Q5 Economy 1Mar
Budget
Fiscal Policy
Public Finance
Finance Commission
Qts 1. Which of the following comes under Non-Plan expenditure?
1. Subsidies
2. Interest Payments
3. Defence expenditure
4. Maintenance expenditure for the infrastructure created in the previous plans.
Choose the correct answer using the codes given below-
(A) 1 and 2
(B) 1 and 3
(C) 2 and 4
(D) 1, 2, 3 and 4
Ans. (D)
Exp:
Non-Plan Expenditure includes Subsidies, Interest Payments, Defense expenditure and Maintenance expenditure.
1.To understand the classification of Non-plan expenditure and Plan expenditure we need to look at whole budget.
2.Budget is an official document of Government of India which depicts a financial plan for optimal allocation of scarce resources (resources of national importance) taking into consideration of socio-political need in a particular period.
3.Budgeting involves determination of what is to be done and the manner in which it is to be done. For better understanding budget classification is done.
Budget
Revenue
■ Receipts
■ Expenditure
Capital
■ Receipts
■ Expenditure
4.Budgetary classification of government revenue and expenditure is to allow public to scrutinize and appreciate allocation of resources. Expenditure is also classified into two heads:-
5.Plan Expenditure includes expenditure that is incurred on programmes under the plan (usually it is five fear Plan) of center or States.
Overall it is expenditure done in lieu to fulfill proposals in government plan.
Non-Plan expenditure on other hand includes estimated expenditure mentioned largely for spending's during the year on general or routine functioning of the government. In other word it is expenditure done to deliver public services.
Non-plan expenditure includes:-
(i) Interest payments
(ii) Subsidies
(iii) Salaries and pension payments
(iv) Grants to states and union territory
(v) Police and other expenditure on socio- economic services
(vi) Grants to foreign government
(vii) Defense
(viii) Maintenance expenditures etc.
Government of India has now scrapped this classification and has switched to capital and revenue expenditure classification.
Qts 2. Match List-I with List-II and select the correct answer using the codes given below the lists:
List-I List-II
a. Fiscal deficit 1. Excess of total Expenditure over total Receipts
b. Budget deficit 2. Excess of Revenue Expendi- ture ever revenue receipts
c. Revenue deficit 3. Excess of total Expenditure over total receipts less borrowing
d. Primary deficit 4. Excess of Total Expenditure over total Receipts less borrowings and Interest payment
Codes:
a b C d
(A) 3 1 2 4
(B) 4 3 2 1
(C) 1 3 2 4
(D) 3 1 4 2
Ans. (A)
Exp:- Option A is the correct answer.
In budget there are several types of deficits which can be classified as:-
Deficits
On the basis of Financing
Budget Deficit
Monetized Deficit
On the basis of the transaction type
Fiscal Deficit
■Gross Fiscal Deficit
■Net Fiscal Deficit
Primary Deficit
Gross Primary Deficit
Net Primary Deficit
Revenue Deficit
Fiscal Deficit:-
can be expressed as FD = Total expenditure - receipts except borrowings. Total
Fiscal deficit is excess of total expenditure over total budget receipt excluding borrowings. Simply
Fiscal deficit is amount of borrowing that government has to resort to meet its expenses.We exclude borrowing from receipts to know exact requirement of borrowings. If we include borrowing Fiscal deficit will be zero.
berre total receipts include revenue receipts as well as capital receipts. So more elaborately
Fiscal Deficit - Total expenditure-Revenue receipts Capital receipts excluding borrowings.
Capital receipts are receipts either creating any liability or reducing assets.
Examples are Borrowing, funds, raised from ppp (creating liability) and Disinvestment, Recovery of Loans (reducing Assets.)
So Fiscal Deficit = Total Expenditure - (Revenue receipts + Recovery of Loans + Receipts from Disinvestment)
Primary Deficit:-
PD = Fiscal Deficit - Interest Payments
Primary Deficit refers to difference between fiscal deficit and interest payment.
Primary deficit shows requirement of government in the form of borrowing exclusive of interest payment.
In simple words, it indicates the amount of government borrowing that will actually meet the expenses other than interest payments or amount of borrowing on current expenditure.
Revenue Deficit:-
RD = Revenue expenses Revenue receipts Revenue Deficit refers to the excess of revenue expenditure over revenue receipts. It is basically a mismatch between expected revenue and expenditure indicating that government earnings not sufficient to meet day to day functioning of its department.
Effective Revenue Deficit:-
ERD =RD-Grants for creation of capital assets. Introduced in 2012-13. It is basically RD excluding grants which is expenditure that will create capital assets i.e. income creation.
Budget Deficit:-
BD = Total expenditure - Total receipts
Budget Deficit means the excess of total expenditure over total receipts. It includes overall deficit which include revenue as well as capital items.
⇒ Monetized deficit:-
MD = Part of fiscal deficit covered by borrowings from RBI. Monetized Deficit is amount of deficit that is financed by borrowings from the RBI. It has clear implication on an economy in the form of increase in money supply.
Qts3.Assertion (A): Fiscal deficit is greater than budgetary deficit.
Reason (R): Fiscal deficit is borrowing from the Reserve Bank of India plus other liabilities of Government to meet its expenditure.
In the context of the given two statements, which of the following is correct?
(A) Both A and R are true and R is the correct explanation of A.
(B) Both A and R are true but R is not the correct explanation of A.
(C) A is true but R is false
(D) A is false but R is true
(UPSC (Pre) 1999)
Ans. (B)
Exp:- Fiscal deficit is greater than budgetary deficit. Because budgetary deficit is simply excess of expenditure over income whereas Fiscal defect is excess expenditure excluding borrowings. Let us take an example:- Values
Total receipts = 400 Rs.
Total Expenditure = 500 Rs.
Borrowing = 100 Rs.
So,
Budget Deficit
= Total expenditure - Total receipts
= 500-400
= 100 Rs.
Fiscal Deficit = Total expenditure Total receipts excluding borrowing = 500-(400-100) = 500-300 = 200 Rs.
Fiscal deficit is amount of borrowings that government has to resort its requirements, that do not include borrowins from RBI.
Qts 4.. What is the effect of deficit financing on economy?
(A) Reduction in taxes
(B) Increase in wages
(C) Increase in money supply
(D) Decrease in money supply
Ans.(C)
Exp:- Deficit financing is a budgetary process in which fresh printing of money or borrowing is done to finance gap between expenditure and receipts.
1.The borrowing done by the government from RBI to finance or balance budget.
2.Printing fresh money or borrowing lead to increase in total stock of money so, ultimately it increase money supply in market.
3.Due to this very nature of increasing money supply, the practice of borrowing money has stopped from 1997 onwards in India. Effects of Deficit Financing
i)Inflation:- increased money supply leads to increase in general price level of commodities i.e. inflation.
ii) Cost of production:- rise in price level also lead to rise in cost of projects.
ii) Depletion of saving: increased price level leads to reduction or depletion of money available (in form of saving) with the people.
iv)Increase in inequality: An adverse effect on economy due to rise in price level leads to make rich more richer and poor the poorer.
Overall deficit financing leads to increase in money supply but this effect is temporary for a period. Deficit financing is considered important device for underdeveloped countries development
Qts 5.Consider the following-
1. Market borrowing
2. Treasury bills
3. Special securities issued to RBI
Which of these is/are components (s) of internal debt?
(A) Only l
(B) 1 and 1
(C) Only 2
(D) 1, 2 and 3
Ans . (D)
Exp:-
Debt of India consists internal and external debt.
Public Debt
Internal Debt
External Debt
Internal debt is debt owed to domestic lenders. It is money borrowed by government from public. It includes market loans, treasury bills, special securities issued to RBI and a non-negotiable, non- interest bearing securities issued to international financial institution i.e. Special floating and other loans from institutions like IMF and World Bank. External debt is debt owed to creditors outside the country. External debt is of several kinds like External commercial borrowings, trade credits, bilateral & multilateral loans, NRI deposits. External debt is loan which is denominated in
Indian Rupee called as Rupee Debt. Internal and External debt with other liabilities together create total amount that is outstanding liabilities of Union government.
Qts6 .With reference to the Indian Public finance, consider the following statements:
1. External liabilities reported in the Union Budget are based on historical exchange rates.
2. The continued high borrowing has kept the real interest rates high in the economy.
3. The upward trend in the ratio of Fiscal deficit of GDP a recent years has an adverse effect on private investment.
4. Interest payment is the single largest component of the non-plan revenue expenditure of the Union government.
Which of these statements are correct?
(A) 1, 2 and 3
(B) 1 and 4
(C) 2, 3 and 4
(D) 1, 2, 3 and 4
Ans. (C)
Exp:- Only statement 1 is incorrect and statement 2, 3 and 4 are correct.
Statement 1:- External liabilities are based on current exchange rate not on historical basis. Exchange rate is based on current demand and supply of currency rather on historical basis.
Statement 2:- Continued high borrowing leads to crowding out effect i.e. increased interest rate leading to lower or postpone private investment. Hence statement 2 is correct.
Statement 3:- Increase in fiscal deficit have an adverse effect on private investment because of same reason, increase in interest leading to crowding out effect thus lower investment.
Statement 4:- Interest payment is largest component of non plan revenue evident
Qts 7. Consider the following Statements and Select the correct answer from the codes given be- low-
Assertion (A): Zero-Base Budget has been introduced in India.
Reason (R): Zero-Base Budget technique involves critical review of every scheme for which a budgetary provision is made.
Codes:
(A) Both A and R are correct and R is correct explanation of A
(B) Both A and R are correct, but R is not correct explanation of A
(C) A is true, but R is false
Ans. (D)
(D) A is false, but R is true
Exp:-
Zero-based Budgeting is a technique in which all expenses are justified by analytical and scientific approach for development. Zero-base budget in present form was developed by Peter Phyrr in 1969.
In zero base budget the function including grants and grant received are analyzed and evaluated in a comprehensive and a lucid manner.
In India this method was emphasised in Seventh Five Year Plan but later it faded. Some of the state government like Rajasthan etc. and departments had adopted this but the results are mixed.
Qts8.. A larger part of the fiscal deficit in the Union Budgets is filled by-
(A) Tax revenue
(B) Domestic borrowings
(C) Foreign borrowing
(D) Printing paper currency
Ans. (D)
Exp:- A larger part of fiscal deficit in the union Budgets is filled by domestic borrowings.
Fiscal deficit is financed by borrowings including borrowings from RBI or from capital markets by issuing different instruments like treasury bills etc. Usually on the conceptual basis fiscal deficit can be filled by:-
(i) Domestic borrowings:- borrowings from various domestic resources like small saving schemes, provident fund and banks.
(ii) Deficit financing:- printing of fresh money but government now focus more on reducing expenditure or increasing income of government so that fiscal deficit do not occur.
Qts 9. As compared to revenue deficit, fiscal deficit will always remain-
(A) Higher
(C) Some
(B) Lower
(D) All the above
Ans. (A)
Exp: As compared to revenue deficit, fiscal deficit will always remain higher.
Because revenue deficit is gap between revenue items only i.e. it do not involve capital account whereas fiscal deficit is excess of total expenditure (including revenue and capital) and total receipts except borrowings let us take an example:-
Total Expcnditure: - 1800Rs . pevenue Expenditure:- 800 b . Total Receipts :- 1200 Rs. Revenue Receipts :- 500 Rs.
Borrowing:-100 RD = RE - RR So = 800-500 = 300 Rs. FD = 1800 - (1200 - 100) = 700R . Hence, Fiscal deficit will always remain higher.
Qts 10. Consider the following statements and select the correct answer using the codes given below-
Assertion (A): There is a history of fiscal deficit in central Government budgets in India.
Reason (R): Indian agriculture has enjoyed large amount of subsidies compared to developed countries.
Codes:
(A) Both A and R are true and R is correct ex planation of A.
(B) Both A and R are true but R is not the cor- rect explanation of A.
(C) A is true, but R is false
(D) A is false, but R is true
Ans. (C)
Exp:- Assertion is correct but reason given for it, is not. There is history of fiscal deficit in Central Government budgets because of historical and other factors contributing in expenditure of Government of India which is usually more than its receipts. Therefore, deficits in Budget. There are several factors contributing to fiscal deficits Indian agricultural subsidies is one of the reason but not only the reason.
Factors affecting fiscal deficits:-
i) Subsidies:- Government provides subsidies on a number of items such as fertilizers, exports, food items etc.
ii) Interest payments:- It is also one of the major government expenditure
iii) Defence:- Defence expenditure is also one of the contributing factors to fiscal deficit.
iv) Weak Revenue Mobilisation
Qts 11. Fiscal Policy is concerned with- 1
(A) The volume of currency that banks should put in the economy.
(B) The Policy regarding taxation and Expenditure.
(C) Policy for regulating Stock.
(D) The Policy for dealing with IMF
Ans. (B)
Exp:- Fiscal policy is the policy of government which deals with taxation and expenditure. Ministry of Finance is the authority under GOI to formulate Fiscal Policy.
Fiscal policy constitutes important part of economic framework. Fiscal policy affects economy in short run i.e. effect on aggregate demand, and also in long
run i.e. effect on savings, investment and growth.
Fiscal policy is generally undertaken by government with the broader objectives of development.
Fiscal policy includes tax policy, expenditure policy, investment, disinvestment strategies and debt or surplus management.
Objectives of Fiscal Policy:-
(i) Effective and Efficient use of resources
(ii) Right allocation and exploitation of resources
(iii) Reduction in inequalities of income and wealth
(iv) Price stability
(v) Reduction in Deficit
(vi) Employment generation
(vii) Balanced regional development
(viii) Increase in living standard
Instrument of Fiscal Policy:-
(i) Increase in savings
(ii) Wage control
(iii) Increase in taxation
(iv) Public debt
(v) Rationing
Fiscal policy also means, "the policy which is used by government to produce intended results and effects through expenditure and revenue programmes run by government".
There are three types of fiscal policy:-
Fiscal Policy
Expansionary
• During recession Government spend
More money
Contractionary
Neutral
To reduce or repay debt Government spending is lower than tax revenue
• When economy is equilibrium Government spending fully funded by tax
v) Borrowings :- Internal and external borrowings of government contributes to higher expenditure
Qts 12. A change in fiscal policy affects the balance of payments through-
(A) The current account only
(B) The capital account only
(C) Both, the current account and capital account
(D) Neither current account nor capital account.
Ans. (C)
Exp:- A change in fiscal policy affects the balance of payments through both, the current account and capital account.
To achieve economic growth is very first objective of every economic policy. Economic policies include fiscal policies and monetary policy.
Fiscal policy affects balance of payments. Balance of payments record the transactions in goods and services and capital assets between residents of a country with the rest of the world for a specified time period.
There are two parts in BOP:-
(i) Current Account
(ii) Capital Account
Current Account deals with recording exports and imports in goods and services and transfer payments.
Capital Account deals with recording of all international purchases and sales of assets such as money, stocks, bonds, etc.
There are numerous factors which can directly and indirectly affects balance of payments through interest rates, exchange rates and fiscal policy.
Like taxation policy under fiscal policy:- If government imposes heavy duties on import and export or let's say government pull down duties around zero, both will surely effect import and export resulting an effect on current account.
Like investment and disinvestment strategy under fiscal policy:- If government put restrictions on FDI or FII or let's say pulling down restriction on FDI or FII by government, both will surely affect FDI and FII amount resulting an effect on capital account.
Qts 13. Which one of the following statements appropriately describes the 'fiscal stimulus'?
(A) It is a massive investment by the government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth.
(B) It is an intense affirmative action of the government to boost economic activity in the country.
(C) It is government's intensive action of financial institutions to ensure disburse- ment of loans to agriculture and allied sectors to promote greater food Production and contain food inflation.
(D) It is an extreme affirmative action by the government to pursue its policy of financial inclusion.
Ans. (B)
Exp:- In an economic situation where economy is facing lower production or economic activity resulting in the situation of recession and its spiral effect on economy.
So to increase economic activity or to save economy from spiral effect of recession government use fiscal stimulus as a tool to make economy right.
Fiscal stimulus is a tool of fiscal policy in which government launches a spending program to boost the demand and stimulate economic activity.
There are two major ways of providing fiscal stimulus etc.
i) Government Spending Programs:- Spending by government directly in employment creating activities like spending on social welfare, infrastructure
ii) Reducing Tax rates/Tax cutting:- By this strategy government increases money available to individual leading to greater savings and investment, hence boost to economic actives.
Qts 14. Globalization does not include-
(A) reduction in import duties
(B) abolition of import licensing
(C) free flow of FDI
(D) disinvestment of Public Sector Equity
(E) None of the above/More than one of the above
Ans. (D)
Exp:-Disinvestment of Pulic sector enterprize in India:- Under the present industrial policy of the govt, it should encourage privatization through disinvestment. With this view the Government has decided to disinvest the public enterprizes. The Government can sell its enterprizes completely to the private sector or disinvest a part of its equity Capital hold by it to the private sector companies or in the open market.
Qts 15. Agricultural Income Tax is assigned to the State government by-
(A) The Finance Commission
(B) The National Development Council
(C) The Inter-state Council
(D) The Constitution of India.
Ans. (D)
Exp:- Tax on agricultural income exclusively belongs to the states. It means states are entitled to levy, Collect and appropriate agricultural Income tax. This right is given to states by the constitution includes:-
Income from sale of replanted trees.
Rent received from agricultural land.
Income from growing flowers and creepers.
Share of profit of a partner from a firm engaged in agricultural operations.
Interest on capital received by a partner from a firm engaged in agricultural operations.
Income derived from sale of seeds.
Qts 16. Which of the following is not a direct tax in India?
(A) Income Tax
(B) Wealth Tax
(C) Estate duty
(D) Sales Tax
Ans. D
Exp:- Tax effect is important factor to understand type of tax. Tax includes two parts.
Incidence of tax.
(The point where tax is imposed)
:- Impact of tax
(The point where actually tax is felt.)
Direct Tax:- If both the incidence of tax and impact of tax are at the single or same point it is direct tax.
Indirect Tax:-If both point of incidence of tax and impact of tax are different then it is indirect tax.
Direct tax on Asset or property includes Security Transaction Tax, Capital Transaction Tax, Wealth Tax, Estate Duty etc.
Direct tax on expenditure includes Fringe benefit tax, Gift tax etc.
Direct tax on income includes Income tax, Corporation Tax, MAT, Dividend Tax, Capital Gains Tax.
Indirect tax includes Custom Duty, Excise Tax, Service Tax, Central sales Tax etc.
Sales tax is tax on sale of goods. It is indirect tax because here incidence of tax and impact of tax both are at different points and also in sales tax the burden is transferred to consumer.
Hence, Sales Tax is not a direct tax in India.
Qts 17. Corporation tax -
(A) is levied and appropriated by the states
(B) is levied by the Union and collected and appropriated by the states
(C) is levied by the Union and shared by Union and the States.
(D) is levied by the Union and belongs to it exclusively
Ans. (D)
Exp:- Corporation tax:- Corporation tax is levied on the income of the corporation or private firms. It is categorized under direct taxes because its impact and incidence lie on the same person (i.e. liability to pay a tax and burden of tax falls on same person). Corporation tax exclusively belongs to the union government. In other words, no part of proceeds of corporation tax goes to the states. It is levied, collected and appropriated by the union government.
Qts 18. Which of the following taxes does not directly increase the price of a commodity to buyers-
(A) Income Tax
(B) Trade Tax
(C) Import Duty
(D) Excise Duty
Ans. (A)
Exp: Income tax is a direct tax. Because incidence and impact of Income tax lies on same parson. In other words, the person who is liable to pay tax and person who bears the burden of tax, both are the same individual.
The other options given above are indirect taxes, in case of indirect taxes, incidence and impact of tax lie on different persons. Government collects indirect tax from the seller or producer who in turn recovers it from the customers by increasing price of the commodity. So burden of indirect tax falls on different person i.e. customer.
Suppose government imposes an indirect tax then the burden of tax will be transferred to consumer by increasing the price of commodity. Whereas if government imposes a direct tax then it will be difficult to transfer burden through increase or decrease in price of commodity because it has to be paid only by the person on whom it is imposed.
Qts19 . Which among the following are the sources of revenue for the central Govt.?
I. Corporate Tax
II. Profit from Public Enterprises
III. Sale of National Savings Certificates
IV. Loans received from the World Bank
V. Excise duties
Select the correct answer from the codes given below-
(A) I, II and III
(B) II, III and IV
(C) III, IV and V
(D) All of the above
Ans.(D)
Exp: Corporate tax, profit from public enterprises, sale of national savings certificates, loans received from the world bank and excise duties all are the sources of revenue for the central government. There
are two types of receipts on budget
1.Budget Receipt
2.Revenue Receipt
Qts 20 . Which of the following statements for the Income Tax in India?
Choose the correct answer from the codes given below-
I. It is a progressive tax.
II. It is a direct tax.
III. It is collected by the state Governments.
IV. It is a proportional tax.
Code:
(A) Only I is correct
(B) Only I and II are correct
(C) I, II and III are correct
(D)II, III and IV are correct
Ans. (B)
Exp: Income tax is a perfect example of progressive taxation system. It is also a direct tax because it is felt where it is implemented i.e. incidence of tax and impact of tax are felt at the same point.
It is collected by central government but compulsorily distributed between the union and states in such manner as prescribed by president on the recommendation of Finance commission.
There are three methods of taxation.
i. Progressive Taxation system:- In this system of taxation the rate of tax goes up with the increase in income. In this method the person who can afford to pay are charged more and the person who can't afford to pay are charged very less i.e. Rich are taxed more whereas poor are taxed less.
Pure example of this method is income tax in India where different tax rate are applied on different slabs and that too if a person fall under higher slabs of income he will be charged higher rate of tax.
ii. Regressive taxation system :- In this system of taxation, the rate of tax goes lower with the increase in income. This type of taxation is used for a short span or to promote usually a particular industry to earn high and pay less.
In India it was adopted in small scale sector. iii. Proportional taxation system:- In this system of taxation, tax charged is at flat rate instead of either earning high or low.
Qts21 . Which one of the following is correctly matched?
(A) Income Tax - Indirect Tax
(B) Custom Duly - Indirect Tax
(C) Excise Duty - Highest source of tax revenue to the centre
(D) Entertainment Tax- Highest source of tax to revenue states
Ans. (B)
Exp:- Custom duty is indirect tax is only option which is correctly matched.
Option A is incorrect because income tax is a direct tax because it's incidence of tax and impact of tax are at single point.
Option C is incorrect because excise duty is not the highest source of tax revenue rather highest source of tax revenue is corporate tax and income tax respectively. Option D is incorrect because entertainment tax is not highest source of tax.
Qts 22. Which one of the following sets of sources of revenue belongs to the Union Government alone?
(A) Gift tax, Holding tax
(B) Sales tax, Income tax
(C) Custom duties, Corporation tax
(D) Wealth tax, Land revenue
Ans. (C)
Exp:-Custom duties and Corporation tax are sources of revenue which belongs to the Union Government alone. Taxes which belong to the union exclusively are
those sources of revenue that are levied, collected
and retained by the centre only. Other taxes that
are exclusively for centre, are as follows:-
i. Custom Duties.
ii. Corporation tax.
iii. Taxes on capital value of assets of individual.
iv. Surcharge on Income tax.
Taxes which belong to states exclusively are as follows:-
i. Land revenue.
ii. Tax on agriculture income.
iii. Tax on Vehicles
iv. Tolls
V. Estate duty on agricultural land.
Qts 23. Which one of the following is not related with income from corporate sector in India?
(A) Fringe Benefit tax
(B) Minimum alternate tax
(C) Capital Gain tax
(D) Tax on company profit
Ans. (B)
Exp:-Minimum Alternate Tax is not related with income from corporate sector in India. Fringe Benefit tax is a tax which is paid in lieu for the benefits paid to employee by employer other than salary.
Minimum Alternate Tax is basically a tax imposed on certain portion of the income earned by companies (including domestic and foreign). Since, it is calculated on profit or income of company, it is also related with income of corporate sector. ,
Example:- Benefits in the form of free transport facility
free schooling for the children's of employee, gifts, etc. This tax can be called as taxation of prerequisites. It was imposed in 2005, later in 2009 it was abolished. Since, it is imposed on benefits or facilities provided by employer these are related with income of corporate sector in India.
Capital Gains Tax:- Capital Gain is basically profit realized by a person during selling of capital assets. In India capital gain occurs before 36 months proceeding to sell of that capital asset and it is taxed 15%. Hence, it is also related with income of corporate sector. Tax on company profit or otherwise called as corporate tax.
Qts 24. Which among the following are true for Central Sales Tax?
i. It is levied on interstate trade.
ii. It is levied in the Union Territories.
iii. It is levied in the SEZ.
Select the correct answer from the codes given below-
Codes:
(A) Only (i) and (ii)
(B) Only (i)
(C) Only (ii) and (iii)
(D) All the above
Ans. (A)
Exp:- Central sales Tax according to government is a levy of tax on sales, which are affected in the course of inter-state trade or commerce.
The central sale tax act 1956 provides for the levy and collection of taxes on sale of good in course of interstate trade.
Central sales tax was equally applicable in union territories, Central sales Tax is not applicable in SEZ.
Qts 25. The objective of SEZ is-
(A) Promotion of Goods and services
(B) Promotion of Regional Trade
(C) Promotion of MSME's
(D) Promotion of Government schemes
Ans. (A)
Exp:- Special Economic zones (SEZ) are areas that are declared and treated as foreign territories in context of trade and tariff laws.
The objective of SEZ includes:-
i. Promotion of goods and services production.
ii. Creation of employment opportunities.
SEZ can be sector specific as well as multiple sector bases.
SEZ enjoy various benefit like:
i. Tax Benefits
a) Custom duty exemption.
b) Central Excise duty exemption.
c) Central sales tax exemption.
d) Income tax exemption etc.
Qts 26. Which of the following taxes is levied and collected by the Union but distributed between Union and States?
(A) Corporation Tax
(B) Tax on income other than on agricultural income
(C) Tax on railway fares and freight.
(D) Customs
Ans. (B)
Exp:- Tax on income other than on agricultural income is compulsorily distributed between center and state while levied and collected by center.
Division of tax here is based on President prescribed formula which is usually recommended by Finance Commission.
There is other category of taxes which are levied and collected by the center and 'May be' distributed between the center states. This include excise duties under union except excise duties on medicinal and toilet preparations.
Qts 27. The tax on Import and Export is known as.
(A) Income Tax
(B) Trade Tax
(C) Custom Duty
(D) None of the above
Ans. (C)
Exp:- Custom Duty is tax on import and export.
Custom Act 1962 was the beginning of putting restriction on illegal exports and imports of goods.
Custom duty on import is looked with a view to affording protection to domestic industries, where custom duty on export is to get some part of revenue from those goods which have their basis here. It is an indirect tax
Custom duty plays an important role in domestic trade as well as international trade.
Qts 28. The main source of revenue for the National Highway Authority of India is-
(A) Cess
(B) Foreign assistance
(C) Market borrowings
(D) Budgetary support of Union Government
Ans. (A)
Exp:- The National Highways Authority of India (NHAI) was constituted by an act of Parliament, the National Highways Authority of India Act, 1988. It is responsible for the development, maintenance and management of National Highways entrusted to it.
NHAI receives its funding through:-
I. Government support in the form of Capital base, Cess fund, additional budgetary support, capital grant, ploughing back to toll revenue.
II. Loan from multilateral agencies
III. market borrowings
In financial year 2015-16, NHAI received a sum of Rs. 15,420 crore through Union Budget in form of cess fund and this become the largest source of fund for it.
Qts29. Which one of the following is not a tax/duty levied by the Government of India?
(A) Service Tax
(B) Education Cess
(C) Custom Duty
(D) Toll Tax
Ans. (D)
Exp: Toll tax is a fee charged for the use of road. Toll tax is levied and collected by the NHAI (National Highway Authority of India.) NHAI is responsible for development, maintenance and management of national highways entrusted to it.
Service tax is tax imposed by government as service providers to provide certain services. It is categorized under indirect tax.Education cess is an addition levy on the basic tax liability. It is levied and collected by central government its proceeds are used to provide and finance universalized quality basic education.
Qts30. Consider the following Taxes-
1. Corporation Tax
2. Customs duty
3. Wealth tax
4. Excise duty
Which of these is/are indirect taxes?
(A) Only 1
(B) 2 and 4
(C) 1 and 3
(D) 2 and 3
Ans. (B)
Exp:- Custom Duty:- Custom duties are taxes imposed on goods imported into and exported out of the country.
Excise Duty:- Excise duties are those taxes which are imposed on goods produced within the country. In both custom and excise duties, tax is imposed on produced or seller but they recover it from customer by increasing the price of commodity. It means real burden of tax is borne by the customers who buy the commodity. Therefore, custom and excise duties are categorized under indirect taxes.
Qts 31. A redistribution of income in a country can be best brought through-
(A) Progressive taxation combined with progressive expenditure
(B) Progressive taxation combined with regressive expenditure.
(C) Regressive taxation combined with regressive expenditure.
(D) Regressive taxation combined with progressive expenditure
Ans. (B)
Exp: A redistribution of income in a country can be best brought through progressive taxation combined with regressive expenditure.
Progressive taxation is a method in which people who have higher income are taxed high whereas poor are taxed less. Basically, it will take larger part of income from the person who are earning high.
Regressive expenditure is method of government spending where government tends to decrease its expenditure where income of people increases and vice versa. Simply in regressive expenditure technique government tends to spend more on poor in comparison to rich people. Hence rich are taxed more and poor are given more expenditure resulting in the situation of best redistribution of income.
Qts 32. Consider the following statements-
In India, Stamp duties on financial transactions are-
1. Levied and collected by the state
2. Appropriated by the Union Government.
Which of these statement(s) is/are correct?
(A) Only 1
(C) Both 1 & 2
(B) Only 2
(D) Neither 1 nor 2
Ans. (D)
Exp:-Stamp duty is a government tax, levied on all legal property transactions
Taxes levied by center but collected and appropriated by the states.
(1) Stamp Duty.
(2) Excise duty on medicinal and toilet preparations So neither 1 nor statement 2 is correct.
Qts 33.Consider the following taxes-
2. Income Tax
1. Sales tax
3. Corporate tax
4. Entertainment Tax
Which of the above taxes are levied by the state government and not shared by Central government?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 3 and 4 only
(D) 1 and 4 only
Ans. (D)
Exp: Sales tax and Entertainment tax are tax levied by the state governments and not shared by Central Government. There are other taxes too that exclusively belongs to states i.e. collected and retained by states which are as follows:-
i. Duty on succession to agricultural land.
ii. Tax on minerals.
iii. Tax on land and buildings.
iv. Tax on vehicles
V. Land revenue.
vi. Tax on agriculture income.
Qts 34. Consider the following in relation with Corporate tax-
1. Total turnover of the company
2. Profit after distribution of dividend
3. Profit before distribution of dividend
4. Capital employed in the company
Which one of the above is basis of corporate tax?
(A) 1 alone
(B) 2 alone
(C) 3 alone
(D) 4 alone
Ans. (C)
Exp:- Corporate tax is tax on income of companies. Dividend is part of profit that a person's earns in the lieu of his investment.
Corporate tax is charged on profit before dividend distribution. Because corporate tax is just tax on profit and dividend is share so, share would be distributed only after expenditure done or corporate taxes.
Qts 35. Find the tax which is direct tax among the following-
(A) House tax
(C) Entertainment tax
(B) Service tax
(D) Value Added tax
Ans. (A)
Exp: House tax is a direct tax, also called as property tax. It is imposed by local authority on the property. It comes under tax imposed and collected by states. All other, service tax, entertainment and value added tax are examples of indirect taxes.
House tax is a direct tax because incidence of tax and impact of tax are at same point, in this case same point is owner of the house. Whereas service tax, entertainment tax, value added tax all have different points of incidence of tax and impact of tax.
Qts 36. The most important source of revenue for Indian Government is-
(A) Direct tax
(B) Indirect tax
(C) Deficit financing
(D) Loans from RBI
Ans. (A)
Exp:- The most important source of revenue for government is direct tax.
Direct tax includes corporation tax, income tax etc. which contributes maximum to total revenue. More information is given at Question Number 1 Explanation.
Qts37 . Consider the following statements. In India taxes on transactions in Stock exchanges and Futures Markets are-
1. Levied by the union
2. Collected by the States.
Which of the statement(s) given above is/are correct?
(A) Only 1
(C) Neither 1 nor 2
(B) Both 1 and 2
(D) Only 2
Ans. (A)
Exp: Securities transaction tax is tax impose on every sale or purchase of securities (i.e. stocks) that are listed on stock exchange.
It was introduced by P. Chidambaram the then finance Minister in 2004, basically to avoid tax evasion in case of capital gains. It is calculated on securities like equities, future and options. Securities Transaction tax is a direct tax and it is levied and collected by central government.
Following are the transaction that are covered under securities transaction tax:-
i. Government securities which are of equity nature.
ii. Rights in securities.
iii. Mutual funds which have basis of equity.
iv. Units issued under collective investment schemes.
Qts 38. Consider the following actions by the government-
1. Cutting the tax rates.
2. Increasing the government spending.
3. Abolishing the subsidies
In the context of economic recession, which of the above actions can be considered a part of the 'fiscal stimulus' package?
(A) 1 and 2
(C) 1 and 3
(B) only 2
(D) 1, 2 and 3
Ans. (A)
Exp: To revive any economy there are two measures usually
(i) Stimulus and (ii) Austerity.
Economy at its lowest which means economy don't have funds to keep itself running and this situation of unavailability of funds can be corrected by increasing the quantity and quality of funds contributing economic growth.
This can be done by either increasing government spending once so that economy can get kick start and slowly increased economic activities leading to economic growth.
Second method can be cost cutting means spending less so that more burden of debt do not come and slowly work towards economic growth. These two methodologies or techniques are stimulus and austerity respectively.
Stimulus: Supported by economist like Keynes which believe in expanding fiscal deficit by quality spending. It is an attempt to kick start the sluggish economy through package of measures:
In order to infuse liquidity into banking and economic system, so that boost to economic activity can be met, several measures are undertaken like:-
i) Tax rebates
ii) Reduction in bank rate, repo, Rev. Repo.
iii) Announcement of employment schemes.
iv) Subsidies.
Qts 39. What has been kept under the purview of Goods and Services Tax (GST) ?
(A) Alcohol for human consumption
(B) Electricity
(C) Petroleum Products
(D) Ghee
Ans. (D)
Exp:- After the implementation of GST, there is one nation one tax system is running in our country.
Alcohal. Electricity, Petroleum Products etc. are not included in the GST. They have been kept outside of the purview of GST because they are the major source for the revenue generation for the states.
Ghee is a food product, which comes under GST like other food products.
Qts 40. Direct Tax code in India is related to which of the following?
(A) Sales Tax
(C) Excise Tax
Ans. (B)
(B) Income Tax
(D) Service Tax
Exp: The Direct Tax Code is an attempt by the Government of India (GOI) to simplify the direct tax laws in India. DTC will revive, consolidate and simplify the structure of direct tax laws in India into a single legislation. Income Tax comes under the direct taxes.
Qts 41. Which of the following taxes is levied by the Gram Panchayats?
(A) Sales Tax
(B) Land Revenue Tax
(C) Tax on Local fairs
(D) None of the above
Ans. (C)
Exp:- Taxes from local fairs are collected by the Gram Panchayat. Each Gram Panchayat has its own fund. Money comes from different sources and is deposited in this fund.
Every village Panchayat may levy in its area a profession tax, an advertisement tax and an entertainment tax.