Payment of income tax is classified under:

The correct answer is Option (3) → Operating activity

Income tax is paid on the profit from the main business operations, so AS-3 treats it as an operating cash outflow unless it can be identified with an investing or financing transaction.

Option (1) Financing activity — Incorrect. Only dividend tax goes under financing.

Option (2) Investing activity — Incorrect. Only tax such as capital gains tax on the sale of fixed assets goes under investing.

Option (4) Cash and cash equivalents — Incorrect. This is the cash balance itself, not a class of activity.