Tax Consultant interview questions and answers

Indian income tax groups income under five heads, and each has its own rules. Salaries cover pay from an employer, including basic pay, allowances and perquisites, with some exemptions and a standard deduction. Income from house property covers rent from a building or flat owned by the taxpayer, computed from annual value after municipal taxes, a 30% standard deduction and home loan interest. Profits and gains of business or profession cover a shop, a factory or a freelancer’s fees, computed from business income less allowable expenses and depreciation. Capital gains arise on selling capital assets like shares, mutual funds or land, split into short-term and long-term with different rates. Income from other sources is the residual head, covering items like savings and deposit interest, dividends, and certain gifts. The income under all heads is added, losses are set off as allowed, and deductions are then claimed to reach total income.

Tax planning means arranging affairs within the law and its intent to reduce tax, such as choosing the better regime, making eligible investments or timing a sale to qualify for long-term rates. Tax avoidance uses technical gaps or artificial steps to get a benefit the law did not intend, for example routing income through an entity with no real substance. It may be technically legal, but anti-avoidance rules like GAAR in India, treaty anti-abuse rules and substance requirements in the UAE allow the authorities to deny the benefit. Tax evasion is illegal: hiding income, recording fake expenses, or not reporting cash sales. It leads to tax, interest, heavy penalties and possibly prosecution. As a consultant, I help clients plan, I warn them when a proposal starts to look like avoidance, and I never assist with evasion.

I would first explain that registration depends on aggregate turnover across all their branches with the same PAN. Once it crosses the limit that applies to their state and to whether they supply goods or services, they must register. I would check the current limit for their case rather than quote a number from memory. Then I would explain that some businesses must register regardless of turnover, for example those making inter-state supplies of goods, many sellers on e-commerce platforms, and persons liable under reverse charge. They can also register voluntarily, which lets them claim input tax credit and deal with larger business customers who want GST invoices, but it brings monthly or quarterly returns and compliance. Once registered, they must issue proper tax invoices, file returns on time, pay tax and keep records, so I would help them set up their accounting software accordingly.

I would explain that TDS is the government’s way of collecting tax at the time income is paid, rather than waiting until the end of the year. The law makes the payer responsible for deducting tax on specified payments such as rent, contractor payments and professional fees, once they cross set limits. The business deducts the tax, deposits it with the government by the due date, files quarterly TDS returns and issues certificates. The landlord or contractor does not lose the money: it appears in their Form 26AS and they claim it against their own tax. If the business fails to deduct or deposit, it can face interest, a disallowance of part of the expense when computing its own profit, and penalties. So I would help them collect PANs, set up TDS sections in their accounting software, and put due dates on a compliance calendar.

UAE VAT is a tax on consumption charged at a standard rate of 5% on most goods and services. A trading business registers with the Federal Tax Authority once its taxable supplies cross the registration threshold, and gets a Tax Registration Number, which must appear on its tax invoices. When it sells, it charges 5% output VAT to customers. When it buys goods and services for the business, it pays input VAT to suppliers, which it can generally recover. Each tax period, usually quarterly, it files a VAT return on EmaraTax and pays the difference between output and input VAT, or claims a refund if input is higher. Some supplies are zero-rated, such as many exports, where no VAT is charged but input VAT is still recoverable. Others are exempt, where no VAT is charged and related input VAT is not recoverable. Good records and correct invoices are essential.

A tax consultant helps clients meet their tax obligations correctly and on time, and reduce tax legally. The work has three parts. Compliance covers income tax returns, TDS returns, GST returns and, in the Gulf, VAT and corporate tax filings. Advisory covers questions like which regime to choose, how a transaction will be taxed, or how to set up a business in India or the UAE. Representation means replying to notices and handling assessments and appeals. A good consultant combines strong technical knowledge with practical judgement, because the law changes every year through Finance Acts, notifications and circulars, and must be checked rather than remembered. They explain complex rules in simple words, document advice in writing, meet deadlines, and are honest about risk. Most importantly, they act ethically and refuse to help with evasion, even when a client pushes for it.

Residential status is decided each year based mainly on the number of days the person is physically in India. The basic test is being in India for 182 days or more in the financial year; there is also a combined test using days in the year and the previous four years, with special rules for Indian citizens who leave for employment abroad or visit while living abroad, and for high-income individuals. A resident is then tested further to see if they are ordinarily resident or not ordinarily resident, based on earlier years. It matters because it decides what is taxable: a resident and ordinarily resident is taxed on worldwide income, a not ordinarily resident mostly on Indian income, and a non-resident only on income received or arising in India. For clients working in the Gulf, I track travel dates carefully, and if they are resident in two countries, I apply the treaty tie-breaker rules.

I start with basics: PAN, Aadhaar, contact details, all bank accounts with the one for refunds, and residential status for the year. For salary, I collect Form 16 and salary slips. For other income, I get interest certificates, rental agreements and rent received, dividend details, and capital gains statements from brokers or mutual funds, plus sale and purchase deeds for any property sold. For deductions under the old regime, I gather proofs of insurance, provident fund, home loan interest and principal, health insurance and donations. Then I download Form 26AS and the AIS from the portal and reconcile them with the client’s documents, because missing interest or a share sale is a common reason for notices. For residents, I also ask about foreign bank accounts, shares or property, since these must be reported in the foreign assets schedule. Finally, I compute tax under both regimes where relevant.

A valid tax invoice must show the supplier’s name, address and GSTIN, a unique serial invoice number for the year, and the date. For B2B supplies, it must show the recipient’s name, address and GSTIN. It lists the description of goods or services, HSN or SAC code, quantity and unit, taxable value after discounts, and the rate and amount of tax split into CGST and SGST or IGST. It must state the place of supply, especially for inter-state supplies, whether reverse charge applies, and carry the supplier’s signature or digital signature. For businesses covered by e-invoicing, the invoice also needs the IRN and QR code from the IRP. This matters to the buyer because input tax credit depends on holding a valid tax invoice and the supplier reporting it. A wrong GSTIN or missing details can delay or block the buyer’s credit.

I would explain that a tax treaty decides which country gets to tax each type of income, so the same income is not taxed twice. For income from immovable property, like rent from a flat in India, treaties generally allow the country where the property is located to tax it. So the rent remains taxable in India, whether or not he is resident in India. Since the UAE does not currently levy personal income tax on such income, there is normally no double tax to relieve; the Indian tax is the real cost. If he is a non-resident, the tenant may have to deduct TDS under the rules for payments to non-residents, and he can claim that credit by filing an Indian return. Under Indian rules he still gets the 30% standard deduction and interest deduction where available. I would also check his residential status each year, because his days in India could change it.

I would not answer from a rule of thumb; I would compute both. First I collect the client’s salary structure, rent paid and HRA received, home loan interest, insurance, provident fund and other investments, medical insurance and any other income. Then I compute tax under the old regime, applying HRA exemption, Section 80C, 80D, home loan interest and other deductions, and under the new regime, which is the default, with lower slab rates and a standard deduction but most deductions removed. I show the client both totals side by side. Generally, people with large deductions such as a home loan and full 80C investments may benefit from the old regime, while those with few deductions usually save under the new one. I also explain that salaried individuals without business income can choose each year when filing, while those with business income have stricter switching rules, and that tax should not be the only reason to invest.

I start by extracting annual figures from the books: turnover by type (taxable, exempt, zero-rated), output tax, input tax credit and reverse charge. Then I compare them with what was reported in the twelve GSTR-1 and GSTR-3B returns, and compare ITC claimed with GSTR-2B. I look for typical differences: invoices missed or reported in the wrong month, credit notes not reported, ITC claimed on ineligible or blocked items, or credit not reflected in 2B. Where the period for corrections is still open, I fix items in the next returns; where tax was underpaid, I advise paying it with interest. Then I prepare GSTR-9, the annual return, and where the client is required to, GSTR-9C, the reconciliation statement between audited financial statements and returns. I document every adjustment in a working file so that any later audit or notice can be answered quickly.

First I list TDS from every certificate, Form 16 or 16A, and from the client’s books, and compare it with Form 26AS and the AIS for the same year. I then find out why each difference exists. Common reasons are the deductor quoting a wrong PAN, reporting the deduction in a different quarter or year, not filing the TDS return, or depositing tax under the wrong section. The fix sits with the deductor, so I write to them with details and ask them to file a correction statement on TRACES. Meanwhile, I advise the client that the return processing system generally gives credit based on 26AS, so claiming more risks a mismatch and a demand. If the correction will come soon, we may wait before filing; if not, we claim what appears and follow up for rectification later. I keep the correspondence on file in case of a notice.

First I check whether these services qualify as export of services. The supplier must be in India, the recipient outside India, the place of supply outside India, payment received in convertible foreign exchange or in rupees where RBI permits, and the two parties must not be merely establishments of the same person. For software development services to unrelated foreign clients, the place of supply is usually the recipient’s location, so the conditions are often met. If they are, the supply is zero-rated. The company can file a Letter of Undertaking and export without paying IGST, then claim a refund of unutilised input tax credit, or pay IGST and claim a refund of it. I would make sure invoices show the export details, and keep bank realisation evidence such as FIRCs or e-BRCs. I would also review contracts for any services where the place of supply rule differs, such as services on goods in India.

I would start by confirming they are a taxable person, which most UAE companies are, and help them register for corporate tax on EmaraTax by the deadline that applies to them. Their tax period normally follows their financial year, and the return and payment are due within nine months after it ends. They need financial statements prepared under IFRS, and in some cases audited, as the starting point. From accounting profit we compute taxable income by making adjustments: adding back non-deductible items such as fines and part of entertainment costs, removing exempt income like qualifying dividends, and applying interest limitation rules where relevant. Related party and connected person transactions must be at arm’s length, with documentation where required. Then I check reliefs: small business relief if revenue is low enough during its availability period, free zone status, or group options. Finally I set up a calendar and record-keeping so compliance is routine.

First I confirm the holding period: land or buildings held for more than 24 months give long-term gains. I gather the purchase deed, cost of improvement and expected sale price, and check the stamp duty value, because if the sale price is below it beyond the tolerance, the stamp value may be taken as the sale consideration. I then compute the gain. After the 2024 changes, long-term gains are generally taxed at 12.5% without indexation, but for resident individuals who acquired the property before 23 July 2024 there is an option to compute tax at 20% with indexation, so I compare both. Then I explain exemptions: reinvesting the gain in a residential house under Section 54, or in specified bonds under Section 54EC within the time and limits, or depositing in the capital gains scheme until reinvestment. I also remind them the buyer will deduct TDS, and plan the timing and paperwork accordingly.

Several common situations require reversal. If the business does not pay the supplier, value plus tax, within 180 days of the invoice date, the credit must be reversed with interest and can be re-claimed after payment. Where inputs or services are used partly for exempt supplies or non-business purposes, common credit is apportioned under Rules 42 and 43, with an annual true-up. When a supplier issues a credit note reducing tax, the recipient must reduce its credit. Goods that are lost, stolen, destroyed, written off or given away as free samples also require reversal of related credit. Blocked items wrongly claimed must be reversed too. I manage this with monthly checks: a payables ageing report flagged for 180 days, a stock write-off register, the credit note list from GSTR-2B, and a turnover split for apportionment. Reversals are reported in the right table of GSTR-3B, and I keep working papers for the annual return and audits.

I would explain that her income is taxed under profits and gains of business or profession. If she is an eligible professional and her receipts are within the limit, she can use the presumptive scheme under Section 44ADA, declaring 50% of gross receipts as income without detailed books, or keep accounts and claim actual expenses if they are higher than half. Indian clients may deduct TDS on her fees, which she claims against her tax, and because there is no employer deducting tax, she will usually need to pay advance tax in instalments. For GST, she must register once her turnover crosses the threshold for services. Services to foreign clients can be exports of services, which are zero-rated: she can file an LUT and invoice without IGST if conditions such as receipt in foreign exchange are met. I would help her compare regimes, set aside tax monthly and keep invoices and bank records organised.

I would first correct the assumption. Free zone companies are within the UAE corporate tax regime, so they must register, keep proper records and file returns. They can be taxed at 0% on qualifying income only if they are a Qualifying Free Zone Person, which requires adequate substance in the free zone, audited financial statements, compliance with transfer pricing rules, not electing to be taxed at the standard rate, and meeting the de minimis test on non-qualifying revenue. I would review their revenue streams to see which count as qualifying, for example certain activities and transactions with other free zone persons, and which do not, such as many sales to mainland customers. Non-qualifying income is taxed at 9%, and failing the conditions can mean losing the status for several years. I would also remind them that VAT is separate: most free zones are not designated zones for VAT, so normal VAT rules generally still apply.

First I would work out his residential status for the year of return and the next few years, based on his travel dates. After many years abroad, he may qualify as resident but not ordinarily resident for a period, during which foreign income is generally not taxed in India unless it comes from a business controlled or profession set up in India. This window is valuable, so I would plan around it. I would review his foreign assets: Gulf bank accounts, end-of-service benefits, investments and property. Interest on NRE deposits is tax-free only while he is non-resident, so these accounts need to be redesignated, and FCNR deposits have their own rules on return. Once he becomes ordinarily resident, his worldwide income becomes taxable in India and foreign assets must be reported in the return, even if they produce no income. I would advise on timing large receipts or asset sales during the RNOR period where it legitimately helps.

I would first map every international transaction with associated enterprises: purchases of goods, services fees, royalties, loans and guarantees, and cost recharges. Then I would do a functional analysis to understand which entity performs key functions, owns assets and bears risks, because that decides how profits should be split. Based on that, I select the most appropriate method: often TNMM for a routine distributor or service provider, comparing its operating margin with independent companies, and CUP where reliable comparable prices exist, such as for interest on a loan. I would run a benchmarking study using databases, apply filters and arrive at an arm’s length range, then test whether the company’s results fall within it. If not, I would advise a year-end adjustment. I would prepare contemporaneous documentation and the accountant’s report required in India, check matching documentation on the UAE side, and for large recurring flows, consider an advance pricing agreement for certainty.

I first read the notice carefully: the period, the exact allegations, the sections invoked, the amount of tax, interest and penalty, the due date for reply and whether it was issued within the time limit, and whether it alleges fraud or suppression, which changes the time limits and penalties. Then I collect facts from the client: invoices, proof of receipt of goods or services, payment to suppliers, GSTR-2B data and the suppliers’ filing status. I separate items where the client is clearly right from items with real exposure. For the strong items, I build arguments based on the law, circulars and decided cases, supported by documents. For weak items, I may advise paying the tax with interest to reduce penalty. I draft a clear, point-wise reply, ask for a personal hearing, and attend it with a short written summary. If an adverse order still follows, I plan an appeal within the deadline.

The biggest issue is where the company is really managed. Under Indian law, a foreign company whose place of effective management is in India is treated as an Indian resident and taxed on worldwide income. If key decisions are made by the founder sitting in India, the Dubai company could be taxed in India, defeating the purpose. Even if it is not resident, its activities in India could create a permanent establishment, making attributable profits taxable in India. Next is the founder: if he stays resident in India, his worldwide income, including salary or dividends from Dubai, is taxable in India, with treaty relief only where tax is paid in the UAE. On the UAE side, the company falls under UAE corporate tax and needs real substance, such as staff, office and decision-making in Dubai. Any dealings with an Indian entity must be at arm’s length, and GAAR or treaty anti-abuse rules may apply to arrangements lacking substance.

I would explain that such structures face much more scrutiny than before. Many of India’s treaties have been amended so that capital gains on shares of Indian companies are taxable in India, and the multilateral instrument added a principal purpose test that denies treaty benefits if obtaining them was one of the main purposes of the arrangement. India’s GAAR can also apply to impermissible avoidance arrangements. A tax residency certificate is necessary but not sufficient, and the authorities look at beneficial ownership and real substance: local directors who actually decide, office, staff, and genuine business activity. So I would ask what commercial reasons exist besides tax, such as investor preference, regional operations or ease of fundraising. If there is a real business purpose, I would help document it and build adequate substance. If the only reason is tax, I would advise against it and suggest simpler, defensible planning instead.

I first study the order: the reasons for the addition, the evidence relied on, any procedural lapses like denial of a hearing, and the demand including interest. If the error is a simple mistake apparent from the record, such as a wrong calculation or missed TDS credit, a rectification application may fix it quickly. For disputed additions, the first appeal lies before the Commissioner of Income Tax (Appeals), filed within the time limit with grounds of appeal and supporting documents. At the same time, I would seek a stay of demand, which often requires paying a portion of the disputed demand. If the CIT(A) rules against us, the next level is the Income Tax Appellate Tribunal, the final fact-finding authority, and after that the High Court and Supreme Court on substantial questions of law. I would weigh the amount, strength of facts and precedent, cost and time, and consider any dispute resolution or settlement schemes that are available.

I would agree the scope and period first, usually all years still open to reassessment. For income tax, I review returns, tax audit reports, assessment orders, pending appeals and notices, and check unusual items like large cash transactions, related party dealings and disallowances. I check the availability of tax losses, since a change in shareholding can affect carry-forward for closely held companies. For transfer pricing, I review documentation and past adjustments. For indirect taxes, I reconcile GST returns with books, test input tax credit claims against GSTR-2B and blocked credit rules, and check e-invoicing, reverse charge and export refunds. I also test TDS compliance, because defaults lead to interest and expense disallowance. I then quantify each exposure and grade it as probable, possible or remote. Finally, I advise on deal protection, such as specific indemnities, escrow, price adjustments or warranties, and on whether a share purchase or business transfer is better from a tax view.

Pillar Two is the OECD global minimum tax framework for large multinational groups with consolidated revenue of at least EUR 750 million. It aims to make sure each group pays an effective tax rate of at least 15% in every jurisdiction where it operates; if not, a top-up tax applies. The UAE responded by introducing a domestic minimum top-up tax for financial years starting on or after 1 January 2025, so that any top-up on UAE profits is collected in the UAE rather than by another country. For in-scope groups, the benefit of the 9% rate, the 0% band and qualifying free zone status is largely neutralised, since their UAE effective rate will be topped up to 15%. Smaller businesses are unaffected. Practically, in-scope groups need to gather detailed data, compute jurisdictional effective tax rates under the GloBE rules, plan for registrations and returns, and revisit structures that relied on low-tax outcomes.

I would be clear and calm: hiding cash receipts and claiming personal costs as business expenses is tax evasion, not planning, and I cannot be part of it. I would explain the consequences for the client: tax with interest, penalties for under-reporting or misreporting, and possible prosecution, as well as the risk from data the department already gets through AIS, GST returns and bank reporting. For me, as a professional, it would be misconduct and could cost my licence. Then I would offer legitimate alternatives: reviewing genuine business expenses he may have missed, choosing the right regime, timing purchases, using eligible deductions or presumptive schemes, and restructuring salary or business arrangements properly. I would put my advice in writing. If he still insists on filing incorrect figures, I would decline to prepare or sign that return and, if needed, end the engagement. Long-term trust with clients is built on honest advice.

For the employee, I first check residential status. If he leaves India for employment and spends enough time abroad, he may become non-resident, and salary for work done in the UAE and received there would generally not be taxable in India. If he stays resident, his worldwide salary is taxable in India, and the treaty and tie-breaker rules become important, especially since the UAE has no personal income tax to credit. I would review where salary is paid and received, because salary received in India can be taxable even for a non-resident. For the companies, I look at who employs him and who bears the cost. If the Indian company keeps paying and recharges the Dubai affiliate, the recharge must be at arm’s length and may raise questions on GST, TDS and whether it is a service fee. I also check whether his activities could create a permanent establishment for either company, and sort out social security and documentation.

If the division is sold as a whole for a lump sum without assigning values to individual assets, it is typically a slump sale under Section 50B. The gain is computed as consideration minus the net worth of the undertaking, using tax values of assets, and is long-term if the undertaking was held for more than 36 months. Fair market value rules for slump sales can deem a higher consideration, so a valuation is needed. For GST, a transfer of a business as a going concern is generally exempt, but I would make sure the structure really meets that description and plan the transfer of unutilised input tax credit to the buyer, along with registrations. Stamp duty on the transfer of assets, especially land, can be significant and varies by state. I would also look at employee transfers, carried-forward losses, and contracts. Finally, I would compare this with alternatives like an itemised asset sale or a tax-neutral demerger, which has stricter conditions but may suit the client better.