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Public Finance & Budget — UPSC Prelims Economy previous year questions — page 3

162 solved previous year questions on Public Finance & Budget, papers from 1995 to 2022, drawn from UPSC CSE Prelims, UPSC CDS, UPPCS. Each carries the printed answer key and the explanation from the source compilation.

1. #81Practice set
   Consider the following statements regarding outcome-based budgeting? 1. It is very simple method of budgeting and does not require much technical skills. 2. It was first introduced in India in 1969. 3. Compared to traditional methods, it will reduce the cost of budgeting.How many of the above given statements are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (D) None
   Explanation

   Option d is the correct l is incorrect: Getting accurate and data involves complicated methods a lot of technicalities so this budgeting method complicated and requires much technical the statement is 2 is incorrect: The Outcome budgeting in first introduced in 2005-06 budget (not 3 is incorrect: Outcome based budgeting in additional costs as it requires a higher amount technical skills and real time data monitoring When compared to traditional budgeting, outcome based budgeting will result in increased costs. Important Tips The outcome budget is a progress card on what various departments have done with the amount assigned in the previous annual Budget. It measures the outcomes of all government programmes and whether the money has been spent for the purpose it was sanctioned. To enhance the cooperation of line ministries and implementing actors, a robust monitoring mechanism based on O

2. #82Practice set
   Consider the following statements about the Capital receipts in the context of public finances in India: 1. The Capital receipts do not increase the financial liabilities on the government. 2. External grants are considered as Capital receipts.Which of the statements given above is/are incorrect?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (C) Both 1 and 2
   Explanation

   Option c is the correct Financing in India can be categorised into two and Capital based on the income l is incorrect: Capital receipts are create liabilities or reduce financial assets. They to incoming cash flows. Capital receipts can be and debt receipts. Some of the examples of are disinvestment, recovery of loans 2 is incorrect: External grants are a revenue receipt (non-tax revenue of the not as capital receipt, as they do not create the is evident from the chart given below: Budgtt Revenue Rmiple l 1 (1) ery of Direct tax indirect lax (Ii) (Liability lo pay and (Liability to pay and ( ) !wrrowmv of tax falls burden of tax falls Qu) Provident on the same persons) on persons) (i) lnwmetax (1) Sales tax (1) Interest Cotporatton lax (ii) Custom duly (ii) Proflts ( ) Expenditure tax ( ) Excise duty dividend ( ) and fines (iu) Wealth tax (iv) Service lax (v) Estate duty (v) Value added

3. #83Practice set
   Consider the following statements about Revenue deficit. 1. Effective revenue deficit is the difference between fiscal deficit and the interest liabilities for that year of the government. 2. The Effective Revenue Deficit was introduced in the Union budget on the recommendation of the Rangarajan committee on public expenditure.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBothl and 2
   • DNeither 1 nor 2
   Answer: (B) 2 only
   Explanation

   Option b is the correct deficit and Effective Revenue deficit form of the Union Budget which reflect the pattern l is incorrect: Effective Revenue Deficit is obtained by excluding those revenue the Government which were done in the form of for creation of capital assets) from the Whereas the difference between fiscal deficit interest liabilities of the government is known as 2 is correct: Effective Revenue Deficit introduced in the Union Budget 2011-12, on of the Rangarajan committee on expenditure

4. #84Practice set
   In the context of budgetary deficits, which of the following statements is correct to Primary Deficit?
   • AIt is the total government borrowings available to utilize after interest payments
   • BIt is excess of total government expenditure over total its receipts excluding borrowings during a fiscal year
   • CIt is the difference between total expenditure and revenue receipt including non-debt creating capital receipts
   • Dis the difference between Fiscal deficit and external grants received
   Answer: (A) It is the total government borrowings available to utilize after interest payments
   Explanation

   Option a is the correct a government spends more than it collects by way it incurs a budget deficit is measured to know the amount of the government can utilize, excluding the Primary deficit is simply the fiscal deficit interest payments. The significance of Primary it excludes the burden of the past debt and shows the in the government's indebtedness due to the fiscal operations. A reduction in primary deficit of government's efforts at bridging the fiscal a financial year. Important Tips Fiscal deficit is defined as excess of total expenditure over total receipts excluding borrowings during a fiscal year. Fiscal deficit reflects the borrowing requirements of the government for financing the expenditure including interest payments. Gross fiscal Total expenditure - (Revenue receipts non-debt creating capital receipts)

5. #85Practice set
   to fiscal deficit in India, Consider the following statements: 1. There can be a Fiscal Deficit without Revenue deficit in the economy. 2. Fiscal deficit reflects the borrowing requirements of the government for financing the expenditure.Which of the above given statements is/ are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (C) Both 1 and 2
   Explanation

   Option c is the correct l is correct: There can be a fiscal deficit Revenue deficit under following when revenue budget is balanced but capital budget deficit when revenue budget is in surplus but deficit in is greater than the surplus of revenue 2 is correct: Fiscal deficit refers to the government expenditures over its receipts borrowing. Thus, fiscal deficit points to of the government to cope with its the year

6. #86Practice set
   In the context of taxation in India, consider the following the 'Cess': 1. Proceeds from cess is initially credited to the Consolidated Fund of India. 2. The Central government may not share the revenue collected from Cess with the States. 3. If cess collected in a particular year goes unspent, it can be allocated for purposes other than the purpose for which it was collected.How many of the statements given above are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (B) Only two
   Explanation

   Option bis the correct 1 is correct. The Centre collects cess and in the Consolidated Fund of India. However, the then supposed to be transferred to a segregated fund to for specific purpose Statement 2 is correct. Article 270 of the Constitution to be excluded from the purview of the divisible taxes that the Union government shares with the 3 is incorrect. If the cess collected in a goes unspent, it cannot be allowed for other amount gets carried over to the next year and can used for the cause it was meant for

7. #87Practice set
   It is a tax imposed on the basis of the monetary value of the taxed item. The most common example of such taxes property taxes levied on real estate. Most suitable option of the tax mentioned here is
   • ATax Collected at Source (TCS)
   • BCapital gain tax
   • CSales Tax
   • DAd valorem Tax
   Answer: (D) Ad valorem Tax
   Explanation

   Option d is the correct ad valorem tax is a tax based on the assessed value item, such as real estate or personal property. The ad valorem taxes are property taxes levied estate. However, ad valorem taxes may also extend number of tax applications, such as import duty taxes from abroad

8. #88Practice set
   to 'sovereign right to taxation' in India, which one of the following statements is incorrecn
   • AIn India, no one has the right to levy or charge taxes except by the authority of law
   • BOnly Union and State legislatures have powers to levy taxes
   • CTax is an enforced contribution made by individuals and organizations
   • DUnion and the States have no concurrent power of taxation on any subject
   Answer: (B) Only Union and State legislatures have powers to levy taxes
   Explanation

   Option bis the correct a is correct: In India, sovereign right to that no one has the right to levy or charge taxes the authority of b is incorrect: Taxes in India come under a three tier system based on the Central, State and local c is correct: A tax is a pecuniary burden laid or property owners to support the d is correct: There is no separate head Concurrent list, meaning Union and the States have power of taxation

9. #89Practice set
   Consider the following statements: 1. A tax is said to be buoyant if the tax revenues increase more than proportionately in response to a rise in national income or output. 2. The Laffer Curve describes the relationship between tax rates and total tax revenue.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (C) Both 1 and 2
   Explanation

   Option c is the correct 1 is correct: A tax is said to be buoyant if the increase more than proportionately in response rise in national income or 2 is correct: Laffer curve illustrates a between rates of taxation and the resulting the government's tax revenue. It shows that tax rates can increase total tax revenue

10. #90Practice set
    The term "Withholding tax" refers to
    • AAn amount which is withheld by the government for loss-making PSUs
    • BAn amount withheld by the Union Government when the State government defaults in its interest payments
    • CAn amount which an employee withholds as it is liable for tax exemptions
    • DAn amount of deduction which takes place directly from the earning of an employee by the employer
    Answer: (D) An amount of deduction which takes place directly from the earning of an employee by the employer
    Explanation

    Option d is the correct tax is an amount of which deduction directly from the earning of an employee by It is paid to the government as a part of the of an individual

11. #91Practice set
    the following statements: 1. The point where tax is being imposed is known 'incidence of tax'. The polnt v,here tax makes its effect known is knnvm as 'impact of tax'.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (D) Neither 1 nor 2
    Explanation

    Option d is the correct l is incorrect. The term impact is used to immediate result of the imposition of the tax. Thus, where the tax is being imposed is termed as 2 is incorrect. Incidence emerges when the settles or comes to rest on the person who bears the point where the tax makes its effect is termed of tax'

12. #92Practice set
    Consider the following pairs of types of taxation and their effects on economy. Effetts. Behaviour 1. Progressive taxencourage higher earnings by individual 2. Regressive tax discourage higher earnings by individual 3. Proportional encourage higher Tax earnings by individualHow many of the above pairs are correctly matched?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (A) Only one
    Explanation

    Option a is the correct 1 is incorrectly matched. In progressive taxation, is imposed on people who earns less and more tax who earns more. So, it discourages more earnings by individuals to support low growth and 2 is incorrectly matched. In regressive taxation, is decreased to increase the value or volume on tax is being imposed. So, it encourages the earnings to take the advantage of low tax 3 is correctly matched. In proportional taxation, imposed at the fixed rate for every level of income So, supporters of proportional tax that it incentivises the taxpayers to earn more

13. #93Practice set
    Consider the following statements with reference to the General Anti-Avoidance Rule (GAAR) in India? 1. It comes into effect when an arrangement is entered with the main purpose of obtaining a tax benefit. 2. Tax avoidance means actions taken by a taxpayer, none of which are illegal or forbidden by the law.Which of the statements given above is/are correct?
    • A1 Only
    • B2 Only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (C) Both 1 and 2
    Explanation

    Option c is the correct l is correct: It essentially comes into effect arrangement is entered into with the main purpose or the main purposes of obtaining a tax 2 is correct: Tax avoidance includes actions a taxpayer, none of which are illegal or forbidden by

14. #94Practice set
    With reference to the GST council, which of the following statements is/are correct? 1. Union Territories are not represented in the council. 2. Centre has an effective veto in the GST council. 3. Decisions of the council are taken by consensus only.Select the correct answer using the codes given below
    • A1 only
    • B2 only
    • C1 and 2 only
    • D1 and 3 only
    Answer: (B) 2 only
    Explanation

    Option b is the correct 1 is incorrect: All the States and Union with Legislature are represented in the GST Council Minister-in-charge of Finance or Taxation or any nominated by the 2 is correct: Every decision of GST be taken by a majority of not less than three-fourths weighted votes of the members present. The vote of government has a weightage of one-third of the cast. So, centre has effective 3 is incorrect: While the provision for the decisions are generally taken by consensus. voted for the first time in its 38th meeting held 18, 2020

15. #95Practice set
    Which of the following is/are a form of indirect taxes existing/existed in India? 1. Customs Duty 2. Value Added Tax 3. Wealth Tax 4. Sales Tax 5. Estate Tax 6. Corporation taxSelect the correct answer using the codes given below
    • A1, 2 and 4 only
    • B1, 2, 4 and 6 only
    • C1, 2 and 5 only
    • D1, 2, 3, 4, 5 and 6
    Answer: (A) 1, 2 and 4 only
    Explanation

    Option a is the correct tax is imposed on the value of the property that possesses. It is a direct Tax is raised on an estate or the total value of property that an individual has left behind after It is a direct tax is a direct tax imposed on the net profit those enterprises make from their other taxes mentioned are indirect taxes

16. #96Practice set
    Which of the following items are outside the Goods and Services Tax ( GST) framework? 1. Aviation turbine fuel 2. Natural gas 3. Liquor 4. Pharmaceutical ProductsSelect the correct answer using the codes given below
    • A1 and 2 only
    • B1, 2 and 3 only
    • C3 and 4 only
    • D1, 2, 3 and 4
    Answer: (B) 1, 2 and 3 only
    Explanation

    Option b is the correct diesel, liquor, aviation turbine fuel, natural gas oil fall outside India's Goods and Services Tax Therefore 2 and 3 are products fall within the GST 4 is incorrect

17. #97Practice set
    Which of the following could be the possible effect of decreasing the tax rates? 1. In the short term it may boost demand in an economy. 2. In the long term it may slow economic growth by increasing deficits.Select the correct answer using the code given below
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither J nor 2
    Answer: (C) Both 1 and 2
    Explanation

    Option c is the correct 1 is correct. In the short term (the next one or cutting taxes is an effective way to boost demand economy. This is because consumers have more and businesses have more money to hire invest in their business. Tax cuts increase worker's take home pay. Tax cuts also increase firms' after-tax cash can use this extra cash flow to pay dividends and expand activity, and it can make hiring and investing Tax increases have the opposite 2 is correct. In the long term, tax reductions people to work more, bring more low-skilled the labor force, encourage saving, cause invest domestically (rather than internationally), the creation of new ideas through tax reductions in the long term can also growth by increasing deficits. In addition, if increase workers' after-tax income, they may choose less, and this can negatively impact supply

18. #98Practice set
    With reference to cess and consider the following: 1. Cess is a tax on tax that is imposed by the central government for a specific purpose. 2. Surcharge is an additional charge or tax. 3. Surcharge goes to Consolidated fund of India but can be spend only for the specific purposes.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct 1 is correct. A cess imposed by the is a tax on tax, levied by the government for purpose. Generally, cess is expected to be levied time the government gets enough money for that example, a cess for financing primary education - cess (which is imposed on all central is to be spent only for financing primary and not for any other 2 is correct. Surcharge is an additional tax. The main surcharges are that on personal income high income slabs and on super rich) and on 3 is incorrect. The usual taxes go to fund of India and can be spend for Surcharge also goes to the consolidated fund of India and can be spent for any purposes (not for Cess goes to Consolidated Fund of India but spend only for the specific purposes. Important Tips The main difference between surcharge and cess is that despite they are not shareable with state governments, surcharge can be kept with the

19. #99Practice set
    Which of the following are the most likely impacts of higher 'Tax Expenditure' on Indian economy? 1. Promotion of some specific social sectors 2. More complex tax system 3. Promotion of Crony capitalism 4. Excessive rise in Revenue ReceiptsSelect the correct answer using the code given below
    • A1, 2 and 3 only
    • B2, 3 and 4 only
    • C1, 2, 3 and 4
    • D1, 3 and 4 only
    Answer: (A) 1, 2 and 3 only
    Explanation

    Option a is the correct 1 is correct and Option 4 is incorrect. are revenue losses attributable to tax often result from the use of the tax system to goals without incurring direct government didn't give any tax exemptions, this would have belonged to government itself. Expenditure are not direct spending by government, of tax expenditure is that, government is giving to achieve certain social goals, like sector or industrial sector. But in actual is not collecting money to be but gives away tax exemptions. Thus, it does not excessive rise in revenue 2 is correct High tax expenditure can make the unduly complex and bring in distortions in it. full tax potential the governments, need to grandfathering together with tax base. As a result of simplification in the tax in tax administration in recent years tax expenditure 3 is correct. The tax exemptions and given to corporates may result in

20. #100Practice set
    Which among the following are the taxes which are presently imposed/applicable on security market instruments in India? 1. Dividend Distribution Tax 2. Capital gains tax 3. Wealth tax 4. Inheritance tax 5. Security Transaction TaxSelect the correct answer using the code given below
    • A2 and 5 only
    • B3, 4 and 5 only
    • C1, 2, 3 and 4 only
    • D1, 2, 3, 4 and 5
    Answer: (A) 2 and 5 only
    Explanation

    Option a is the correct are three major taxes that are levied on stock Securities Transaction Tax, Capital Gains Dividend Distribution Tax. Option 1 is incorrect: Dividend Distribution constitutes income for shareholders (recipient dividend) of a company, which ideally should be income tax. Earlier, individuals receiving dividends to pay a DDT of only if the quantum of was more than 10 lakh. After Budget 2020, Distribution Tax stands 2 is correct: Capital Gains Tax Capital gains is investors earn when they sell a security at a than the purchase gains are taxed as short-term capital gains capital gains, based on the holding period. If are held for less than 12 months, gains earned on are considered short-term gains and subject tax of 3 is incorrect. A wealth tax also may be called or "equity tax" and is imposed on the wealth individuals. The tax usually applies to a person's which is asse

21. #101Practice set
    With reference to inverted duty structure, consider the following statements: 1. Under this, tax rate on inputs is higher than the tax rate on the final product. 2. Under Goods and Services Tax (GST) regime, the inverted duty refund is also applicable on input services.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (A) 1 only
    Explanation

    Option a is the correct l is correct. Under GST Regime the Inverted refers to the cases where the rate of tax on are higher than the rate of tax on final good. on the final product is lower than the taxes inputs, an inverse input tax credit gets accumulated to be refunded by the government in the majority of 2 is incorrect. Earlier under GST Regime Duty Structure have wider scope as compared regime because it included input services also. the Supreme Court held that inverted duty admissible only with respect to inputs on goods and input services

22. #102Practice set
    Consider the following pairs: 1. Reverse Charge Allows to pass benefit Mechanism of reduced tax rate to consumers 2. E-Way Bill Mandatory document for all inter-state transport of goods 3. Input Tax Refunds on GST paid Credit for the purchase of inputsHow many of the above pairs are correctly matched?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is incorrect: Reverse charge means the liability tax is on the recipient of supply of goods or of the supplier of such goods or services in notified categories of supply. If a vendor who is under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. who is required to pay tax under reverse charge compulsorily register under 2 is correct: E-way bill is an electronic details about movement of goods. It can from the Good and Services Tax Network has been made mandatory from 1st April, 2018 for transport of good all over India. It was part of anti-tax evasion measures under the new It is applicable on consignment exceeding Rs in value. Items out of the e-way bill's ambit items such as meat, milk and milk products and vegetables. Other items that don't need an are gold and silver jewellery, cooking gas cylinders, wool and 3 is

23. #103Practice set
    Consider the following statements: 1. Land Revenue is levied as per the different State Government Acts. 2. Urban local bodies like municipal boards levy the property tax.Which of the above statements is I are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (C) Both 1 and 2
    Explanation

    Option c is the correct l is correct. Land Revenue is levied as per State Government Acts. Generally, the fixation revenue is done on the basis of classification of of land and cash value of the average yield of the affecting productivity in value terms are taken The land revenue tax is levied as Rs. per of 2 is correct. Property tax in India is paid on It is the duty of the municipality of a to do this assessment and determine the property can be paid either on an annual or semi-annual tax varies from location to location and can in different cities and municipalities. Urban like municipal boards/ municipal corporations/ committees levy property tax under the relevant Acts

24. #104Practice set
    With reference to the different types of taxes, consider the following statements: 1. Tax liability of a taxpayer increases in absolute amount with increase in income in case of progressive tax. 2. With increase in income tax burden of the taxpayer goes up when the tax is regressive. 3. The companies in India are taxed under proportional tax rates.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (A) Only one
    Explanation

    Option a is the correct l is correct: Progressive tax is the one where rate increases with the taxpayer's income. Thus, the for a taxpayer increases with his income in proportion of income and in absolute amount. tax rate for income of Rs 2 lakh, for Rs 5 lakh for Rs 10 lakh. Here, the tax liability or the as well as the proportion of income to be paid as with income of the taxpayer. Statement 2 is incorrect: Tax burden of the taxpayer when the tax is progressive (and not regressive). In of regressive tax, the tax rate decreases with increase Here, the tax liability of the taxpayer decreases in his income. For example, suppose, there is for Rs 2 lakh, for Rs 5 lakh and for Rs 10 the tax liability or the amount of the income to be tax decreases with increase in 3 is i rrect: Proportional tax is the in which the taxing authority charges the of tax from each taxpayer, irrespective of income

25. #105Practice set
    Consider the following statements with respect to the Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT): 1. Minimum Alternate Tax is aimed at bringing zero-tax paying companies within the ambit of income tax. 2. Alternative Minimum Tax is payable by an individual taxpayer who has claimed various tax incentives. 3. While MAT is levied on both public and private companies, AMT is levied on Hindu Undivided Family and Limited Liability Partnership firm. 4. Both MAT and AMT are applicable on foreign entities.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • COnly three
    • DAll four
    Answer: (C) Only three
    Explanation

    Option c is the correct l is correct: Minimum Alternate Tax (MAT) to bring the 'zero-tax paying companies' within of income tax and make them pay a minimum tax to the government. In 2019, the government MAT tax rate from to MAT is levied on unlike normal corporation tax, which is levied profil. Nu MAT would be imposed on new company (incorporated on or after 2 is correct: The Alternative Minimum Tax a special tax lhat prevents non-corporate people with from abusing deductions and liable to pay little income tax. It is payable by an individual or any other than a company to ensure that the various tax incentives pays a minimum amount AMT is levied at (plus cess and surcharge) on total income arrived after removing the claim deductions and exemptions. AMT came into force 3 is correct: MAT is applicable to all whether public or private. AMT included Undivided Family (HUF), an Association of

26. #106Practice set
    Consider the following statements to the Capital Gains Taxes in India: 1. When a property is received on inheritance, it is not taxable for the receiver. 2. The sale of preference shares in a company listed on a recognized stock exchange in India is not taxable. 3. Agricultural land in Rural Area in India is not considered a capital asset.How many of the statements given above urc correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct: Capital gains are not applicable inherited property as there is no sale, only a transfer of ownership. The Income Tax Act has specifically received as gifts by way of an inheritance or if the person who inherited the asset decides to capital gains tax will be 2 is incorrect: Capital Gains tax is equity or preference shares in a company listed on stock exchange in India. If it is held for 36 months it is a long-term capital asset and taxed long term capital gains tax. But if it is held for a period months or less it is considered a short-term capital taxed per shurl term capital gains 3 is correct: Agricultural land in Rural Area is uul considered a capital asset. Therefore, any its sale are not taxable under the head Capital is no obligation to disclose the income coming from it. Important Tips Any profit or gain that arises from the sale of a 'capit

27. #107Practice set
    Which of the following might not be a possible impact of tax rationalization?
    • AIt may reduce the incidence of tax evasion and improve revenue collection
    • BIt will increase the administrative burden on businesses and individuals in the long term
    • CIt may lead to redistribution of the tax burden among different sections of people
    • DIt may cause short-term disruptions to economic activities
    Answer: (B) It will increase the administrative burden on businesses and individuals in the long term
    Explanation

    Option b is the correct answer. Tax rationalization refers to the process of streamlining the tax system by reducing the tax rates, exemptions, and deductions. The impacts rationalization can be both positive and negative. impact of tax rationalization are as a is Simplifying the tax system can easier for taxpayers to understand their tax obligations with them. So, tax rationalization can reduce of tax evasion and improve revenue can ultimately benefit the b is incorrect: A simpler tax system can reduce burden on businesses and individuals, lead to increased economic c is correct: It can leud to redistribution of the among different sections of d is correct: Tax rationalization can cause short term disruptions to the economy as taxpayers and to the new tax system. This can lead to volatility in the short term, but the long-term outweigh the short-term costs

28. #108Practice set
    Which of the following is the most appropriate explanation of the term 'Tax M
    • AIt is a measure of effect of government spending on the GDP of the country
    • BIt is a measure of the effect of change in tax rates on the GDP of the country
    • CIt is a measure of the effect of tax rates on the personal disposable income of a person
    • DIt is the impact of the number of multiple taxes on the prices of goods and services
    Answer: (B) It is a measure of the effect of change in tax rates on the GDP of the country
    Explanation

    Option b is the correct multiplier is a measure of the effect of tax rates real GDP of the country. A tax cut (increase) an increase (reduction) in consumption and lhan fit.cul nrnltipllcr because an government Jiredly affects total tax multiplier enters the picture only through on disposable income, which influences Important Tips The impact of multiple taxes on the prices of goods and services is known as cascading of taxes. A fiscal multiplier measures the effect that increases in government spending will have on a real Gross Domestic Product (GDP)

29. #109Practice set
    With reference to the Indian Economy, consider the following statements: 1. Tax avoidance is any legal method used by a taxpayer to minimize the amount of tax owed to the government. 2. Tax evasion is an illegal way to minimize tax liability done by making a false declaration to tax authorities. 3. Tax terrorism is harassing of tax payers by the government to pay unreasonable taxes through legal means.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (C) All three
    Explanation

    Option c is the correct l is correct: Tax avoidance is any legal by a taxpayer to minimize the amount of owed. Individual taxpayers and corporations can of tax avoidance to lower their tax bills. Tax income exclusion, and loopholes are forms of 2 is correct: Tax Evasion is an illegal way tax liability through fraudulent techniques deliberately making a false declaration or no tax authorities - such as by declaring less income, gains than the amounts actually earned, or by 3 is correct: Tax terrorism is a way to taxpayers to pay unreasonable taxes but means. Government of India levied taxes on houses through retrospective amendment laws which leads to harassing of tax payers. Important Tips Tax planning is process of analyzing one's financial situation in the most efficient manner. Through tax planning one can reduce one's tax liability. It involves planning one's income in a legal manner

30. #110Practice set
    With.reference to different types of taxes and their description, consider the following pairs:Type Tax 1. Ad Valorem Tax A tax assessed on the total value of the item 2. Tobin Tax A Duty on spot currency trades 3. Pigouvian Tax A tax on businesses that create products with negative effects on society 4. Transfer Tax A tax on capital gains from the sale of long term financial instrumentsHow many of the above given pairs are correctly matched?
    • AOnly one
    • BOnly two
    • COnly three
    • DAll four
    Answer: (C) Only three
    Explanation

    Option c is the correct l is correct: The Latin phrase ad valorem to value." So, all ad valorem taxes are based assessed value of the item being taxed. An example valorem tax is imposition of GST on luxury if the price of a car is Rs 10 lakh, the GST amount Rs 2.8 2 is correct: Tobin Tax is a concept of taxing (speculative) on currencies in forex the stock market so as to discourage speculation currency stability which is important for the 3 is correct: Pigouvian Tax or Sin Tax is a duty businesses that create services or products like products, coal mining, etc which have on society like environmental pollution, public health, etc, whose price of these not been included in the sale price of the product. emissions tax or a tax on plastic bags are Pigovian 4 is incorrect: Transfer Tax charge levied on the ownership or title to property from one individual to tax on capital gains from sale

31. #111Practice set
    With.reference to the Transfer Price and Safe Harbour rules under Income Tax Act, consider the following statements 1. Transfer price is a price which represents the value of goods or services exchanged between independently operating units of the same organisation. 2. Safe Harbor is a circumstance under which the income tax authorities shall accept the transfer pricing declared by the tax assessee.Which of the statements given above is/are correct
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (C) Both 1 and 2
    Explanation

    Option c is the correct l is correct: Transfer price is a price the value of goods or services operating units of an organisation. expression "transfer pricing" generally refers to transactions between associated enterprises which place under conditions differing from those between independent enterprises. It refers to the to transfers of goods, services and related entities. It also refers to the value transfers between unrelated parties which are a common 2 is correct: Safe Harbor is a circumstance the income tax authorities shall accept the declared by the tax assessee. Which means that eligible assessee has entered into an eligible the transfer price declared by the assessee in such transaction shall be accepted by the The condition is that this transfer pricing is in accordance with the circumstances as specified rules of Income tax Act

32. #112Practice set
    to taxation for Hindu Undivided Family (HUF) under Income Tax Act of 1961, consider the following statements: 1. A Hindu Undivided Family can be created through a contract under the provisions of Income tax act. 2. Hindu Undivided Family is treated as a 'person' under the Income-tax Act. SOCIA 3. Only the members of the community governed by Hindu Law can form a HUF for the taxation purpose.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (A) Only one
    Explanation

    Option a is the correct l is incorrect: Hindu Undivided Family created through marriage automatically and cannot through contract. It is automatically created in 2 is correct: Hindu Undivided Family treated as a 'person' under section of the Income tax Act, 1961. HUF is a separate entity for the purpose under the 3 is incorrect: HUF for the purpose of can also be formed by family who is not Hindu law. Jain and Sikh families even though are by the Hindu Law, but they are treated as the HUF has a separate entity for the purpose under the Act. Important Tips Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family

33. #113Practice set
    Consider the following pairs:Tai incentives give 1. Special exemption Economic Zone provided from income tax on export for first 10 years. 2. Start-ups Investments made above the fair market value in eligible startups are exempted from tax. 3. International Investors are not Financial Service mandated to pay Sector GST on (IFSC) investments carried out in IFSC.How many of the above given pairs are correctly matched?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct 1 is incorrect: Special Economic Zone (SEZ) is region in a country which is subject to which are less restrictive than those governing of the country. Income Tax exemption on for SEZ units under Section of the Income for first 5 years, for next 5 years thereafter and the ploughed back export profit for next 5 2 is correct: The government has exempted start-ups for tax being levied on investments fair market value. Such investments include in eligible statrtups by resident angel or funds which are not registered as venture Also, the investments made by incubators above value is 3 is correct: International Financial (IFSC) attends to customers outside the the domestic economy. Gujarat International (GIFT) is first International Centre (IFSC). In IFSC, Goods and Services Benefits provided to: Investors: No GST will be levied on transactions carried out in IFSC exchan

34. #114Practice set
    Consider the following statements, with reference to different taxes in India: 1. Commodities transaction tax is imposed on agricultural commodities traded at commodities exchange markets. 2. Securities transaction tax is charged only when the profit is made by selling or buying of securities. 3. Recently the Government has introduced the wealth tax on the assets acquired by an Indian citizen.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (D) None
    Explanation

    Option d is the correct l is incorrect: The Commodity Transaction levied on non-agricultural commodities e.g., and non-ferrous metals like copper as well as such as natural gas and crude oil. It is imposed rate of 0.01 2 is incorrect: securities transaction tax on purchasing and selling of securities loss or profit made. It is levied and collected by 3 is incorrect: wealth tax was a type of that was abolished in 2016. Under the wealth 1957, Wealth tax was levied on individuals, families and companies. It was calculated acquired, at the end of a financial year. Also, tax on the market value of assets owned regardless they generate profit or not. Important Tips Securities transaction tax or STT was introduced in the year 2004. It aimed at avoiding tax evasion in case of capital gains According to the Securities Contract Act, 1956, following are the transactions covered under the same. a) S

35. #115Practice set
    With reference to indicators measuring tax efficiency in India, Consider the following statements:Practice 'M.ENT 1. Tax buoyancy refers to the change in amount of government revenue generated due to varying tax rate. 2. Tax elasticity refers to the increase in government revenue with respect to change in GDP in a year. 3. Higher tax buoyancy may decrease the interest rates for borrowing from the market. 4. High tax elasticity is desirable for the higher economic growth in country.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • COnly three
    • DAll four
    Answer: (B) Only two
    Explanation

    Option bis the correct 1 is incorrect: Tax Buoyancy is calculated as of percentage growth in tax revenues and growth GDP for a given change in tax revenue/ change in is said to be buoyant if the gross tax revenues with respect to a rise in GDP 2 is incorrect: Tax Elasticity refers to change revenue in response to change in tax 3 is correct: Tax buoyancy is an important know the expected level of government the debt market. Higher tax buoyancy mean that need to borrow less from the debt results in lowering the interest rates. And borrow loan at low interest 4 is correct: A high tax elasticity is said to be desirable feature in economy. It leads to growth. It helps the government financing related to development by rising tax of increasing tax or borrowing from the leaves little space for the corporate sector to borrow

36. #116Practice set
    to the tax authorities in India, Consider the following statements: 1. Directorate of revenue intelligence works under the Central Board of Indirect taxes and Customs (CBIC). 2. Central Board of Direct taxes is a non statutory body. 3. Proceedings against Benami transactions cannot be started by an officer of rank less than an Assistant Commissioner of Income tax.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct 1 is correct: Department of Revenue works under the Central Board of Indirect Taxes Ministry of Finance, Government of India. It anti-smuggling agency of India. It is assigned with task and checking the smuggling of prohibited items include drug trafficking illicit in wildlife and environmentally sensitive items. It tasked with combating commercial frauds related trade and evasion of Customs 2 is incorrect: The Central Board of is a statutory authority under the Central Board Act, 1963. Earlier The Central Board of central board of revenue act, 1924 was charged administration of taxes. Initially the Board was in both direct and indirect taxes. In 1964, the Board was into two bodies, namely the Central Board of Direct Central Board of Excise and 3 is correct: Benami transaction is Benami transaction (prohibition) act, 1988. terms benami transaction is if a person h

37. #117Practice set
    Consider the following statements regarding Value Added Tax (VAT): 1. It is a single point tax levied during the sale of a product. 2. After the introduction of the Goods and Services Tax, Vat is completely abolished in India.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (D) Neither 1 nor 2
    Explanation

    Option d is the correct 1 is incorrect: The value added tax (VAT) is of tax collection as well as the name of a state (at present) in India. It is collected in many stages involving sales of goods (not levied on stage only). Basically, it is a type of indirect tax goods and services for value added at every point or distribution cycle, starting from raw going all the way to the final retail is incorrect: Currently the majority of the taxes has been subsumed under GST. After of the GST, VAT on petroleum petrol, high speed diesel, natural gas and fuel) and akohol is still under the purview of states. Important Tips Value Added Tax (I/AT) is a form of sales tax. It is collected in on Involving sales of goods. Tax paid on purchases (input tax) is rebated against tax payable on sales (output ta levied on sales of all taxable goods. VAT is not levied if sales of goods are not made in the cours

38. #118Practice set
    Consider the following statements regarding taxation in India: 1. Direct tax has incidence and impact both on the same individual. 2. In indirect tax burden of tax can be shifted to someone else. book 3. Indirect taxes are progressive in nature.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct: The tax which has incidence both at the same point is known as the direct tax. can't be shifted by the taxpayer to someone tax, corporation tax, property tax, inheritance gift tax are examples of direct 2 is correct: The tax vvhich has incidence at the different points is known as the The burden of tax can be shifted by the taxpayer else. Indirect tax has the effect to raising the the products on which they are imposed. Customs excise, service tax and value added tax are indirect 3 is incorrect: Indirect tax is regressive tax impacts those on lower incomes more than earners. Although everyone pays the same price for the everyone's income is different and, therefore, end up paying more as a percentage of your income higher income earner. Important Tips Incidence of tax The point where tax looks as being imposed is known as Incidence of tax. It is even

39. #119Practice set
    Consider the following statements regarding taxation system: 1. Horizontal equity means individuals having the same income should pay the same amount in taxes. 2. The proportional taxation method refers to higher rates of tax for individuals with higher income levels.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (A) 1 only
    Explanation

    Option a is the correct debate in developing economies revolves progressive or regressive taxation, direct tax tax collections should be higher, whether is better, I is correct: Horizontal equity is an that states that individuals with similar income should pay the same amount in taxes. Horizontal apply to individuals considered equal regardless tax system in place. The more neutral a tax system is horizontally equitable it 2 is incorrect In proportional taxation is neither progression nor regression from the point rate of taxes point of view. Such taxes have fixed every level of income or production. On the other progressive taxation there is higher rates of tax for levels

40. #120Practice set
    Consider the following statements regarding commodities transaction tax (CTT} and securities transaction tax (STT) in India: 1. In India CTT is levied on all agricultural and non-agricultural commodities derivative contracts. 2. CTT primarily levied to discourage excessive speculation in commodities market. 3. STT is used to control the evasion of tax on capital gains.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option bis the correct 1 is incorrect: Commodities Transaction CTT) is a tax levied in India, on transactions done on commodity derivatives exchanges. It is Non-Agricultural Commodities such as Gold, futures 2 is correct: Like all financial transaction also aims at discouraging excessive is detrimental to the market and to bring securities market and commodities market. are financial instruments and provide for management and price discovery of the underlying or 3 is correct: The Securities Transaction is a type of 'financial transaction tax' levied in transactions done on the domestic stock transaction tax is levied on gains from as equities, options etc. in domestic stock is used as a measure to control the evasion of tax gains as it is a direct tax levied on source. Important Tips Commodities transaction tax (CTT) and securities transaction tax (STT) are taxes which are charged on exc

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