On how many bits is the Group Address encoded inside a KNX TP1 telegram?

The Group Address is encoded on 16 bits in the TP1 telegram, regardless of the display structure chosen in ETS (Free, 2-level, 3-level). The display structures merely split the same 16 bits differently for human readability: Free uses 16 free bits, 2-level uses Main (5 bits) / Sub (11 bits), 3-level uses Main (5 bits) / Middle (3 bits) / Sub (8 bits). The wire-level telegram is identical in every case. A and C are wrong because 8 bits would be far too few and 24 bits do not appear in the TP1 frame. D is wrong because 32 bits is the Individual+Group total in some Extended-frame variants, not the Group Address alone.

Remember the 16-bit limit when planning a huge project: the absolute number of Group Addresses available is 65 536, regardless of how you choose to display them.