NISM V-C Taxation — Practice Questions
Practise the taxation of both the scheme and the investor — capital gains and their holding periods, IDCW, STT, set-off and carry-forward of losses, and the tax treatment of the products in the competitive landscape.
22 questions on Taxation in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Scheme-level taxation
- Capital gains and holding periods
- Set-off and carry-forward
- Taxation of REITs, InvITs and AIFs
Free sample questions
1. Mr. Natraj works in a private limited company and for the purpose of saving taxes has invested in an Equity Linked Saving Scheme of a Mutual Fund. He has chosen the reinvestment of Income Distribution cum Capital Withdrawal (IDCW) option. When can Mr. Natraj redeem the full unit balance?
- A. Only after completion of one year from the original investment
- B. Only after completion of three years from the original investment
- C. Only after completion of five years from the original investment
- D. Only when all the units in his folio has completed three years lock-in period ✅
Answer: D — Only when all the units in his folio has completed three years lock-in period
Why: The investment is in Income Distribution and Capital Withdrawal (IDCW, earlier known as dividend) reinvestment plan in the Equity-Linked Savings Scheme (ELSS). In such a case, each unit allotted on account of reinvestment of IDCW is considered a fresh purchase and hence subject to lock-in for another 3 years from the date of allotment.
💡 ELSS IDCW reinvestment -> each new unit is a FRESH purchase, locked-in 3 yrs from its allotment.
2. If an amount is withdrawn as a part of the Systematic Withdrawal Plan (SWP) than what is the rate of tax applicable on it?
- A. 10% or 20% as per the the time period
- B. If the SWP is started within the first three years than each withdrawal is added to the assessee's income
- C. When the SWP starts after three years of investments than each withdrawal is treated as long term capital gain and the full amount withdrawn would be taxed as such
- D. The entire amount withdrawn is not taxed. Only the earning component is subject to short term or long term capital gain tax. ✅
Answer: D — The entire amount withdrawn is not taxed. Only the earning component is subject to short term or long term capital gain tax.
Why: For the purpose of calculating SWP tax liability, the amount withdrawn is a combination of principal and earnings thereon. Between the two, only the earning is subject to taxation
💡 SWP -> only the EARNING portion of each withdrawal is taxed (STCG/LTCG), not the principal.
3. When is tax applicable for (a) Debt Fund - Growth Option and (b) Fixed Deposit?
- A. (a) There is no tax on the capital gains of a debt fund - Growth plan (b) The interest on a bank fixed deposit is taxable every year
- B. (a) Capital gains on a Debt fund - Growth plan is taxable every year (b) The interest on a bank fixed deposit is taxable every year
- C. (a) Capital gains on a Debt fund - Growth plan is taxable only when redeemed (b) The interest on a bank fixed deposit is taxable every year ✅
- D. (a) Capital gains on a Debt fund - Growth plan is taxable only when redeemed (b) The interest on a bank fixed deposit is taxable on maturity
Answer: C — (a) Capital gains on a Debt fund - Growth plan is taxable only when redeemed (b) The interest on a bank fixed deposit is taxable every year
Why: Capital Gain from a growth plan of a debt mutual fund is taxable only at the time of redemption. The interest on a bank fixed deposit is taxable every year. In fact banks deduct TDS every year (if applicablle).
💡 Debt fund (growth) -> gains taxed only at REDEMPTION; FD interest taxed EVERY year.
Practise all 22 Taxation questions
Plus the full 340-question NISM V-C bank and real-feel mock exams.