Income Tax Expert Interview Questions And Answers

Working capital is defined as current assets minus current liabilities; it tells the financial statement user how much cash is tied up in the business through items such as receivables and inventories and also how much cash is going to be needed to pay off short term obligations in the next 12 months.

Deferred tax asset arises when a company actually pays more in taxes to the IRS than they show as an expense on their income statement in a reporting period.

Differences in revenue recognition, expense recognition (such as warranty expense), and net operating losses (NOLs) can create deferred tax assets.

Share Capital is that portion of a company’s equity that has been obtained by issuing share to a shareholder. The amount of share capital increases as new shares are sold to public in exchange for cash.

The limited liability company (LLC) is a business structure combining both the characteristics of a corporate and of partnership. As a corporate entity it protects its owners against personal liability on the other hand for tax purposes it is treated as a non corporate business organization. A limited liability company enjoys various benefits like owners or members of the company have limited liability due to the company’s separate legal existence, system of profit distribution is very flexible. Unlike a corporate organization it does not have to keep minutes or resolutions and is easier to operate. Tax advantage is the important benefit which a limited liability company enjoys as all the profits, losses and expenses are shared by the individual members. Thus the double taxation of paying corporate tax and individual tax is avoided. With all the above benefits limited Liability Company has few disadvantages also as the company comes to an end after the expiry or insolvency of its members.

Adjustment entries are the entries which are passed at the end of each accounting period to adjust the nominal and other accounts so that correct net profit or net loss is indicated in profit and loss account and balance sheet may also represent the true and fair view of the financial condition of the business.

It is essential to pass these adjustment entries before preparing final statements. Otherwise in the absence of these entries the profit and loss statement will be misleading and balance sheet will not show the true financial condition of the business.

Differential Cost is the difference between the costs of two alternatives. It includes both cost increase and cost decrease. It can be either variable or fixed.

An "Assessee" is a person who is liable to pay tax or any other sum of money under the Act.

It includes
1. Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of whom he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;
2. Every person who is deemed to be an assessee under any provision of this Act;
3. Every person who is deemed to be an assessee in default under any provision of this Act.

The basic conditions for being resident and ordinarily resident is the same condition that satisfies the residential status of an individual and additional conditions for Resident and ordinarily resident in India in a given previous year are mentioned below:

1. If you are resident in India in at least 9 out of 10 previous years as per the basic conditions that satisfies the residential status of an individual preceding the relevant previous year.
2. If you are in India for a period of at least 730 days during 7 years preceding the relevant previous year.
3. An individual or HUF becomes ROR in India if the individual fulfills at least one of the basic conditions that satisfies the residential status of an individual both the additional conditions.

The excess tax paid by an individual than the actual owed is returned by the government which is known as tax refund. After taking into consideration income tax, withholdings, tax deductions or credits and other factors; you file income tax for the year, after that you will receive a tax refund.

There is a provision in India to get a refund for an overpayment of taxes along with interest. When you have to claim a refund you need to file the income tax return within a specified period. You can even track your refund status from the NSDL-TIN website by clicking in Status of Tax refunds and can track your refund by entering PAN and Assessment year for which the refund is to be claimed.

Every year commonly controlled company prepares a combined or consolidated financial statement for tax and reporting purposes. Inter Company Reconciliation (ICR) is the process that helps parent company to split from its subsidiaries companies by location. Each year, commonly controlled business must prepare a combined or consolidated financial statement for tax and reporting purposes. The inter company accounting process is an important process for parent companies with subsidiaries or companies split by location. ICR helps in avoiding double counting of transactions as it also helps in maintaining accurate reports. Even it helps the companies to avoid misrepresentation of a firm's financial position.

Fund Flow
1. Fund flow is based on working capital.
2. Fund flows tells about the various sources from where the funds are generated.
3. Fund flow is useful for understanding long term financial strategy.
4. Changes in current assets and current liabilities are shown through the schedule of changes in working capital.

Cash Flow
1. Cash flow is based on only one element of working capital that is cash.
2. Cash flow starts with the opening balance of cash and closes with the closing balance of cash.
3. Cash flow is useful for understanding short term strategies that affects liquidity of the business.
4. Changes in current assets and current liabilities are shown in the cash flow.

Commercial Tax is a tax imposed on the scheduled Commercial goods as indirectly collected by the seller or purchaser against his business transaction which now comprises of Sales Tax, Entertainment, Luxury Tax, Entry Tax and Profession Tax.

Minimum of following three amounts is available as HRA exemption:

1. Actual House Rent Allowance provided by employer to employee.
2. House Rent paid in excess of 10% of Salary.
3. 50% of Salary in case House is located in Metro cities (Mumbai, Delhi, Kolkata, Chennai) or 40% in case of any other cities.

For all three conditions mentioned above relevant period is very important. Means if there is any change in Salary, HRA paid to employee, location of rented house and actual rent paid by employee HRA need to calculate from that relevant change Hence one should avoid calculating HRA on annual basis if there is any change in above factors.

Meaning of Salary for calculating HRA (Basic Salary + Dearness allowance if terms of employment so provide + fixed percentage of turnover achieved by employee)

Dissolution of firm means assets of firm are realized and liabilities are paid off and the surplus, if any is distributed among the partners according to their right. It is to be noted that ‘dissolution of Firm’ involves dissolution of partnership but dissolution of partnership may not lead to dissolution of firm.

This should be a straightforward question to answer, but it can trip you up. Presumably you are looking for a new job (or any job) because you want to advance your career and get a position that allows you to grow as a person and an employee. It's not a good idea to mention money here, it can make you sound mercenary. And if you are in the unfortunate situation of having been downsized, stay positive and be as brief as possible about it. If you were fired, you'll need a good explanation. But once again, stay positive.

This is an important question that you will need to answer carefully. It is your chance to stand out and draw attention to your skills, especially those that haven't already been addressed. Saying "because I need a job" or "I'm really good" just won't cut it. Don't speculate about other candidates and their possible strengths or flaws. Make sure you focus on you. Explain why you make a good employee, why you are a good fit for the job and the company and what you can offer. Keep it succinct and highlight your achievements.

Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payables), and another example involves lack of revenues going forward.in the pipeline

There are two systems of Accounting:

☛ Cash System of Accounting: This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for non profit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.

☛ Mercantile or Accrual System of Accounting: In this system, expenses and incomes are considered during that period to which they pertain. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting.

Recurring Duties:
☛ Deciding the financial needs
☛ Raising the funds required
☛ Allocation of funds
☛ 1. Fixed assets management
☛ 2. Working capital management
☛ Allocation of Income
☛ Control of Funds
☛ Evaluation of Performance
☛ Corporate Taxation
Other duties: To prepare annual accounts, carrying out internal audit, safeguarding securities, present financial reports to top management. Etc.

Non recurring Duties:
☛ Preparation of financial plan at the time of company promotion
☛ Financial adjustments in times of liquidity crisis
☛ Valuation of the firm at the time of acquisition and merger etc.

Opportunity Cost is the cost incurred by the organisation when one alternative is selected over another. For example: A person has Rs. 100000 and he has two options to invest his money, either invests in fixed deposit scheme or buy a land with the money. If he decides to put is money to buy the land then the loss of interest which he could have received on fixed deposit would be an opportunity cost.

Differential Cost is the difference between the costs of two alternatives. It includes both cost increase and cost decrease. It can be either variable or fixed.

Example:
Cost of first alternative = 10000; Cost of second alternative = 5000; Differential Cost = 10000 – 5000 = 5000

As per the provisions of Income Tax Act residential status of an individual is categorized as Resident and Non Resident.
Under Section 6(1), an individual is said to be resident in India in any previous year if he satisfies any one of the following basic conditions:

1. He is in India in the previous year for a period of at least 182 days.
2. He is in India for a period of at least 60 days during the relevant previous year and at least 365 days during the four years preceding that previous year.

The above provisions are applicable only to those who are residents of India irrespective of their nationality otherwise they are included in Non resident.

A tax liability that a company owes and does not pay at that current point, although it will be responsible for paying it at some point in the future. Deferred tax liability (DTL) is a balance sheet item that accounts for the temporary difference between taxes that will come due in the future and taxes paid today.

The unrealized tax that is put into account comes under deferred tax liability. Depreciation is the main source or the type of an item of deferred tax liability.

Profit is the amount that is left after deducting expenses from revenue that makes the receipt of revenue possible. There are two streams of earnings that is direct earnings and indirect earnings. Direct earnings are incurred from main activities and indirect earnings are incurred from other activities so the profits is calculated as gross profit and net profit.

Gross profit is the amount of revenue from which trading expenses has been deducted (expenses related to main activities of the business). Net profit is the amount of revenue that includes incomes from other activities.

Gain is the amount that is earned on selling assets which is not included in the inventory of the business. This sales activity is not the actual trading and these sales does not includes goods that are sold on regular basis.

Provident Fund: Provident fund is calculated at 12% on the basic salary which is deducted from employee's salary plus 12% on the basic is contributed by the employer. So, the aggregate 12% + 12 % is remitted to the Provident Fund Department.
ESI: Stands for Employee State Insurance and is calculated at 1.75% on the gross salary of the employees whose salary is below Rs. 10000 per month and employer contributes 4.75% on the gross salary of the employee and aggregate 1.75% + 4.75% is remitted to the ESI Department
VAT: VAT percentage is 1, 4, 12.5%. It is a tax which is charged on the basic value of the product by the seller from the buyer and the same is remitted to the Sales Tax Department.
Sales tax: Same as VAT