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Fiscal Policy & Revenue (Part – V)

📆 October 15, 2024

Total Questions: 50

1. What is Excise duty? [M.P.P.C.S. (Spl) (Pre) 2004]

Correct Answer: (b) Indirect tax
Solution:Excise duty is a form of indirect tax that is levied for the production, sale, or license of certain goods.

Excise duty is a type of tax levied on products for their manufacture, distribution, and sale. Excise duty is an indirect tax paid to the Indian government by manufacturers of commodities. It is the polar opposite of Customs duty in that it applies to items created domestically in India, whereas Customs applies to goods imported from outside the nation.
Previously, the excise tax was imposed at the federal level as Central Excise Duty, Additional Excise Duty, and so forth. However, the Goods and Services Tax (GST), which went into effect in July 2017, absorbed a wide range of excise taxes. Excise tax is currently exclusively applied to gasoline and alcoholic beverages.

2. Which of the following is a direct tax? [U.P. R.O./A.R.O. (Pre) 2014]

Correct Answer: (d) Wealth Tax
Solution:Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons/entities on whom it imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. Examples: Income Tax, Corporation Tax, Property Tax, Wealth Tax, Gift Tax etc.

Indirect Taxes: An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples: Customs Duty, Central Excise Duty, Service Tax, Sales Tax, GST, Value Added Tax (VAT) etc.

3. Which of the following is not an indirect tax? [U.P. P.C.S. (Pre) 1993]

Correct Answer: (b) Income Tax
Solution:Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons/entities on whom it imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. Examples: Income Tax, Corporation Tax, Property Tax, Wealth Tax, Gift Tax etc.

Indirect Taxes: An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples: Customs Duty, Central Excise Duty, Service Tax, Sales Tax, GST, Value Added Tax (VAT) etc.

4. Consider the following taxes: [I.A.S. (Pre) 2001]

1. Corporation tax

2. Customs duty

3. Wealth tax

4. Excise duty

Which of these is/are indirect taxes?

Correct Answer: (b) 2 and 4
Solution:Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons/entities on whom it imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. Examples: Income Tax, Corporation Tax, Property Tax, Wealth Tax, Gift Tax etc.

Indirect Taxes: An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples: Customs Duty, Central Excise Duty, Service Tax, Sales Tax, GST, Value Added Tax (VAT) etc.

5. Which of the following taxes is not a direct tax? [M.P.P.C.S. (Pre) 1990, U.P.P.C.S. (Pre) 1993]

Correct Answer: (c) Sales Tax
Solution:Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons/entities on whom it imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. Examples: Income Tax, Corporation Tax, Property Tax, Wealth Tax, Gift Tax etc.

Indirect Taxes: An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples: Customs Duty, Central Excise Duty, Service Tax, Sales Tax, GST, Value Added Tax (VAT) etc.

6. Consider the following: [I.A.S. (Pre) 2009]

1. Fringe Benefit Tax

2. Interest Tax

3. Security Transaction Tax

Which of the above is/are Direct Tax/Taxes?

Correct Answer: (d) 1, 2 and 3
Solution:Fringe Benefit Tax (FBT) was a form of direct tax that companies paid in lieu of benefits they offered their employees in addition to the compensation paid to them. It was included by the Finance Act 2005. The Finance Act 2009, abolished FBT completely, and now such prequisites are taxable in the hands of employees.

Interest Tax was also an indirect tax under the Interest Tax Act, 1974. At present, interests from deposits are included in taxable income as income from other sources. Banks are required to deduct tax at source (TDS), when interest income from deposits held in all the bank branches put together is more than Rs. 40,000 (Rs. 50,000 for senior citizen) in a year. Securities Transaction Tax (STT) is levied on gains from securities such as equities, options and futures done in the domestic stock exchanges. It is a direct tax that the Central Government levies and collects. STT was introduced in the year 2004-05 (w.e.f. from 1 October, 2004) to mitigate tax evasion in case of capital gains. Sometimes it is considered as an indirect tax because it is imposed on a broker rather than the investor/trader directly. MOSPI also classified it under the indirect taxes. However, it is under the purview of the CBDT and its proceeds has been included in the direct tax collections.

7. The Sales tax you pay while purchasing a toothpaste is a [I.A.S. (Pre) 2014]

Correct Answer: (d) Tax imposed and collected by the State Government
Solution:During the question period, Sales tax was a form of indirect tax imposed on the sale and purchase of goods within India. The tax imposed on the sale and purchase of goods within the State was called Sales Tax while the Central Sales Tax was charged by the Central Government for the inter-state transfers. Hence, the sales tax we had to pay while purchasing a toothpaste during the question period, was a tax imposed and collected by the State Government, Sales tax (or VAT) has been replaced by the Goods and Services Tax (GST) since 1 July, 2017. Under the GST regime, when the supply of goods or services happens within a State called intra-state transactions, then both the CGST (Central GST) and SGST (State GST) will be collected. Whereas if the supply of goods or services happens between the States called as inter-state transactions, then only IGST (Integrated GST) will be collected. Under the GST law, the Central Government would levy and collect CGST and IGST, while the State Governments would levy and collect SGST.

8. Which one of the following is not related with income from corporate sector in India? [U.P.P.C.S. (Mains) 2005]

Correct Answer: (c) Capital Gains Tax
Solution:Among the given options, Fringe Benefit Tax (FBT), Minimum Alternate Tax (MAT) and Tax on company profit are related with income from corporate sector in India. Whereas Capital Gains Tax is not related to income of corporate. It is a levy on the profit that an investor gains from the sale of an investment in capital assets like stocks, bonds, real estate etc.

9. Which of the following taxes is not levied by the Union Government? [U.P.P.C.S. (Pre) 1992]

Correct Answer: (b) Entertainment Tax
Solution:Entertainment tax falls under the List-2 (State List) of the Seventh Schedule of the Indian Constitution. Taxes are levied by the State Governments on the items mentioned in this list.

Entertainment Tax is a tax imposed by the government on feature films getting a wide release in the country and are reduced from gross collections, major commercial shows and big private festivals.
Gift tax is the tax on money or property that one living person or corporate entity gives to another. A gift tax is a type of transfer tax that is imposed when someone gives something of value to someone else.

10. Which of the following taxes is not levied by the State Governments? [U.P.P.C.S. (Spl.) (Mains) 2008]

Correct Answer: (d) Corporation Tax
Solution:Corporation tax is levied by the Union Government, not by the State Governments.

A corporate tax is a tax on a corporation's profits. Taxes are paid on a company's taxable income, which is revenue less general and administrative (G&A), selling and marketing, R&D, depreciation, and other operating expenditures.
A corporate entity's net income or profit from its operations, whether domestic or international, is subject to the direct tax which is the corporation tax or corporate tax.
The Corporate Tax Rate is the amount of tax levied by the terms of the Income Tax Act of 1961.
Depending on the kind of business entity and the various revenues generated by each corporate entity, the corporate tax rate is based on a slab rate structure.
Corporate tax rates vary greatly amongst nations, with some having meager rates and being labeled as tax havens.

  • The effective corporate tax rate, or the rate a corporation pays, is typically lower than the statutory rate, which is the declared amount before any deductions because corporate taxes can be reduced by a variety of deductions, government subsidies, and tax loopholes.
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