money supply, banking & financial institutions section 1 MCQ Questions & Answers Detailed Explanation

Answer: (b)

NABARD stands for National Bank for Agriculture and Rural Development.

Answer: (b)

Answer: (b)

RBI issues various guidelines for directors of banks and also has powers to appoint additional directors on the board of a banking company. Banks need prior approval of RBI for appointment/termination of Chairman, Directors and CEO.

RBI in consultation with Central Govt. can supersede the Board of Directors of Banks. Public Sector Banks (PSBs) are under dual regulation of Central Govt. and RBI. RBI’s powers are curtailed regarding PSBs, where RBI cannot remove directors and management, cannot supersede banks board and does not have the power to force a merger or trigger liquidation.

A license is required from RBI to commence banking operations, opening of new bank branches and closing of branches or change in the location of existing branches. RBI regulates mergers, amalgamation and winding up of banks. (For shifting, merger and closure of urban branches, now no approval is required).

Answer: (d)

One of the disputed issues in taxation related to MNCs in the area of intra (group) company transactions. The pricing of goods and services between two related companies (companies belonging to the same owner or subsidiaries) is called transfer pricing.

Here, a parent company say in Japan may charge a convenient price from its subsidiary in India to minimise its tax payment in India. For example, suppose that Maruti Suzuki India has higher profit and has to pay higher tax to the Government of India. In this case, if Suzuki Japan charges a high price for a component it sold to Maruti, the profit of Maruti will come down and the tax payment of the company to GoI will also come down. On the other hand, the revenue of Suzuki Japan will go up. Altogether, the Suzuki Motor Corporation (SMC) group improves its position; but GoI’s tax revenue gets affected.

To avoid such manipulation, the tax department of India pre-sets the price charged for different components between Maruti Suzuki India and Suzuki Japan. But this price should follow the “arms-length principle” i.e. market-based. An arm's length transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other. These types of sales assert that both parties act in their own self-interest and are not subject to pressure from the other party; furthermore, it assures others that there is no collusion between the buyer and seller.

At the beginning of the year, the price charged for intracompany transactions will be determined in advance and will be kept for the coming five years or so. This price arrangement between Maruti and India’s tax department is called an advance pricing agreement.

An APA is a contract, usually for multiple years, between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related company transactions. These programmes are designed to help taxpayers voluntarily resolve actual or potential transfer pricing disputes in a proactive, cooperative manner, as an alternative to the traditional examination process.

APAs gives certainty to taxpayers, reduce disputes, enhance tax revenues and make the country an attractive destination for foreign investments. These agreements would be binding both on the taxpayer as well as the government. Similarly, they lower complaints and litigation costs.

Answer: (c)

Answer: (a)