taxes types, methods & budgeting process section 5 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

The country’s forex reserves as of the end of Feb 2020 stood at $476 billion, but India’s external debt crossed 557 billion USD as of June 2019 (and it is still increasing with time).

So, at any point in time, if we want to pay off the complete external debt, it is not possible as forex reserve is only $476 billion.

(As all external debt is denominated in foreign currencies and hardly $1 billion is in rupee debt (Masala bonds), so it has to be paid only through our Forex reserve).

Since the ratio of Forex to External debt is $476/ 557 = 85%, that means our forex reserves don’t cover the external debt.

If it would have been greater than 100% then we say that our external debt is fully covered (with forex reserves).

The country’s one-year imports are around $630 billion (2018-19). So again, our forex reserves don’t fully cover imports also.

Answer: (a)

Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are changes in the level and composition of taxation and government spending in various sectors.

Answer: (c)

Answer: (d)

Composition levy is an alternative method of levy of tax designed for small businesses whose turnover is up to Rs. 1.5 crore (and above 40 lacs). The objective of the composition scheme is to bring simplicity and to reduce the compliance cost for small businesses.

Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a 1% flat rate, of his turnover, instead of paying tax at the normal GST rate.

Similarly, small service providers with a turnover of Rs. 50 lakhs can opt for a composition scheme and pay GST at 6%. In the case of a composition scheme, the businesses can’t claim an input tax credit.

Answer: (c)