The status of tax refunds can be tracked
on the NSDL-TIN website by entering the PAN and
the year of assessment for which the refund was
sought under the Status of Tax Refunds page.
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Q-15 What exactly do you mean by the ICR
procedure, and how does it benefit you? The
Inter-Firm Reconciliation (ICR) method assists
the parent company in separating itself from its
subsidiary companies based on location.
Businesses that are commonly controlled must
prepare a consolidated financial statement fo r
tax and reporting purposes each year. This
method aids in the maintenance of accurate
reporting as well as the avoidance of
misinterpretation of the firm's financial
status. Q-16. What exactly is a Provident Fund?
What are the different kinds ? The Provident
Fund is a government-managed program in which
both the employer and the employee contribute to
the employee's wage. Provident Funds are
classified into 4 types -

• A recognized Provident Fund - RPF is a program
  that must be approved by the
• Income Tax Commissioner and applies to an
  organization with at least 20 employees.
• An unrecognized provident fund - URPF - is
  established by employers and employees in a
  business and is not approved by the Income Tax
  Commissioner.
• The statutory Provident Fund - SPF is primarily
  intended for employees of Educational Institutes
  (associated with universities).
• PPF requires a minimum contribution of Rs.500 per
  year and a maximum contribution of Rs. 100,000
  per year. Unless extended, the contribution and
  interest received are repayable after 15 years.

Q-17 What exactly is Excise Duty? An indirect
tax is charged on commodities manufactured in
India that are intended for personal use. The
taxable person is the manufacturer, and the excise
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duty responsibility originates from the items
manufactured. The manufacturer pays this tax,
which is then passed on to the customers. Q-18
What exactly is service tax? Service tax is a
government-imposed indirect tax on certain
services that are paid by customers rather than
service providers. The service tax includes
services such as AC restaurant services, motels,
and inns. Q-19 What is an Excise tax, and how
does it vary from a Service tax? Excise tax is
another sort of indirect tax that is levied on
the manufacture, sale, or use of specific goods
or products. It is typically levied on items such
as cigarettes or alcohol, as well as on the cost
of activities such as gambling. Excise taxes can
be levied by both federal and state governments.
It differs from service tax in that it is levied
on manufactured commodities, whereas service tax
is levied on services rendered. Q-20. Does an
NRI have to pay property tax if he buys a
property in India? Any income or capital gain
generated by an NRI from the sale, rent, or lease
of a valuable property or asset based in India
must be taxed by Income Tax guidelines. If the
property is more than three years old, a
long-term capital gain of 20 will be incurred
on the sale of the property. Q- 21 What is
deferred tax liability? What goods are included
in deferred tax liability? Deferred tax
liability refers to a tax liability that a firm
owes but does not pay at the moment but must pay
at some point soon. It is a balance-sheet item
that accounts for the gap between future taxes
owed and taxes paid today. Deferred tax
liability includes items such as unrealized tax
and depreciation .
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Q-22. What exactly is amortization? Amortization
occurs when a company's assets are written off
over numerous years to renew or replace them and
are not dependent on the asset's life. It is not
synonymous with depreciation. Q-23 What exactly
is a deferred tax asset? A deferred tax asset
exists when a company pays taxes early or has
paid too much tax and seeks money back from the
tax authorities. The word appears on the balance
sheet and is also referred to as a provision for
future taxation . Q-24. What do the terms
Streamlined Sales and Use Tax Agreement
mean? Both titles were coined in 1999 by the
National Governors Association (NGA) and the
National Conference of State Legislatures (NCSL)
to facilitate sales tax collection. Because
sales tax is the second-largest source of revenue
for the state after personal income taxes,
collection needed to be streamlined. It resulted
in the creation of a more straightforward and
business-friendly sales tax regime. The
Agreement reduced the expenses and administrative
difficulties of collecting sales taxes on
businesses, particularly those operating in many
states. Q-25 What exactly do you mean by
taxation? The government uses taxation as one of
the methods to support its expenses by placing
charges on corporate organizations and citizens.
The government charges its population to
encourage or discourage specific economic
decisions . Q-26 What exactly is a tax
refund? A tax refund is when the government
returns the extra tax paid by an individual over
the amount payable by the individual. When you
file you r income tax return for the year, the
income tax, tax deductions or credits,
withholdings, and other criteria are considered
you will then receive a tax refund.
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Q-27 What exactly is fund flow? Working capital
is the primary source of funds. It describes the
numerous sources of funds, which is highly
helpful in comprehending long-term financial
plans. The arrangement of changes in working
capital shows the changes in current assets and
current liabilities. Q-28. What exactly is cash
flow? Cash flow is primarily determined by only
one component of working capital, which is cash.
It begins with the cash opening balance and ends
with the cash closing balance. This is highly
valuable for understanding short-term tactics
that affect firm liquidity. The cash flow shows
the changes in current assets and current
liabilities. Q-29 What do you mean by
"Commercial Tax"? Commercial Tax refers to the
tax imposed on scheduled commercial items and
collected indirectly by the seller or buyer
against his business transactions, which today
include sales, entertainment, luxury, admission,
and profession . Q-30 What exactly do you mean
by "transfer income?" Transfer income occurs
when someone retains ownership of an asset while
also agreeing to transfer its revenue, yet the
income is considered his income and is added to
the overall income. Conclusion As a result, the
aforementioned income tax interview questions
answers are frequently encountered by
candidates. If you wish to brush up on your
skills and become an Income Tax Specialist, you
can take the Income Tax Certification Course.
This will not only help one prepare for selection
tests, but it will also help one face a personal
set of interviews. The set of questions and
answers will also aid in answering
objective-type inquiries. When one gets a
position in the
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income tax department, they get various benefits
such as job stability and a consistent salary,
an assured pension, medical coverage, and other
benefits .