NISM Series X-A · Unit 11 of 12 · about 10% of the paper
Tax and estate planning: NISM Series X-A notes and practice questions
Tax shapes returns; succession shapes legacy. This unit covers income tax basics, capital gains, deductions, wills, trusts and nomination.
What to know in Unit 11
- Capital gains and deductions.
- Old versus new tax regime.
- Wills, nomination, trusts and HUF.
Key terms, examples and exam traps
Residential status
Tax liability in India depends on residential status — resident, non-resident or not ordinarily resident — which decides what income is taxable here.
Example. A person who spends more than 182 days in India in a year is generally a resident.
Exam trap. This statement is false: Residential status depends only on citizenship.
Heads of income
Income is classified under five heads: salary, house property, business or profession, capital gains and other sources.
Example. Rent from a flat and interest on a deposit fall under different heads.
Exam trap. This statement is false: All income is taxed under one head.
Capital gains
Capital gains are profits on the sale of capital assets, classified as short-term or long-term based on the holding period of the asset.
Example. An investor sells shares for more than she paid.
Exam trap. This statement is false: Capital gains arise only from selling property.
Section 80C
Section 80C allows deductions up to a ceiling for specified investments and expenses under the old tax regime, such as PPF, ELSS and life insurance premium.
Example. An investor claims a deduction for ELSS investment.
Exam trap. This statement is false: Section 80C is available under both regimes always.
New versus old regime
Taxpayers can choose between the default new regime with lower slab rates and few deductions, and the old regime with higher rates and many deductions.
Example. A client compares tax payable under both regimes before choosing.
Exam trap. This statement is false: The old regime has no deductions.
Tax-loss harvesting
Tax-loss harvesting means selling investments at a loss to set off against gains, reducing the tax payable.
Example. A client books a loss in one stock to offset a gain in another.
Exam trap. This statement is false: Tax-loss harvesting increases tax payable.
Set-off and carry forward
Capital losses can be set off against capital gains and carried forward for eight years, subject to conditions.
Example. A loss this year is used to reduce gains next year.
Exam trap. This statement is false: Losses can never be carried forward.
TDS
Tax deducted at source is tax withheld by the payer on specified payments such as salary and interest, and credited to the payee's tax account.
Example. A bank deducts tax on fixed deposit interest above the limit.
Exam trap. This statement is false: TDS is paid by the receiver in cash at year end.
Advance tax
Advance tax is paid in instalments during the year by taxpayers whose liability exceeds a threshold.
Example. A trader pays tax quarterly instead of at year end.
Exam trap. This statement is false: Advance tax is paid only after filing the return.
Will
A will is a legal document by which a person decides how her property is to be distributed after death, and it takes effect only on death.
Example. An investor states which heirs get which assets.
Exam trap. This statement is false: A will takes effect immediately on signing.
Intestate succession
When a person dies without a will, the property passes according to the succession laws applicable to the person's religion.
Example. A man dies with no will and his assets pass as per the law.
Exam trap. This statement is false: Without a will, the government takes all property.
Probate
Probate is the court's certificate that proves a will is genuine and authorises the executor to administer the estate.
Example. An executor obtains court proof before dealing with the assets.
Exam trap. This statement is false: Probate is the process of writing a will.
Nominee versus legal heir
A nominee is only a custodian who receives the asset on death and must hand it to the legal heirs; she is not necessarily the owner.
Example. A nominee receives proceeds but must pass them on as per the will.
Exam trap. This statement is false: A nominee becomes the sole owner of the asset.
Trust
A trust holds assets for beneficiaries under a trustee's control, and is used for succession, protection and management of wealth.
Example. A parent places assets under a trustee to benefit a child later.
Exam trap. This statement is false: A trust has no beneficiaries.
HUF
A Hindu Undivided Family is a separate taxable entity consisting of family members from a common ancestor, which can hold assets and file its own return.
Example. A family unit with its own PAN and tax return.
Exam trap. This statement is false: An HUF is a company.
Gift tax rules
Gifts received from specified relatives are exempt from tax, while gifts above a threshold from others can be taxed as income of the receiver.
Example. A son receives money from his father with no tax.
Exam trap. This statement is false: Gifts from relatives are taxed at 30%.
Power of attorney
A power of attorney authorises another person to act for the principal in specified matters, and ends on the principal's death.
Example. An elderly client authorises her son to handle bank formalities.
Exam trap. This statement is false: A power of attorney continues after the principal's death.
Clubbing of income
Income earned from assets gifted to a spouse or minor child is generally clubbed with the giver's income for tax.
Example. A husband gifts money to his wife who invests it, and the income is added to his.
Exam trap. This statement is false: Income of a minor child is always taxed separately.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which statement best describes “Advance tax”?
- Advance tax is paid in instalments during the year by taxpayers whose liability exceeds a threshold.
- PPF is a government-backed small savings scheme with a 15-year tenure, tax benefits on deposit and interest, and limited premature withdrawal.
- An adviser may charge a fixed fee or a fee based on assets under advice, but not both for the same client, and within the limits prescribed by SEBI.
- The Reserve Bank of India is the central bank. It regulates banks, manages monetary policy and the money market, and issues currency.
Q2. Which term is described here? Tax-loss harvesting means selling investments at a loss to set off against gains, reducing the tax payable.
- Senior Citizens' Savings Scheme
- Public Provident Fund
- Inflation and interest rates
- Tax-loss harvesting
Q3. Which statement best describes “Clubbing of income”?
- Home insurance covers loss or damage to the structure and contents from specified perils such as fire and flood.
- Term insurance pays the sum assured on death during the term and nothing on survival, making it the cheapest pure protection.
- NAV is the per-unit value of a scheme, equal to total assets less liabilities divided by units outstanding.
- Income earned from assets gifted to a spouse or minor child is generally clubbed with the giver's income for tax.
Q4. Which term is described here? Gifts received from specified relatives are exempt from tax, while gifts above a threshold from others can be taxed as income of the receiver.
- Disclosure of conflicts
- Gift tax rules
- Annuity versus perpetuity
- Future value
Q5. Which statement best describes “Heads of income”?
- The internal rate of return is the rate that makes the present value of cash inflows equal to the outflows, used for irregular cash flows.
- Third-party motor insurance is mandatory in India and covers liability to others; comprehensive cover also covers damage to own vehicle.
- Income is classified under five heads: salary, house property, business or profession, capital gains and other sources.
- Retiring earlier needs a bigger corpus because savings must last more years with fewer years of accumulation.
Q6. Which term is described here? When a person dies without a will, the property passes according to the succession laws applicable to the person's religion.
- Stock exchanges and depositories
- Intestate succession
- Heads of income
- TDS
Frequently asked questions
How much of NISM Series X-A comes from Unit 11?
Unit 11 (Tax and estate planning) usually carries about 10% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series X-A Unit 11?
Capital gains and deductions. Old versus new tax regime. Wills, nomination, trusts and HUF.
Are these NISM Series X-A practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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