taxes types, methods & budgeting process section 1 MCQ Questions & Answers Detailed Explanation
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The following question based on Taxes Types, Methods & Budgeting Process topic of indian economy mcq
- When tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.
- When tax imposition leads to a disproportionate decrease in prices by an extent more than the rise in the tax.
- When tax imposition leads to a disproportionate decrease in imports.
- When tax imposition leads to a disproportionate decrease in exports.
(a) 4 only
(b) 1 only
(c) 2 and 3 only
(d) 3 and 1 only
The correct answers to the above question in:
Answer: (b)
“Taxation over taxes” or “cascading-effect” of the taxes adds to the deadweight loss i.e. slump in total surplus of a supply chain consisting of the supplier, manufacturer, retailer and consumer.
Due to cascading tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.
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Question : 1
Indicate the sequence of the following in terms of the implementation.
- Income Tax
- Expenditure Tax
- Value Added Tax
- Fringe Benefits Tax
a) 2, 3, 4, 1
b) 1, 3, 2, 4
c) 1, 2, 3, 4
d) 3, 4, 1, 2
Answer »Answer: (c)
- Income Tax (1860);
- Expenditure Tax (1956);
- Value Added Tax (1996-97) &
- Fringe Benefits Tax (2005).
Question : 2
Which one of the following statements regarding the levying, collecting and distribution of Income Tax is correct?
a) The Union levies, collects and keeps all the proceeds of income tax to itself
b) The Union levies and collects the tax, but all the proceeds are distributed among the states
c) The Union levies, collects and distributes the proceeds of income tax between itself and the states
d) Only the surcharge levied on income tax is shared between the Union and the States
Answer »Answer: (c)
Question : 3
Which of the following is not a case of Centre’s Off Budget Borrowings?
a) Borrowing by HUDCO to fund the affordable housing programme
b) Borrowing by NABARD for govts’ irrigation projects
c) Borrowing by FCI to fund the food subsidy programme
d) Borrowing by NTPC for its power generation projects
Answer »Answer: (d)
When the Centre does not have the budgetary resources to fund its various schemes/programmes then it asks its agencies to borrow and fund these programmes. For example, for the public distribution scheme, FCI borrows from National Small Savings Fund (NSSF).
Similarly, HUDCO and NHB borrow to fund the affordable scheme of the government, NABARD borrows for irrigation and rural housing. Rural Electrification Corporation (REC) borrows for rural electrification. Ideally, the Centre should borrow for these schemes but it asks its various agencies to take the loan in their name which is then not shown in the Centre’s budget.
These Off-Budget Borrowings (also called extra-budgetary resources) allows the Centre to reduce the immediate impact on the fiscal, as the repayments made by the government are calibrated over many years.
These however add to the overall public debt of Govt. of India. CAG has expressed concern over it and if these off-budget borrowings would have been included in the budget then the Centre’s fiscal deficit would have been more than 5% rather than 3.8% in 2019-20.
Question : 4
Consider the following statements:
- Tax revenue as a per cent of GDP of India has steadily increased in the last decade.
- Fiscal deficit as a per cent of GDP of India has steadily increased in the last decade.
a) Both 1 and 2
b) 1 only
c) 2 only
d) Neither 1 nor 2
Answer »Answer: (d)
From the official Economic Survey 2014-15, we get following data If we go only by the strict interpretation of above graph then answer should be “D”
Question : 5
PAN card issued by the Income Tax Department can’t be used for which of the following purpose?
a) proof of registered tax payer
b) proof of address
c) proof of identity
d) proof of date of birth
Answer »Answer: (b)
Permanent Account Number (PAN)card is a unique alphanumeric combination. It is issued by the Indian Income Tax Department. It serves as an important ID proof, date of birth proof and proof of taxpayer.
However, it can’t be used for the purpose of address proof, as the address is not mentioned on the PAN card.
Question : 6
Which of the following are part of capital budget of Govt. of India?
- Issuance of Sovereign Gold Bonds
- Receipt from Gold Monetization
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (b)
In the case of Sovereign Gold Bonds, the government issues/creates the gold bond and in return, it gets money from the public.
This money will come under capital receipt because the gold bond is a kind of liability for the govt. which the govt. must pay in future. Principal payment will come under capital expenditure and interest payment will come under revenue expenditure.
The physical gold which the govt. receives from the pubic in case of gold monetization scheme becomes a liability for the govt. (in return for the physical gold, govt issues a paper which is basically liability for the govt.) which the govt. will have to pay in future either in physical gold form or in cash.
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