Practice Taxes types methods budgeting process - indian economy mcq Online Quiz (set-2) For All Competitive Exams

Q-1)   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)

(b)

(c)

(d)


Q-2)   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)

(b)

(c)

(d)


Q-3)   Consider the following taxes.
  1. Corporation Tax
  2. Customs Duty
  3. Wealth Tax
  4. Excise Duty
Which of these is/are indirect taxes?

(a)

(b)

(c)

(d)


Q-4)   The Minimum Alternate Tax (MAT) was introduced in the Budget of the Government of India for the year

(a)

(b)

(c)

(d)


Q-5)   Which UT/State’s per capita SGDP has been taken as the reference by the Fifteenth Finance Commission for calculating the ‘income distance’?

(a)

(b)

(c)

(d)

Explanation:

‘Income distance’ is calculated as the difference between the per capita gross state domestic product (GSDP) of the state from that of the state with the highest per capita GSDP. This ensures that states with less income get a higher share in order to allow them to provide services comparable to those provided by the richer ones.

The XV FC used the per capita GSDP of Haryana as the reference for calculating the income distance, and has given it a weight of 45%, down from the 50% assigned by the XIV FC.


Q-6)   Which of the following can finance the Govt. of India’s fiscal deficit?
  1. Foreign Direct Investment (FDI)
  2. Foreign Portfolio Investment (FPI)
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

The fiscal Deficit is govt of India’s borrowing either from domestic sources or from abroad.

So, when Govt. of India issues bonds to borrow money, it can be purchased by FPI’s also. But FDI is into equity/shares and not in debt instruments.


Q-7)   Which of the following taxes are regressive in nature?
  1. Income Tax
  2. Sales Tax
  3. Goods & Services Tax (GST)
  4. Value Added Tax (VAT)
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

Suppose GST on the car of Rs. 5 lacs is Rs. 1 lakh.

Now if I purchase one car then I will pay Rs. 1 lakh tax and if my income is Rs. 10 lacs then tax as a percentage of income will be:

1 lakh x 100% =10% 10 lakhs

Suppose the same car a rich person purchases whose income is Rs 10 crores then tax as a percentage of his income will be:

1 lakh x 100% = 0.1% 10 crores

So, a rich person pays less tax as a percentage of his income, hence GST is regressive.

In a similar way, all indirect taxes are regressive in nature. Income tax is progressive, as poor people need to pay less tax rate as compared to rich people.


Q-8)   Find the tax which is direct tax among the following.

(a)

(b)

(c)

(d)


Q-9)   Consider the following statements regarding the “e-assessment scheme”:
  1. It allows faceless assessment of taxpayers
  2. It is for direct taxpayers
  3. The national e-assessment centre is based in Mumbai
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

In the budget 2019-20 government had proposed an electronic or e-assessment scheme which was notified in September 2019 and to implement this scheme government launched the "National e-assessment Centre" (based in Delhi) on 7th October 2019.

There are around 7.5 crore direct taxpayers. They pay taxes and file returns (tax documents). Taxpayers use various ways to avoid paying taxes and showing their income way below the actual income. So, the government has set certain parameters to pick for the assessment/review of these cases.

For example, those taxpayers whose income is quite high (say 30 lakhs) but tax payment is very less supposing only 2 lakhs OR suppose in any particular savings account more than Rs. 10 lakhs got deposited in a financial year etc.

Now suppose there are 5 lakh such cases. Now out of these 5 lakh cases, the government may pick randomly 50,000 cases for review/assessment (as all cannot be reviewed because of resource constraints).

So, the government will send notice and you will have to give clarifications. And govt may scrutinise such cases in quite a detail and if some wrongdoings were found, you may be penalized.

Earlier (before the e-assessment scheme was launched), these cases were selected by tax officials and there used to be face to face meetings between tax officials and taxpayers and where taxpayers were used to be harassed. But now all such cases will be randomly picked by computer and no face to face grilling would happen but only through electronic mode of communication.

So, this will improve transparency and efficiency, and governance and thus improves the quality of assessment and monitoring.

Income Tax Act 1961 was amended to introduce this scheme which implies it is for direct taxes. Budget 2020-21 has proposed to amend the Income Tax Act so as to enable Faceless Appeal on the lines of Faceless assessment.


Q-10)   Consider the following statements regarding "counter-cyclical" fiscal policy:
  1. The government uses the countercyclical policy to cool down the economy during the boom period
  2. In countercyclical policy, the government increases spending and reduces taxes during the economic slowdown
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

The government’s fiscal policy has a big role in stabilizing the economy during business cycles. The two important phases of business cycles are boom and recession. A recession should not be allowed to grow into a deep recession.

Similarly, a boom should not explode bigger. We may say that amplifying the business cycle is dangerous (growing boom and deepening recession).

Practically fiscal policy responses using taxation and expenditure can go in two ways in response to the business cycle: Countercyclical and pro-cyclical.

Business Cycle Fiscal Policy Boom Recession Pro-Cyclical Expenditure increases Tax decreases Expenditure decreases Tax increases Counter-Cyclical Expenditure decreases Tax increases Expenditure increases Tax decreases

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Q-11)   Which of the following statements are correct?
  1. Ability to pay principle of taxation holds that the amount of taxes people pay should relate to their income or wealth
  2. The Benefit Principle of taxation states that individuals should be taxed in proportion to the benefit they receive from Government programmes
  3. A progressive tax takes a larger share of tax from poor families than it does from rich families
  4. Indirect taxes have the advantage of being cheaper and easier to collect
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

A progressive tax receives a larger percentage from the income of higher earners than it acts from low income person.


Q-12)   The representation of the relationship between possible rates of taxation and the resulting levels of government revenue is called

(a)

(b)

(c)

(d)

Explanation:

Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue.

It illustrates the concept of taxable income elasticity-i.e., taxable income will change in response to changes in the rate of taxation.

Phillips Curve is a supposed inverse relationship between the level of unemployment and the rate of inflation.


Q-13)   Which of the following items had the highest share of expenditure in the overall budget of GoI in 2019-20?

(a)

(b)

(c)

(d)

Explanation:

The following are the various expenditure of Govt. of India out of the total expenditure of Rs. 27 lakh crores in 2019-20.

Salary and Pension Rs. 3.1 lakh crore

Interest payment Rs. 6.6 lakh crore

Capital Expenditure Rs. 3.5 lakh crore

Explicit subsidies Rs. 3 lakh crore


Q-14)   Which of the following taxes is levied by the Gram Panchayats?

(a)

(b)

(c)

(d)


Q-15)   Of the following taxes which one is not levied by State Governments?

(a)

(b)

(c)

(d)


Q-16)   Consider the following statements regarding the "Public Finance Management System (PFMS)":
  1. It comes under the office of Controller General of Accounts, Ministry of Finance
  2. It comes under the Department of Expenditure, Ministry of Finance
  3. It is an end to end online solution for processing payments, reconciliation and reporting of central schemes
  4. It tracks fund utilization up to the last mile for central schemes
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

The Public Finance Management System (PFMS) comes under the office of Controller General of Accounts, Ministry of Finance. It is an end-to-end online solution for processing payments, tracking, monitoring, accounting, reconciliation and reporting.

The Centre has integrated the treasuries of almost all states into the PFMS to track fund utilization up to the last mile as well as transfer funds “just-in-time” for central schemes.

Integration of State treasuries has virtually wiped out the indefinite parking of central funds at the state level.


Q-17)   There has been a persistent deficit budget year after year. Which of the following actions can be taken by the Government to reduce the deficit?
  1. Reducing revenue expenditure
  2. Introducing new welfare schemes
  3. Rationalizing subsidies
  4. Expanding industries
Select the correct answer using the code given below.

(a)

(b)

(c)

(d)

Explanation:

Here, budget deficit means fiscal deficit. Rationalization of subsidies means reducing leakages and wastages in subsidies.


Q-18)   The fiscal Deficit is equal to:
  1. Total expenditure minus total receipts
  2. Total expenditure minus total receipts excluding borrowing
  3. Revenue deficit plus capital expenditure minus non-debt creating capital receipts
  4. Total borrowing
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

Fiscal Deficit = Total Expenditure - Total Receipts except borrowing

= (Rev Exp. + Cap Exp.) - (Rev Rec. + Cap Rec. except borrowing)

= (Rev Exp. - Rev Rec.) + (Cap Exp. - Cap Rec. except borrowing)

= Revenue Deficit + Cap Exp. - Cap Rec. except borrowing

= Total borrowing

= Net borrowing at home + borrowing from RBI + Borrowing from abroad

Let us understand with an example.

Suppose, government's total expenditure = 17 lakh crore and receipts = 13 lakh crore

Then the government will have to borrow (17 lakh crore -13 lakh crore) 4 lakh crore to meet its expenditure. And this 4 lakh crore is called the fiscal deficit. That is why the fiscal deficit is also equal to the total borrowing i.e. 4 lakh crore.

But this 4 lakh crore which government borrows becomes part of capital receipt for the government and it must be included in capital receipts. So, in the actual sense government's total receipts will become 17 lakh crore (i.e. 13 lakh crore + 4 lakh crore borrowing).

Hence, in the above example:

Fiscal Deficit = Total expenditure - total receipts except borrowing

Otherwise, the difference between total expenditure and total receipts will always be zero.


Q-19)   Which of the following are part of Capital Budget of Govt. of India?
  1. Proceeds received in the public account of India
  2. PSUs purchasing capital equipment
  3. Establishment of “India Post Payment Bank”
Select the correct answer using the code given below:

(a)

(b)

(c)

(d)

Explanation:

Money received in Public Account of India creates liability on Govt. of India and hence it’s a part of capital receipt/budget.

India Post Payment Bank is a PSU and expenditures done by Govt. to create a PSU (an asset) will come under capital budget/expenditure of Govt. of India. A PSU purchasing a capital equipment is not part of Govt. of India budget.


Q-20)   Which of the following is/are included in the capital budget of the Government of India?
  1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.
  2. Loans received from foreign governments
  3. Loans and advances granted to the States and Union Territories
Select the correct answer using the code given below.

(a)

(b)

(c)

(d)

Explanation:

Those receipts/expenditures of the government which changes the liability or the assets (physical or financial) of the Govt. comes under capital budget.

Expenditure on the acquisition of assets like roads or buildings come under capital expenditure.

Loans received increases the liability and loans given by govt. increases the assets of govt., hence the capital budget.