Fiscal Policy & Revenue (Part – Iv)

Total Questions: 50

41. Service tax was introduced in India on the recommendation of: [B.P.S.C. (Pre) 2016]

(a) Kelkar Committee
(b) Raja J. Chelliah Committee
(c) Manmohan Singh Committee
(d) Yashwant Sinha Committee
(e) None of the above/More than one of the above

Correct Answer: (b) Raja J. Chelliah Committee

Solution:The Service tax was introduced in India on 1 July, 1994 at the recommendation of Raja J. Chelliah Committee on Tax Reforms. The introduction of this levy in India can be termed as milestone in Indian tax history.

Raja J. Chelliah Committee (1991):	1. Introduction of VAT System
• Terms of Reference: To recommend comprehensive tax reforms in the indirect tax structure in India.	2. Harmonization of State and Central Taxes
• Objectives: Introduce a Value Added Tax (VAT) system and harmonize state and central taxes to reduce tax cascading.	3. Uniform Rate Structure
	4. Input Tax Credit
	5. Exemption of Essential Goods
	6. Standardization of Tax Administration
	7. Taxpayer Education and Training

42. Consider the following statements regarding Service tax. [U.P.P.C.S. (Mains) 2013]

1. It is a direct tax.

2. It is an indirect tax.

3. It was introduced during 1994-95.

Of the above statements, choose the correct answer from the code given below:

Code:

(a) Only I is correct
(b) Only 2 and 3 are correct
(a) Only I is correct
(d) Only 2 is correct

Correct Answer: (b) Only 2 and 3 are correct

Solution:Service tax is an indirect tax. It was introduced in the financial year 1994-95 on the recommendation of Chelliah Committee. Service Tax has been replaced by the GST since 1 July, 2017.

Features of Goods and Services Tax

Applicable on Supply: Under the GST regime, a taxable event is the 'supply' of Goods and Services, and not manufacturing, sales, etc.
In other words, Goods and Services Tax is applicable to the 'supply' of goods or services. As opposed to the old indirect taxation regime, events like manufacturing, sales, etc do not matter now.
Consumption-based Tax: It is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
Therefore, it is paid to the state where the goods and services are finally consumed, and not the state in which they are produced.
Dual Goods and Services Tax Model: India has adopted a Dual GST Model, with the Centre and the States simultaneously levying tax on a common tax base.
Four Components: Under the Dual GST Model implemented in India, the GST has a total of 4 components - Central GST (CGST), State GST (SGST), Union Territories GST (UTGST), and Integrated GST (IGST).
These four components have been explained in detail in the section below.
Mutual Decision on Tax Rates: CGST, SGST, UTGST, and IGST are levied at rates to be mutually agreed upon by the Centre and the States.
These rates are notified on the recommendation of the GST Council.
Multiple Rates: Tax rates for different categories of goods and services are different. At present, there are a total of 7 tax-rate slabs for various goods and a total of 5 tax-rate slabs for various services.
Exemptions: Businesses upto a certain level of turnover are exempted from GST. The turnover limit for exemption for various categories of businesses is as follows:

43. Service Tax in India was introduced in the year: [B.P.S.C. (Pre) 2015]

(a) 1994-95
(b) 1996-97
(c) 1998-99
(d) 1991-92

Correct Answer: (a) 1994-95

Solution:Service tax is an indirect tax. It was introduced in the financial year 1994-95 on the recommendation of Chelliah Committee. Service Tax has been replaced by the GST since 1 July, 2017.

Features of Goods and Services Tax

Applicable on Supply: Under the GST regime, a taxable event is the 'supply' of Goods and Services, and not manufacturing, sales, etc.
In other words, Goods and Services Tax is applicable to the 'supply' of goods or services. As opposed to the old indirect taxation regime, events like manufacturing, sales, etc do not matter now.
Consumption-based Tax: It is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
Therefore, it is paid to the state where the goods and services are finally consumed, and not the state in which they are produced.
Dual Goods and Services Tax Model: India has adopted a Dual GST Model, with the Centre and the States simultaneously levying tax on a common tax base.
Four Components: Under the Dual GST Model implemented in India, the GST has a total of 4 components - Central GST (CGST), State GST (SGST), Union Territories GST (UTGST), and Integrated GST (IGST).
These four components have been explained in detail in the section below.
Mutual Decision on Tax Rates: CGST, SGST, UTGST, and IGST are levied at rates to be mutually agreed upon by the Centre and the States.
These rates are notified on the recommendation of the GST Council.
Multiple Rates: Tax rates for different categories of goods and services are different. At present, there are a total of 7 tax-rate slabs for various goods and a total of 5 tax-rate slabs for various services.
Exemptions: Businesses upto a certain level of turnover are exempted from GST. The turnover limit for exemption for various categories of businesses is as follows:

44. The Union Budget 2006-07 has increased the Service tax from 10% to: [U.P.P.C.S. (Mains) 2005]

(a) 11%
(b) 12%
(c) 13%
(d) 15%

Correct Answer: (b) 12%

Solution:In the Union Budget 2006-07 Service tax was increased from 10% to 12%. Provision was made to levied 12% Service tax on all the services except negative listed services from the financial year 2012-13. In the Union Budget 2015-16, the Service tax again increased from 12% to 14%. The Service tax was pegged at 14% in the Union Budget 2016-17, but additional 0.5% clean India cess and 0.5% agriculture welfare cess levied on that. Service tax is now subsumed under the Goods and Services Tax (GST).

45. What is the current rate of Service Tax in India? [M.P.P.C.S. (Pre) 2006]

(a) 14%
(b) 12%
(c) 10%
(d) 8%

Correct Answer: (b) 12%

Solution:As per the question period option (b) was the correct answer. In the Union Budget 2006-07 Service tax was increased from 10% to 12%. Provision was made to levied 12% Service tax on all the services except negative listed services from the financial year 2012-13. In the Union Budget 2015-16, the Service tax again increased from 12% to 14%. The Service tax was pegged at 14% in the Union Budget 2016-17, but additional 0.5% clean India cess and 0.5% agriculture welfare cess levied on that. Service tax is now subsumed under the Goods and Services Tax (GST).

46. The number of services subject to Service Tax in 2009- 10 was: [U.P.P.C.S. (Mains) 2009*, U.P.P.C.S. (Spl.) (Mains) 2008]

(a) 110
(b) 114
(c) 118
(d) 122

Correct Answer: (a) 110

Solution:The number of services subject to Service tax in Budget 2009-10 was 109. Hence with reference to question year, the nearest answer is option (a). The number of services under the Service tax regime in 2010-11 and 2011-12 was 117 and 119 respectively. In Budget 2012-13 provision was made to include all services subject to taxation, except those specified in the negative list. Service tax is now subsumed under the GST.

47. Income tax in India was introduced by: [U.P.R.O./A.R.O. (pre) 2014]

(a) Sir Charles Wood
(b) Lord Macaulay
(c) James Wilson
(d) William Jones

Correct Answer: (c) James Wilson

Solution:The first Income Tax Act was introduced in India in 1860 by James Wilson. The act received the assent of the governor- general on 24 July, 1960, and came into effect immediately. Under this act, income was classified in four schedules: 1. Income from landed property; 2. Income from professions and trade; 3. Income from securities, annuities and dividends; and 4. Income from salaries and pensions.

48. Which of the following taxes does not directly increase the price of a commodity to buyers: [U.P.P.C.S. (Pre) 1995]

(a) Income tax
(b) Trade Tax
(c) Import Duty
(d) Excise Duty

Correct Answer: (a) Income tax

Solution:Trade tax, Import duty and Excise duty are direct taxes which increase the price of a commodity to buyers while Income tax is a direct tax which does not directly affect the prices of the commodities.

The New Income Tax Bill 2025 aims to simplify and modernise the Indian Income tax system through proposed legislation. The bill focuses on important reforms that would enhance tax compliance, reduce litigation and give better clarity in tax laws. At the end of the day, the goal is to optimize and simplify the tax process for authorities as well as tax taxpayers. This would help in creating a better and efficient tax system.
New Income Tax Bill 2025 Objectives
The New Income Tax Bill 2025 has been designed to make tax compliance simpler and more user-friendly. Here's how:

Simpler Legal Language: The bill replaces complex jargon with clear, straightforward language, making it easier for taxpayers to understand and comply without needing legal expertise.
Shorter, More Efficient Laws: The new legislation will be about half the length of the current tax laws, removing redundant sections and reducing legal disputes. This will streamline processing for both taxpayers and officials.
No New Taxes: This reform isn't about adding more taxes-it's about simplifying existing laws. By cutting down on complexity, taxpayers can navigate the system with ease and minimal bureaucratic hurdles.
Budget Announcements Included: Key tax updates from the national budget, like income tax rate changes and TDS revisions, will be seamlessly integrated, ensuring clarity and smoother implementation.

This reform is all about making taxation simpler, more transparent, and easier to follow for everyone.

49. The tax on import and export is known as: [U.P.P.C.S. (Pre) 2006, U.P.P.C.S. (Mains) 2006]

(a) Income tax
(b) Trade tax
(c) Custom duty
(d) Excise duty

Correct Answer: (c) Custom duty

Solution:The tax levied on import and export of goods by the Union Government is known as Customs duty.

Customs duty is an indirect tax that is levied on all imported goods as well as a few commodities that are exported out of the country. Export duties are known as export duties, whereas import duties are known as import duties. Customs duties on commodity imports and exports are levied by countries all over the world to raise revenue and/or safeguard domestic institutions against predatory or efficient international competition.
The Customs Act of 1962 defines customs duty in India, allowing the government to charge duties on exports and imports, restrict the export and import of products, establish processes for importing and exporting goods, and impose penalties, among other things.
The Central Board of Excise and Customs is in charge of all customs affairs (CBEC). The CBEC, in turn, is a section of the Ministry of Finance's Department of Revenue. CBEC develops policies linked to customs duty collection and levying, customs duty evasion, smuggling prevention, and administrative judgments involving customs formations.
Customs tax is calculated based on the value of the items, as well as their size, weight, and other characteristics. Ad valorem duties are those that are based on the worth of commodities, whereas specified duties are those that are based on amount or weight.

50. Which of the following is direct tax? [U.P. P.C.S. (Pre) 1991]

(a) Income Tax
(b) Excise Duty
(c) Octroi
(d) Sales Tax

Correct Answer: (a) Income Tax

Solution:In the case of direct tax, the burden can't be shifted by the taxpayer to someone else, i.e., Direct tax is a type of tax where the incidence and impact of taxation fall on the same individual/entity. Income tax, Corporation tax, Wealth tax, Capital gains tax, Dividend tax etc. are examples of direct tax.

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