Preparing for the Income Tax Inspector Departmental Examination is not just about reading the rules and provisions—it is about practising as many quality questions as possible. Regular practice helps you understand the exam pattern, identify your strengths and weaknesses, and build the confidence needed to perform well in the examination.
To support your preparation, Simple Income Tax is launching a series of Paper I Practice Papers, each containing 20 original multiple-choice questions (MCQs) based on the latest Departmental Examination Rules, 2026 and the current syllabus. These questions have been specially prepared for practice and are completely different from those asked in the 2025 Departmental Examination. Every question is accompanied by the correct answer and a detailed explanation so that you not only know the right option but also understand the reasoning behind it.
Before checking the answers, try to solve all the questions on your own, just as you would in the actual examination. This approach will help you assess your preparation, improve your accuracy, and identify the topics that need further revision. Complete all the Practice Papers in this series to strengthen your concepts and maximise your chances of success in the Income Tax Inspector Departmental Examination.
1. Mr. A, a resident individual, filed his return of income within the prescribed due date. Subsequently, he noticed that he had omitted to report interest income from a savings bank account. Which of the following is the most appropriate course of action under the Income Tax Act?
a) Wait for a notice from the Assessing Officer.
b) File an updated return in every case.
c) File a revised return, if permissible under the Act.
d) No action is required if the omitted income is less than Rs. 10,000.
Answer: (c) File a revised return, if permissible under the Act.
Explanation:
Where a taxpayer discovers any omission or wrong statement after furnishing the original return, the Income Tax Act permits filing of a revised return, subject to the prescribed conditions and time limits. An updated return is not the first remedy where a revised return is legally permissible.
2. Which of the following statements regarding the residential status of an individual is correct?
a) Residential status depends only upon citizenship.
b) Residential status is determined separately for every previous year.
c) Once a resident, always a resident.
d) Residential status depends upon the place where income is earned.
Answer: (b) Residential status is determined separately for every previous year.
Explanation:
Residential status is determined independently for each previous year based on the conditions prescribed under the Income Tax Act. Citizenship or the place where income is earned is not the determining factor.
3. Consider the following statements:
Statement I: Agricultural income earned from agricultural land situated outside India is exempt under the Income Tax Act.
Statement II: Agricultural income from land situated in India may be exempt subject to the provisions of the Act.
a) Both statements are true.
b) Both statements are false.
c) Statement I is true but Statement II is false.
d) Statement I is false but Statement II is true.
Answer: (d) Statement I is false but Statement II is true.
Explanation:
Only agricultural income derived from agricultural land situated in India qualifies for exemption under the Income Tax Act, subject to the prescribed conditions. Agricultural income from land situated outside India does not enjoy this exemption.
4. Which of the following incomes is chargeable under the head “Income from Other Sources” if it is not taxable under any other head?
a) Salary received from an employer.
b) Interest on fixed deposits.
c) Profit from sale of stock-in-trade.
d) Rental income from a house property owned by the assessee.
Answer: (b) Interest on fixed deposits.
Explanation:
Interest earned on bank fixed deposits is generally taxable under the head Income from Other Sources, unless it is assessable under another head due to specific facts of the case.
5. A taxpayer submits a grievance regarding non-receipt of refund through the Income Tax Department’s online grievance mechanism. Which of the following digital platforms is specifically meant for grievance redressal?
a) TRACES
b) AIS
c) e-Nivaran
d) PAN Services Portal
Answer: (c) e-Nivaran
Explanation:
The e-Nivaran facility is designed for electronic grievance redressal relating to Income Tax matters, enabling taxpayers to submit and monitor their grievances online.
6. Under the Taxpayers’ Charter, which of the following best reflects the obligation of the taxpayer?
a) To demand exemption from compliance requirements.
b) To provide complete and accurate information whenever required.
c) To avoid responding to departmental communications until a notice under section 148 is issued.
d) To disclose only such information as specifically requested during assessment.
Answer: (b) To provide complete and accurate information whenever required.
Explanation:
The Taxpayers’ Charter emphasizes mutual responsibility. Taxpayers are expected to provide complete, correct and truthful information and comply with the provisions of the Income Tax Act.
7. Which of the following provisions primarily deals with deduction of tax at source from salary?
a) Section 192
b) Section 194A
c) Section 194C
d) Section 206C
Answer: (a) Section 192
Explanation:
Section 192 governs deduction of tax at source from salary. Sections 194A and 194C deal with interest and contractual payments respectively, while Section 206C relates to tax collection at source.
8. Consider the following statements:
Statement I: Every person having a PAN is necessarily required to file a return of income.
Statement II: The obligation to furnish a return depends upon the provisions of the Income Tax Act and prescribed conditions.
a) Both statements are true.
b) Both statements are false.
c) Statement I is false but Statement II is true.
d) Statement I is true but Statement II is false.
Answer: (c) Statement I is false but Statement II is true.
Explanation:
Merely possessing a PAN does not automatically create an obligation to file a return. Return filing depends upon the conditions specified under the Income Tax Act and the relevant Rules.
9. Which of the following digital services enables a taxpayer to view tax deducted at source, tax collected at source, specified financial transactions and other tax-related information in a consolidated manner?
a) e-PAN
b) Form 26AS
c) TAN Registration Portal
d) ASK Portal
Answer: (b) Form 26AS
Explanation:
Form 26AS is the taxpayer’s consolidated annual tax statement containing details of TDS, TCS, advance tax, self-assessment tax, refunds and certain specified financial transactions.
10. A taxpayer receives a communication from the Department requesting additional information relating to his return through the registered electronic mode. According to the principles of taxpayer services, the taxpayer should:
a) Ignore the communication unless a physical notice is also served.
b) Respond within the prescribed time through the appropriate electronic mode.
c) Visit the jurisdictional office personally in every case.
d) Wait until the assessment is completed before furnishing the information.
Answer: (b) Respond within the prescribed time through the appropriate electronic mode.
Explanation:
The Income Tax Department encourages electronic compliance. Taxpayers should respond to communications through the prescribed online platform within the stipulated time to ensure timely processing and avoid unnecessary consequences.
11. Consider the following statements regarding Permanent Account Number (PAN):
Statement I: Every person who has been allotted a PAN is required to quote it in all financial transactions.
Statement II: Failure to quote PAN in transactions where it is mandatory may attract consequences under the Income Tax Act.
Choose the correct option:
a) Both Statement I and Statement II are true.
b) Both Statement I and Statement II are false.
c) Statement I is true but Statement II is false.
d) Statement I is false but Statement II is true.
Answer: (d) Statement I is false but Statement II is true.
Explanation:
PAN is required to be quoted only in specified transactions notified under the Income Tax Act and Rules. Failure to quote PAN where legally required may attract statutory consequences.
12. Mr. X received a notice seeking clarification regarding information appearing in his Annual Information Statement (AIS). Which of the following would be the most appropriate action?
a) Ignore the information because AIS is only informative.
b) Verify the information and submit an appropriate response, wherever required.
c) File a revised return without checking the correctness of AIS.
d) Request deletion of AIS information without verification.
Answer: (b) Verify the information and submit an appropriate response, wherever required.
Explanation:
AIS serves as an important source of taxpayer information. Taxpayers should reconcile the information with their own records and provide an appropriate response wherever necessary.
13. Which of the following statements correctly distinguishes exempt income from deductible income?
a) Exempt income forms part of Gross Total Income before deduction.
b) Deductions under Chapter VI-A reduce Gross Total Income subject to statutory conditions.
c) Both exempt income and deductions are treated identically under the Act.
d) Exempt income is taxable only at special rates.
Answer: (b) Deductions under Chapter VI-A reduce Gross Total Income subject to statutory conditions.
Explanation:
Exempt income is generally excluded from total income, whereas deductions under Chapter VI-A are allowed from the Gross Total Income subject to fulfillment of prescribed conditions.
14. Consider the following statements:
Statement I: Every assessment necessarily involves a personal hearing.
Statement II: The Act permits electronic compliance and communication wherever prescribed.
Choose the correct option.
a) Both statements are true.
b) Both statements are false.
c) Statement I is false but Statement II is true.
d) Statement I is true but Statement II is false.
Answer: (c) Statement I is false but Statement II is true.
Explanation:
Modern assessment procedures increasingly provide for electronic communications. A personal hearing is not mandatory in every case and depends on the applicable legal provisions and procedures.
15. Which of the following best reflects the objective of Tax Deduction at Source (TDS)?
a) To increase the rate of tax.
b) To collect tax at the earliest possible stage of income generation.
c) To replace advance tax.
d) To exempt taxpayers from filing returns.
Answer: (b) To collect tax at the earliest possible stage of income generation.
Explanation:
The TDS mechanism facilitates early and regular collection of tax and improves tax compliance.
16. Mr. A has income under the heads “Salary” and “Income from House Property”. He also earns bank interest. Under which head will the bank interest ordinarily be assessed?
a) Salary.
b) House Property.
c) Income from Other Sources.
d) Capital Gains.
Answer: (c) Income from Other Sources.
Explanation:
Unless taxable under another specific head, interest earned on bank deposits is generally chargeable under the head “Income from Other Sources.”
17. Consider the following statements regarding the Taxpayers’ Charter:
Statement I: The Department is expected to provide courteous and fair treatment to taxpayers.
Statement II: Taxpayers have no responsibility to maintain proper records.
Choose the correct option.
a) Both statements are true.
b) Both statements are false.
c) Statement I is true but Statement II is false.
d) Statement I is false but Statement II is true.
Answer: (c) Statement I is true but Statement II is false.
Explanation:
The Taxpayers’ Charter outlines reciprocal obligations. The Department must provide fair treatment, while taxpayers are expected to maintain proper records and comply with the law.
18. Which of the following digital facilities enables taxpayers to electronically verify their Income Tax Return without sending a signed ITR-V to CPC?
a) e-Verification facility.
b) AIS Portal.
c) TRACES Portal.
d) TAN Registration Portal.
Answer: (a) e-Verification facility.
Explanation:
Electronic verification allows taxpayers to complete the return filing process using prescribed electronic verification methods, eliminating the need to send a physical ITR-V in eligible cases.
19. A taxpayer receives salary arrears during the current previous year. The relief, if otherwise admissible, is generally governed by which provision?
a) Section 89.
b) Section 80C.
c) Section 194A.
d) Section 206C.
Answer: (a) Section 89.
Explanation:
Relief under Section 89 is intended to mitigate the additional tax burden arising from receipt of salary arrears or advance salary, subject to the prescribed conditions.
20. Which of the following statements is correct?
a) Every income received by an individual is exempt from tax unless specifically included.
b) Every receipt is taxable irrespective of the provisions of the Act.
c) Taxability of income depends upon the charging provisions and other relevant provisions of the Income Tax Act.
d) Only income disclosed in the return can be subjected to assessment.
Answer: (c) Taxability of income depends upon the charging provisions and other relevant provisions of the Income Tax Act.
Explanation:
Income is taxable only where it falls within the scope of the charging provisions and satisfies the conditions laid down in the Income Tax Act. Taxability is determined by the statutory framework, not merely by disclosure or receipt.
Congratulations on completing Practice Paper-1! We hope these questions have helped you assess your preparation and identify the areas that need more attention. If you scored well, keep up the momentum. If not, don’t be discouraged—consistent practice is the key to success in the Income Tax Inspector Departmental Examination. Review the explanations carefully, revise the relevant topics, and continue with the next Practice Paper to strengthen your concepts. Don’t forget to bookmark this page and share it with your colleagues who are preparing for the departmental examination. Wishing you all the very best for your exam!
Disclaimer
This Practice Paper has been prepared solely for educational and self-assessment purposes to assist candidates appearing in the Income Tax Inspector Departmental Examination. The questions, answers and explanations provided in this article are original practice content prepared by Simple Income Tax based on the latest Departmental Examination Rules, 2026, the prescribed syllabus, and relevant statutory provisions, departmental instructions and standard reference materials available at the time of publication.
While every effort has been made to ensure the accuracy of the content, this Practice Paper should not be treated as an official question paper, model answer key or examination guidance issued by the Income Tax Department or any Government authority. Candidates are advised to refer to the official notifications, rules, circulars and instructions for the latest and authoritative information.
The objective of this Practice Paper is to help aspirants strengthen their conceptual understanding, improve examination readiness and evaluate their level of preparation.
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2. ITI Departmental Examination 2025 (Paper I): Solved Previous Year Question Paper with Answers & Explanations (Part-2)
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