taxes types, methods & budgeting process section 1 Practice Questions Answers Test with Solutions & More Shortcuts

Question : 26

With reference to the ‘Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)’, consider the following statements:

  1. A property transaction is not treated as a Benami transaction if the owner of the property is not aware of the transaction.
  2. Properties held by Benami are liable for confiscation by the Government.
  3. The Act provides for three authorities for investigations but does not provide for any appellate mechanism.
Which of the statements given above is/are correct?

a) 1 and 3 only

b) 1 only

c) 2 only

d) 2 and 3 only

Answer: (c)

The act provides is an appellate tribunal, and they’re required to finish the case within one year.

So #3 is wrong, by elimination, we are left with A and B.

So, C is most appropriate because IT dept (therefore, Government) can seize the Benami properties.

Question : 27

Consider the following statements regarding the GST Compensation Cess:

  1. It is levied and collected by the Centre
  2. GST compensation fund has been established in Consolidated Fund of India
  3. The States will be compensated if their nominal revenue growth is less than 14% after the implementation of GST.
Select the correct answer using the code given below:

a) (ii) only

b) (i) & (iii) only

c) (i) only

d) All of the above

Answer: (b)

When Central govt was planning to introduce GST, States were worried that after the implementation of GST the tax revenue of States may fall and they will not have the freedom under GST to impose extra taxes or increase the tax rate.

So, Central government calculated the tax revenue growth of State's indirect taxes from 2012-13 to 2013-14, 2013-14 to 2014-15 and 2014-15 to 2015-16,

i.e. for three years and the result was on average growth of 14%. So, Govt. of India promised states and UTs that if after implementation of GST the States/UTs Indirect Revenue growth will be less than 14% annually from 2015-16 (base year) onwards, then the Govt. of India will compensate states/UTs.

Accordingly, The GST Compensation to States Act 2017 (GoI Act) was enacted. The GST council recommends on what items (mostly luxury and demerit goods) cess will be imposed and at what rate. The compensation cess will be levied for five years. In 2019-20, the Central government has compensated more than Rs. 1 lakh crore to states.

Govt of India levies and collects the Cess and keeps it in “GST Compensation Fund” in Public Account of India (because it is not Govt. of India’s money and it belongs to States) and then it transfers to States/UTs.

Question : 28

Postponing the "Fiscal Deficit" target or Fiscal Slippage may result in which of the following:

  1. Decrease in bond prices
  2. Increase in bond yield
  3. Increase in market interest rates
  4. Decrease in market interest rates
Select the correct answer using the code given below:

a) (i) & (iii) only

b) (ii) & (iii) only

c) (i) & (ii) only

d) (i), (ii) & (iii) only

Answer: (d)

When government postpones its fiscal deficit target or when the fiscal deficit increases then the interest rate in the economy goes up because the government borrows more (demand-supply concept).

When the interest rate in the economy goes up bond prices come down and the return/yield on bonds goes up.

Question : 29

Tax Buoyancy” in the economy is defined as:

  1. Ratio of percentage change in tax revenue to the percentage change in GDP
  2. Ratio of change in tax revenue to changes in GDP
  3. Percentage increase in tax revenues as measured from previous year
  4. Incremental change in tax revenues required to increase the GDP by one per cent
Select the correct answer using the code given below:

a) (i) & (ii) only

b) (iii) only

c) (i) only

d) (ii) & (iv) only

Answer: (c)

Tax buoyancy = ${% \text"Change in Tax Revenue"}/{%\text"Change in Nominal GDP"}$

If nominal GDP growth is 12% and Tax revenue growth in a particular year is 15% then tax buoyancy will be 15%/12% = 1.25. It tells what is the growth in tax revenue with every percentage change in GDP.

If tax buoyancy is greater than one then it is good for the economy.

Question : 30 [UPPCS (Pre) 2004]

Kelkar Committee, in its second report, has recommended to reduce corporate tax to

a) 20%

b) 25%

c) 15%

d) 30%

Answer: (d)

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