Certifications Mock Tests Study Material Menu Certifications Mock Tests Study Material NISM Series XX: Taxation in Securities Markets Certification Mock Test (Set 1) /50 NISM Series XX: Taxation in Securities Markets Certification Mock Test (Set 1) 1 / 50 1. The lending fees on lending of securities are liable to GST on the reverse charge mechanism. a. True b. False Explanation:Securities lending fees are subject to GST under the reverse charge mechanism. This means the recipient of the lending service is responsible for paying the GST directly to the government, rather than the supplier. 2 / 50 2. The employer will not be treated as an assessee-in-default if the employee has paid the tax due and furnishes a certificate from an accountant in ________. a. Form 26A b. Form 21C c. Form 12D d. Form 4B Explanation:If the employee pays the tax due and provides a certificate from an accountant in Form 26A, the employer will not be treated as an assessee-in-default. 3 / 50 3. The employer will not be treated as an assesses-in-default if the employee has furnished his return of income under ________. a. Section 134 b. Section 112 c. Section 191 d. Section 139 Explanation:If the employee has furnished their return of income under Section 139, the employer will not be treated as an assessee-in-default. 4 / 50 4. The Category-II FPIs shall include ________. a. Charitable organizations b. University funds c. Sovereign wealth funds d. Only 1 and 2 Explanation:Category-II Foreign Portfolio Investors (FPIs) include charitable organizations and university funds among their constituents. 5 / 50 5. ________ create a plan of action for the benefit of clients. a. Portfolio manager b. Investment advisor c. Distributor d. Depository Explanation:Investment advisors create a plan of action for the benefit of clients, providing personalized financial advice and strategies to meet their investment goals and objectives. 6 / 50 6. COE is derived based on the CAPM as a function of the risk-free rate _______. a. Alpha b. Gamma c. Delta d. Beta Explanation:Cost of Equity (COE) is derived based on the Capital Asset Pricing Model (CAPM) as a function of the risk-free rate and beta. Beta represents the systematic risk of an investment relative to the overall market. 7 / 50 7. The shareholders or unit-holders were exempt from paying tax on the dividend income. a. True b. False Explanation:Shareholders or unit-holders were indeed exempt from paying tax on dividend income. This exemption was applicable until the Finance Act of 2020 introduced tax on dividend income in certain cases. 8 / 50 8. The payments of coupons and redemptions in the case of masala bonds are settled in foreign currency. a. True b. False Explanation:In the case of masala bonds, payments of coupons and redemptions are settled in foreign currency, typically the currency of issuance (like US dollars or euros), rather than in Indian rupees. 9 / 50 9. In the case of a Non-resident which of these is NOT taxable? a. Income received or is deemed to be received in India b. Income accrues or arises or is deemed to accrue or arise in India c. Income accrues or arises outside India if it is derived from a business controlled in India or from a profession set up in India d. None of these Explanation:For non-residents, income that accrues or arises outside India and is not derived from a business controlled in India or from a profession set up in India is not taxable in India. 10 / 50 10. For a non-resident Indian, the interest received from bonds of an Indian PSU is taxable at _______. a. 10% b. 15% c. 20% d. 25% Explanation:Interest received from bonds of an Indian Public Sector Undertaking (PSU) by a non-resident Indian is taxable at a rate of 10%. 11 / 50 11. The interest received on the sovereign gold bond shall be chargeable to tax under the head ________. a. Property Income b. Profits and gains of busines c. Income from other sources d. Capital gains Explanation:Interest received on sovereign gold bonds is chargeable to tax under the head “Income from other sources” as per the provisions of the Income Tax Act. 12 / 50 12. The effective tax rate means a rate inclusive of _____________ which is leviable on the income of an assessee. a. Surcharge b. Health and education cess c. Capital gains d. Both 1 and 2 Explanation:The effective tax rate includes surcharge as well as health and education cess, which are leviable on the income of an assessee, making it inclusive of both components. 13 / 50 13. The stock exchanges located in IFSC provides global investors with an opportunity to invest in foreign securities without ________. a. Price risk b. Country Risk c. Systematic Risk d. Currency Risk Explanation:Stock exchanges located in International Financial Services Centre (IFSC) provide global investors with an opportunity to invest in foreign securities without currency risk. These exchanges often facilitate trading in foreign currencies, mitigating the currency risk for investors. 14 / 50 14. __________ are created to manage and recover non-performing assets of banks and financial institutions. a. Asset management companies b. Asset reconstruction companies c. Non-banking financial companies d. Small finance banks Explanation:Asset reconstruction companies are created specifically to manage and recover non-performing assets (NPAs) of banks and financial institutions. They acquire NPAs from banks and attempt to recover them through various means, such as restructuring or selling off assets. 15 / 50 15. In the case of ____________, the holders are entitled to participate in the surplus profits left, even after payment of the dividend. a. Convertible preference shares b. Cumulative preference shares c. Redeemable preference shares d. Participating preference share Explanation:In the case of participating preference shares, holders are entitled to participate in the surplus profits remaining after the payment of dividends to other shareholders. 16 / 50 16. Only a foreign company can list its shares on an IFSC stock exchange. a. True b. False Explanation:Both foreign and domestic companies can list their shares on an International Financial Services Centre (IFSC) stock exchange. IFSCs are designated areas within a country that facilitate financial services to non-residents and allow companies to operate with ease in foreign currency. 17 / 50 17. The gains arising to the FPIs from the transfer of any securities shall be chargeable to tax under the head ________. a. Income from other sources b. Capital gains c. Property Income d. Profits and gains of business Explanation:The gains arising to Foreign Portfolio Investors (FPIs) from the transfer of any securities are chargeable to tax under the head “Capital gains” as per the provisions of the Income Tax Act. 18 / 50 18. A person opting for a presumptive taxation scheme is required to file his return of income under _______. a. ITR- 4 a b. ITR- 3 b c. ITR- 2 c d. ITR- 7 d Explanation:A person opting for a presumptive taxation scheme is required to file their return of income under ITR-4, which is the Income Tax Return form designated for individuals and Hindu Undivided Families (HUFs) choosing presumptive taxation. 19 / 50 19. The investment limit on SGBs shall include the holdings as collateral by banks and other financial institutions. a. True b. False Explanation:The investment limit on Sovereign Gold Bonds (SGBs) does not include the holdings as collateral by banks and other financial institutions. 20 / 50 20. The rebate under Section 87A shall be allowed to an assesses being a ________. a. Resident individual b. Non-resident individual c. Foreign portfolio investor d. Both 1 and 3 Explanation:The rebate under Section 87A shall be allowed to an assessee being a resident individual. 21 / 50 21. __________ has the option to compute tax at the concessional tax rates prescribed under section 115BAC or 115BAD. a. Co-operative society b. Hindu undivided family c. Partnership firm d. Both 1 and 2 Explanation:Both a co-operative society and a Hindu undivided family (HUF) have the option to compute tax at the concessional tax rates prescribed under section 115BAC or 115BAD. 22 / 50 22. The income like interest on securities is taxable in the hands of the assessee under the head _______. a. Income from other sources b. Capital gains c. Property Income d. Profits and gains of business Explanation:Income such as interest on securities is taxable in the hands of the assessee under the head “Income from other sources” as per the Income Tax Act. 23 / 50 23. The carried forward loss from non-speculative business can be set off against ___________. a. Income from other sources b. Business income c. Capital gains d. Only 1 and 3 Explanation:The carried forward loss from a non-speculative business can be set off against business income in subsequent years. 24 / 50 24. If the assessee follows the mercantile system, it should be computed on an accrual basis. a. True b. False Explanation:If the assessee follows the mercantile system, income should indeed be computed on an accrual basis, which means recognizing income as it is earned, regardless of when payment is actually received. 25 / 50 25. In case of conversion of capital asset into stock-in-trade, the full value consideration shall be ______. a. Fair market value of capital asset on the date of allotment b. Market value of securities on the date of allotment c. Market value of securities on the date of transfer d. Fair market value of capital asset on the date of conversion Explanation:When a capital asset is converted into stock-in-trade, the full value consideration shall be the fair market value of the capital asset on the date of conversion for taxation purposes. 26 / 50 26. The fair market value of unquoted equity shares shall be determined using _______. a. Book Value b. Market Value c. Present Value d. Fair Value Explanation:The fair market value of unquoted equity shares should be determined using their market value for taxation purposes. 27 / 50 27. The transfer of __________by a non-resident on a recognized stock exchange located in any IFSC shall not be regarded as a transfer. a. Unit of a mutual fund b. Derivatives c. Both 1 and 2 d. None of these Explanation:The transfer of units of a mutual fund and derivatives by a non-resident on a recognized stock exchange located in any International Financial Services Centre (IFSC) shall not be regarded as a transfer for taxation purposes. 28 / 50 28. If any income from securities, earned in foreign currency, is taxable in India it shall be converted into Indian rupees at the __________. a. SBI telegraphic transfer buying rate b. HDFC telegraphic transfer buying rate c. RBI telegraphic transfer buying rate d. IDFC telegraphic transfer buying rate Explanation:If any income from securities earned in foreign currency is taxable in India, it should be converted into Indian rupees at the SBI telegraphic transfer buying rate for the respective currency. 29 / 50 29. ‘Income from other sources’ will include which of the following? a. Dividend Income b. Employees’ contribution towards staff welfare scheme c. Deemed Income of a closely held company d. All of these Explanation:“Income from other sources” includes various types of income, such as dividend income, employees’ contributions towards staff welfare schemes, and deemed income of a closely held company, among others. 30 / 50 30. A borrower can borrow securities to ________. a. Cover short positions b. Avoid settlement failure c. Cover long positions d. Both 1 and 2 Explanation:A borrower can borrow securities to cover short positions and to avoid settlement failure. 31 / 50 31. The buyer of the option contract is required to pay an upfront fee called ___________. a. Market premium b. Option premium c. Equity premium d. Share premium Explanation:The buyer of an option contract is required to pay an upfront fee known as the option premium to the seller of the option. 32 / 50 32. The sovereign gold bond bear interest at the rate of _________ per annum on the nominal value of the bond. a. 2.50% b. 4.50% c. 3.50% d. 1.50% Explanation:Sovereign gold bonds bear interest at the rate of 2.50% per annum on the nominal value of the bond. 33 / 50 33. The swap contracts are regarded as portfolios of forward contract. a. True b. False Explanation:Swap contracts are indeed considered portfolios of forward contracts. They involve an agreement between two parties to exchange cash flows or other financial instruments over a specified period. This arrangement resembles a series of forward contracts combined into one overall agreement. 34 / 50 34. The normal business loss can be set-off against any income other than _______. a. Salary b. Gambling activities c. Long term gains d. Both 1 and 2 Explanation:Normal business loss can be set off against any income other than salary and income from gambling activities. 35 / 50 35. An alternative investment fund shall be treated as a specified fund if all the units are held by non-residents except units held by the sponsor. a. True b. False Explanation:An alternative investment fund shall be treated as a specified fund if all the units are held by non-residents except units held by the sponsor. 36 / 50 36. _______ is an innovative type of bond, which is linked to rupee but issued to overseas investors. a. Masala bonds b. Foreign currency convertible bonds c. Mortgage-backed securities d. Deep discount bond Explanation:Masala bonds are an innovative type of bonds that are linked to the Indian rupee but issued to overseas investors. They allow foreign investors to invest in Indian debt securities denominated in Indian rupees, thereby reducing currency risk. 37 / 50 37. As per section 43(5) of the Income-tax act, a transaction of purchase or sale of any commodity is considered as a _________ if it is periodically or ultimately settled. a. Non – speculative transaction b. Speculative transactione c. Hedging transaction d. Arbitrage transaction Explanation:As per section 43(5) of the Income-tax Act, a transaction of purchase or sale of any commodity is considered as a speculative transaction if it is periodically or ultimately settled. 38 / 50 38. The losses from a normal business can be adjusted against the profits of a speculative business. a. True b. False Explanation:Losses from a normal business cannot be adjusted against the profits of a speculative business. 39 / 50 39. Cash management bills are issued for a very short period usually less than _______. a. 30 days b. 40 days c. 60 days d. 91 days Explanation:Cash management bills are typically issued for a very short period, usually less than 91 days. This short-term nature allows governments and financial institutions to manage their cash flow efficiently by borrowing funds for a brief period to meet immediate financial needs, such as covering short-term deficits or managing liquidity requirements. 40 / 50 40. Section 44AD specifically prohibits an assesses from opting a presumptive taxation scheme in respect of _______. a. Commission income b. Brokerage income c. Income from small business d. Both 1 and 2 Explanation:Section 44AD specifically prohibits an assessee from opting for the presumptive taxation scheme in respect of commission income and brokerage income. This means that individuals or businesses earning income from commissions or brokerages cannot avail themselves of the simplified tax calculation method provided under Section 44AD. 41 / 50 41. A deep discount bond is issued by the ________. a. SIDBI b. ICICI c. Both 1 and 2 d. Corporates Explanation:A deep discount bond is typically issued by financial institutions like SIDBI and ICICI to raise funds. These bonds are sold at a significant discount to their face value and do not carry any interest payments. 42 / 50 42. An InvIT has received an interest income of Rs.100 lakhs. The applicable GST shall be ________. a. 10% b. 15% c. 20% d. None of the above Explanation:The applicable GST shall be “None of the above” (d) – This is the Right Answer because interest income is typically exempt from Goods and Services Tax (GST) as per GST regulations. 43 / 50 43. No capital gains shall arise in the hands of the company on account of the distribution of assets to the shareholders. a. True b. False Explanation:No capital gains shall arise in the hands of the company on account of the distribution of assets to the shareholders – TRUE. This is because the distribution of assets to shareholders generally does not trigger capital gains for the company. 44 / 50 44. If intermediaries hold some securities as an investment, the gain or loss arising therefrom shall be taxable under the head _______. a. Income for property b. Income from other sources c. Capital gains d. Profit and gains from business Explanation:If intermediaries hold some securities as an investment, the gain or loss arising therefrom shall be taxable under the head “Capital gains” – This is because gains or losses from the sale of securities held as investments are typically categorized as capital gains for tax purposes. 45 / 50 45. The securities can be issued in the primary market through _______________. a. Rights Issue b. Initial public offering c. Firm allotment d. All the above Explanation:The securities can be issued in the primary market through “All the above” (d) – This is because securities can indeed be issued in the primary market through rights issue, initial public offering, and firm allotment. 46 / 50 46. MAT is not payable if the total income of the company is nil or it has tax losses. a. True b. False Explanation:MAT is not payable if the total income of the company is nil or it has tax losses – FALSE. This is because Minimum Alternate Tax (MAT) is payable even if a company’s total income is nil or it has tax losses, subject to certain exemptions and adjustments. 47 / 50 47. ____________ undertake the maximum entrepreneurial risk associated with a business venture. a. Preference shareholders b. Convertible preference shares c. Equity share holders d. Debenture holders Explanation:Equity shareholders undertake the maximum entrepreneurial risk associated with a business venture – This is because equity shareholders have ownership in the company and bear the highest risk compared to preference shareholders or debenture holders. 48 / 50 48. As per Section 2(h) of SCRA, securities include _______. a. Rights or interest in securities b. Mortgage debt c. Both 1 and 2 d. Unit-linked insurance policy with combined benefit-risk on the life of the persons Explanation:As per Section 2(h) of SCRA, securities include “Both 1 & 2” (c) – This is because securities include rights or interest in securities as well as mortgage debt as defined by the Securities Contracts (Regulation) Act. 49 / 50 49. The long-term capital gains by FPI are taxable under Section 115AD at the rate of _______ without providing the benefit of indexation. a. 5% b. 10% c. 15% d. 20% Explanation:The long term capital gains by FPI are taxable under Section 115AD at the rate of “10%” (b) – This is because Foreign Portfolio Investors (FPIs) are taxed at a flat rate of 10% on long-term capital gains without the benefit of indexation. 50 / 50 50. In a bonus-stripping transaction, units of mutual funds are purchased and sold near to the ________. a. Exercise date b. Allotment date c. Record date d. Issue date Explanation:In a bonus-stripping transaction, units of mutual funds are purchased and sold near to the “Record date” (c) – This is because bonus stripping involves buying and selling units of mutual funds around the record date to claim tax benefits on capital gains. Your score is 0% Restart quiz Exit
