UPSC Prelims Practice Questions — Taxation bill passed in the Lok Sabha
Q1. With reference to the Taxation and Other Laws (Amendment) Bill, 2026 passed by the Lok Sabha, consider the following statements:
1. It amends the Payment and Settlement Systems Act, 2007.
2. It raises the surcharge on special purpose vehicles of business trusts opting for the concessional corporate tax regime from 10 per cent to 25 per cent.
3. It amends the Finance Act, 2026.
4. It amends the Income-tax Act, 1961, which continues to remain in force alongside the Income-tax Act, 2025.
Which of the above is/are NOT correct?
- It amends the Payment and Settlement Systems Act, 2007.
- It raises the surcharge on special purpose vehicles of business trusts opting for the concessional corporate tax regime from 10 per cent to 25 per cent.
- It amends the Finance Act, 2026.
- It amends the Income-tax Act, 1961, which continues to remain in force alongside the Income-tax Act, 2025.
- A. 1 and 3
- B. 2 only
- C. 4 only
- D. 2 and 4
Q2. The direct-tax amendments carried by the Taxation and Other Laws (Amendment) Bill, 2026 are administered, through the Central Board of Direct Taxes, by which one of the following Departments of the Ministry of Finance?
- A. The Department of Financial Services, which oversees banks, insurers and pension funds
- B. The Department of Revenue, which oversees direct and indirect tax administration
- C. The Department of Economic Affairs, which oversees macroeconomic and capital-market policy
- D. The Department of Expenditure, which oversees public financial management and pay matters
Q3. Consider the following statements regarding the taxation of foreign investors in Government Securities:
1. The Income-tax (Amendment) Ordinance, 2026 granting the exemption was promulgated on 5 June 2026.
2. The exemption applies to income arising on or after 1 April 2026.
3. Before the exemption, interest income earned by foreign portfolio investors from Government Securities attracted withholding tax at 20 per cent.
4. Before the exemption, long-term capital gains of foreign portfolio investors on Government Securities held for more than twelve months were taxed at 20 per cent.
Which of the statements given above is/are correct?
- The Income-tax (Amendment) Ordinance, 2026 granting the exemption was promulgated on 5 June 2026.
- The exemption applies to income arising on or after 1 April 2026.
- Before the exemption, interest income earned by foreign portfolio investors from Government Securities attracted withholding tax at 20 per cent.
- Before the exemption, long-term capital gains of foreign portfolio investors on Government Securities held for more than twelve months were taxed at 20 per cent.
- A. 1 and 2 only
- B. 2, 3 and 4
- C. 1, 2 and 3
- D. 1 and 4 only
Q4. Under the zero-MDR framework in force before the 2026 amendment, how many electronic payment modes were prescribed by the Central Board of Direct Taxes in December 2019, on which section 10A of the Payment and Settlement Systems Act, 2007 barred any charge on the payer or the beneficiary?
- A. Two
- B. Three
- C. Five
- D. Seven
Q5. In the context of India's digital payments framework, the Merchant Discount Rate refers to which one of the following?
- A. The charge levied on a merchant by banks and payment service providers for processing a digital payment transaction
- B. The price reduction a merchant offers to a customer who pays digitally rather than in cash
- C. The fee paid by an acquiring bank to the network operator for switching and routing a transaction
- D. The amount reimbursed by the Central Government to banks for low-value merchant payments
Q6. With reference to the Payment and Settlement Systems Act, 2007, consider the following statements:
1. The Reserve Bank of India is the designated authority for the regulation and supervision of payment systems under the Act.
2. Authorisation to commence or operate a payment system must, in every case without exception, be obtained from the Central Government.
3. The Board for Regulation and Supervision of Payment and Settlement Systems is constituted as a committee of the Central Board of the Reserve Bank of India.
4. The Governor of the Reserve Bank of India is the Chairperson of that Board.
Which of the statements given above is/are NOT correct?
- The Reserve Bank of India is the designated authority for the regulation and supervision of payment systems under the Act.
- Authorisation to commence or operate a payment system must, in every case without exception, be obtained from the Central Government.
- The Board for Regulation and Supervision of Payment and Settlement Systems is constituted as a committee of the Central Board of the Reserve Bank of India.
- The Governor of the Reserve Bank of India is the Chairperson of that Board.
- A. 1 only
- B. 2 only
- C. 2 and 3
- D. 3 and 4
Q7. Under the Payment and Settlement Systems Act, 2007, the expression 'payment system' is defined to mean which one of the following?
- A. A system enabling payment between a payer and a beneficiary, involving clearing, payment or settlement service, but not a stock exchange
- B. An arrangement under which a bank maintains and settles the deposit accounts of its customers, including cheque clearing but excluding card networks
- C. A network of financial institutions notified by the Central Government for electronic transfer of government receipts and payments
- D. An infrastructure operated by the Reserve Bank for settlement of interbank obligations, excluding systems run by private entities
Q8. Under the Income-tax Act, 2025, the primary unit of time for which income is computed and charged to tax is designated as which one of the following?
- A. The assessment year
- B. The previous year
- C. The tax year
- D. The financial year
Q9. Consider the following statements about the Income-tax Act, 2025:
1. It came into force on 1 April 2026.
2. It repeals the Income-tax Act, 1961.
3. It reduces the volume of text and the number of sections by roughly half compared with the Act it replaces.
4. It prescribes a fresh set of tax rates and slabs for individuals and companies distinct from those in force earlier.
Which of the statements given above is/are correct?
- It came into force on 1 April 2026.
- It repeals the Income-tax Act, 1961.
- It reduces the volume of text and the number of sections by roughly half compared with the Act it replaces.
- It prescribes a fresh set of tax rates and slabs for individuals and companies distinct from those in force earlier.
- A. 1, 2 and 3
- B. 1 and 4 only
- C. 2, 3 and 4
- D. 1, 3 and 4
Q10. An Ordinance promulgated under Article 123 of the Constitution, if not disapproved earlier by resolutions of both Houses, ceases to operate on the expiry of how many weeks from the reassembly of Parliament?
- A. Four weeks
- B. Six weeks
- C. Eight weeks
- D. Twelve weeks
Q11. With reference to the investment- and manufacturing-related measures in the Taxation and Other Laws (Amendment) Bill, 2026, consider the following statements:
1. Foreign suppliers of electronic components stored in customs-bonded warehouses and supplied to Indian contract manufacturers are exempted up to the tax year 2040-41.
2. For such foreign suppliers, the exemption replaces an earlier safe-harbour regime that presumed profits at 2 per cent.
3. The number of conditions to be satisfied by an 'eligible investment fund' is reduced from thirteen to five.
4. The exemption for rough diamond trading by foreign mining companies in notified special zones runs up to 31 March 2036.
Which of the above is/are NOT correct?
- Foreign suppliers of electronic components stored in customs-bonded warehouses and supplied to Indian contract manufacturers are exempted up to the tax year 2040-41.
- For such foreign suppliers, the exemption replaces an earlier safe-harbour regime that presumed profits at 2 per cent.
- The number of conditions to be satisfied by an 'eligible investment fund' is reduced from thirteen to five.
- The exemption for rough diamond trading by foreign mining companies in notified special zones runs up to 31 March 2036.
- A. 1 and 2
- B. 3 only
- C. 3 and 4
- D. 4 only