Final answer:
The sentence that correctly uses capital letters is 'Dried cloves are a key ingredient in Indian masala chai, or spiced tea,' because it properly capitalizes 'Indian' as a nationality and 'masala chai' as a titled dish.
Step-by-step explanation:
The correct sentence that uses capital letters properly is:
Dried cloves are a key ingredient in Indian masala chai, or spiced tea.
When it comes to capitalization, proper nouns such as names of countries and nationalities, as well as key parts of a title, should be capitalized. In the given sentence, 'Indian' is correctly capitalized as it refers to the nationality of the masala chai, and 'masala chai' is a proper title for a specific type of spiced tea. Conversely, 'Indonesia' and 'Madagascar' should be capitalized in the second sentence. In the third sentence, 'Flower bud' should not have 'Flower' capitalized unless it's part of a proper noun. The last sentence incorrectly capitalizes 'Incense' as it is not a proper noun or at the start of the sentence.