public finance fiscal & monetary policy section 3 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as the body of individuals and association of persons) and any other artificial person.

Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. It does not lead to an increase in price as it is dependent on the income of individuals.

Answer: (b)

In the case of direct taxes the burden or ‘incidence’ has to be borne by the taxpayers themselves whereas in the case of an indirect tax, the burden can be shifted to another person

Answer: (a)

The Central Board of Direct Taxes (CBDT) panel on black money recently suggested the enactment of new laws, the strengthening of existing legislation and the introduction of deterrent penalties for tax offences to deal with the menace.

In its 66-page report on measures to tackle black money in India and abroad, the CBDT committee also recommended steps to prevent the generation of illicit funds through transactions in property, bullion and equity market.

Besides, the panel, headed by former CBDT Chairman Laxman Das, made a case for strengthening laws relating to investments by FIIs, Participatory Notes (PNs) and routing of funds from Mauritius.

Answer: (b)

A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. The annual percentage change in a CPI is used as a measure of inflation.

A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values.

Answer: (c)

A sinking fund is a fund created by the government and gradually accumulated every year by setting aside a part of current public revenue in such a way that it would be sufficient to pay off the funded debt at the time of maturity.

Under this method, the aggregate burden of public debt is least felt, as the burden of taxing the people to repay the debt is spread evenly over the period of the accumulation of the fund. The preferable alternative for the government is to raise a new loan and credit the proceeds of the sinking fund. It is a separate fund established by a government.