Fiscal Policy & Revenue (Part – IV)

Total Questions: 50

1. Why the indirect taxes are termed regressive taxing mechanism? [U.P.B.E.O. (Pre) 2019]

Correct Answer: (b) They are charged the same rates for all income groups
Solution:Indirect taxes are termed regressive taxing mechanism as they are charged at the same rates for all income groups. Indirect taxes are generally imposed on consumption and every person, regardless of their taxable capacities, pays the same rate of tax on consumption of a good or a service.

Because the one legally liable to pay the tax isn't the one who bears the burden, this differentiates an indirect tax from a direct tax. Instead, the tax is transferred to the consumer. For example, while a manufacturer may be responsible for paying excise duties on fuel, liquor, or cigarettes, these costs are typically passed on to the consumer as part of the product's price.

Essentially, any taxes or fees imposed by the government at the manufacturing or production level is an indirect tax. In recent years, many countries have imposed fees on carbon emissions to manufacturers. These are indirect taxes since their costs are passed along to consumers.

Sales taxes can be direct or indirect. If they are imposed only on the final supply to a consumer, they are direct. If they are imposed as value-added taxes (VATs) along the production process, they are indirect.

2. The tax-GDP ratio in India is nearly: [U.P.P.C.S. (Mains) 2004*]

Correct Answer: (c) 15.0 percent
Solution:As per the question year, tax-GDP Ratio of Integrated General Government (Centre + State) in India was about 15%. In the Interim Budget estimates 2024-25, gross tax-GDP ratio of Centre is estimated at about 11.7% in 2024-25, which is higher in comparison to B.E. of 11.1% in 2023-24. It stood at 11.6% in R.E. of 2023-24, 11.2% in 2022-23 and 11.5% in 2021-22.

3. Which of the following statements are true for the Income Tax in India? [U.P.P.C.S. (Mains) 2004, U.P.P.S.C. (GIC) 2010]

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:

Correct Answer: (b) only I and II are correct
Solution:Income tax is a direct tax. Income tax in India is a tax paid by the individuals or entities depending on the level of their earning or gains during a financial year. The Government of India decides the rate of income tax as well as income tax slabs on which individuals or entities are taxed.

It is levied and collected by the Union Government. It is a progressive tax. A progressive tax is a tax in which the tax rate increases as the taxable amount increases.

However, Income tax in India is also overall degressive as after a certain limit, its rate becomes flat or constant. Hence, only statement I and II are correct while statement III and IV are incorrect.

4. According to the Union Budget 2016-17, a surcharge of 15% is payable if the income is: [U.P. P.C.S (Mains) 2016]

Correct Answer: (b) Above Rs. 1 Crore
Solution:Income tax surcharge is an additional charge payable on income tax. It is an added tax on the taxpayers having a higher income inflow during a particular financial year. According to the Union Budget 2016-17, surcharge shall be levied at the rate of fifteen percent, if the individual's income is above Rs. one crore. At present (for Assessment Year 2024-25/FY 2023-24), surcharge rates (for individuals) on different income slabs under old tax regime are as follows:
Income Tax SlabSurcharge Rate
Upto Rs. 50 lakhNil
Above Rs. 50 lakh to Rs. 1 crore10%
Above Rs. 1 crore to Rs. 2 crore15%
Above Rs. 2 crore to Rs. 5 crore25%
Above Rs. 5 crore37%

Note: In, Union Budget 2023-24, the highest surcharge of 37% was reduced to 25% under the new tax regime, which is applicable from 1 April, 2023 (for FY 2023-24/AY 2024-25).

No changes has been made in the income tax slab rates or surcharge rates in Interim Union Budget 2024-25.

5. In the Central Government budget 2011-12, a new category of 'Very Senior Citizens' has been created for the purpose of Income Tax. This category covers the persons of age [U.P.P.C.S. (Mains) 2010]

Correct Answer: (c) 80 years and above
Solution:In the Central Government's Budget 2011-12, a new category of 'Very (or Super) Senior Citizen' has been created for the Income Tax purposes. This category covers the individual residents of age 80 years or above.

While an individual resi- dent who is 60 years or above in age but less than 80 years is considered as 'Senior Citizen' for Income Tax purposes. Un- der the old tax regime, the exemption limit (the quantum of income up to which a person is not liable to pay tax) granted to super senior citizen and senior citizen for the FY 2023-24 and 2024-25 is Rs. 5,00,000 and Rs. 3,00,000 respectively.

The exemption limit for non-senior citizen is Rs. 2,50,000. How- ever, if a senior citizen or super senior citizen opts for the new concessional tax regime, there is no additional exemption is available for them.

6. As per the Union Budget 2005-2006, the senior citizens have not to pay income tax upto an income of: [U.P.P.C.S. (Pre) 2005*]

Correct Answer: (b) Rs 1.50 lakh
Solution:As per the Union Budget 2005-06, upto Rs. 1.50 lakhs annual income of senior citizen had been exempted from the income tax. Under the old tax regime, the exemption limit granted to senior citizen (60 years or above but less than 80 years) and very senior citizen (80 years or above) for the FY 2023-24 and 2024-25 is Rs. 3.00 lakh and Rs. 5.00 lakh respectively.

However, Sa senior citizen or super senior citizen opts for the new concessional tax regime, there is no additional exemption is available for them.

7. Which among the following is true for Central Sales Tax? [U.P.P.C.S. (Mains) 2010]

(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:

Correct Answer: (a) Only (i) and (ii)
Solution:Central Sales Tax was levied on inter-state trade and trade in the Union Territories, while SEZs were exempted from it. It is subsumed by the Goods and Services Tax (GST). GST is the single comprehensive indirect tax, operational from July 1, 2017, on supply of goods and services. It has replaced various types of taxes/cesses, levied by the Central and State/ UT Governments.

8. Growth in Gross Tax Revenue in the case of Central Government was highest in the year: [U.P.P.C.S. (Mains) 2017]

Correct Answer: (d) 2016-17
Solution:As per the Interim Union Receipt Budget 2024-25, Gross Tax Revenue in the case of Central Government in previous years are as follows:
YearGross Tax Revenue (in Rs. crore)Growth (%)
2013-1411387339.9
2014-1512448869.3
2015-16145564816.9
2016-17171582217.9
2017-18191900811.8
2018-1920804658.4
2019-202010059-3.4
2020-2120271040.8
2021-22270931533.7
2022-23305419212.7
2023-24 (R.E.)343721112.5
2024-25 (B.E.)383079611.5

From the above table, it is clear that growth in Gross Tax Revenue of Central Government among the given years was highest in the year 2016-17. While in last 10 years, it is highest in the year 2021-22.

9. Two largest sources of tax revenue to the Central Government of India are: [U.P.P.C.S. (Pre) 1997]

Correct Answer: (e) 45%
Solution:The contribution of customs and excise duties in the Central Government total Revenue Receipts in 1995-96 (B.E.) was 45.01%.   In the Interim Union Budget 2024-25, the contribution of customs and Union excise duties in the total Revenue Receipts (Rs.3001275 crore) of Central Government are estimated at 7.7% and 10.6% respectively.

Tax Revenue: A tax is a legal compulsory payment by the people and firms to the government of a country without reference to any direct benefit in return. It is imposed on the people by the government. A government collects revenue from various taxes like income tax, sales tax, service tax, excise duty, custom duty etc.

Traditionally the revenue from taxes has been the primary source of government income. Income tax is imposed on those who earn income such as wages, salaries, rent, interest and profit. Sales tax is the tax on the sale of goods.

Whenever we purchase a good, a part of our payment goes to the government as sales tax. Service tax is the tax we pay when we use a service such as telephone service. Excise duty is a tax paid by the producer manufacturing a good. Custom duty is paid when a good is imported or exported.

10. Consider the following important sources of tax revenue for the Central Government in India: [R.A.S./R.T.S. (Pre) 2016, Chhattisgarh P.C.S. (Pre) 2015]

I. Union Excise Duty

II. Corporation Tax

III. Income Tax

IV. Service Tax

Which one of the following is the correct descending order in terms of Gross Tax Revenue?

Correct Answer: (c) II, III, I, IV
Solution:As per the question period option (c) was the correct answer. As per the Interim Union Budget 2024-25, Gross Tax Revenue Receipts from given taxes in 2023-24 (R.E.) and 2024-25 (B.E.) are as follows:
Tax2015-16 (Rs. crore)2023-24 (R.E.) (Rs. crore)2024-25 (B.E.) (Rs. crore)
Corporation Tax453,228922,6751,042,830
Income Tax287,6281,022,3251,156,000
Union Excise Duties288,073303,600318,780
Service Tax211,414500100
GST—956,6001,067,650

In revised estimates of 2023-24 and 2024-25 (B.E.), Income Tax is the top source of Central's Revenue Receipts followed by GST and Corporation Tax.