Taxation – Indian Economy, Previous Year Questions(UPSC CSE)(2011-24)

1. Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

(a) Diversion of resources to the purchase of real estate and investment in luxury housing

(b) Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.

(c) Large donations of political parties and growth of regionalism

(d) Loss of revenue to the State Exchequer due to tax evasion

2. Which one of the following is not a feature of “Value Added Tax”?

(a) It is a multi point destination based system of taxation.

(b) It is a tax levied on value addition at each stage of transaction in the production-distribution chain.

(c) It is a tax on final consumption of goods or services and must ultimately be borne by consumer.

(d) It is basically subject of the central government and state government are merely facilitator for its successful implementation.

3. Consider the following items:

1. Cereal grains hulled
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspapers containing advertising material

Which of the above items is/are exempted under GST (Good and Services Tax)?

(a) 1 only

(b) 2 and 3 only

(c) 1, 2 and 4 only

(d) 1, 2, 3 and 4

4. With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?

1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

5. What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’? 

1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3
6. Consider the following statements:

1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither I nor 2

7. The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of

(a) Mining operation by multinational companies in resource-rich but backward areas

(b) Curbing of the tax evasion by multinational companies

(c) Exploitation of genetic resources of a country by multinational companies

(d) Lack of consideration of environmental planning and developmental costs in the implementation of projects

8. With reference to the Fourteenth Finance Commission, which of the following statements is/are correct?

1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent.
2. It has made recommendations concerning sector-specific grants.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

9. A decrease in tax to GDP ratio of a country indicates which of the following? 

1. Slowing economic growth rate
2. Less equitable distribution of national income

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither1 nor 2

10. The sales tax you pay while purchasing a toothpaste is a 

(a) tax imposed by the Central Government

(b) Tax imposed by the Central Government but collected by the State Government

(c) Tax imposed by the State Government but collected by the Central Government

(d) Tax imposed and collected by the State Government

11. Under which of the following circumstances may ‘capital gains arise? 

1. When there is an increase in the sales of a product
2. When there is a natural increase in the value of the property owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 and 3 only

(c) 2 only

(d) 1, 2 and 3

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Key with Explanation:

1. Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

(a) Diversion of resources to the purchase of real estate and investment in luxury housing

(b) Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.

(c) Large donations of political parties and growth of regionalism

(d) Loss of revenue to the State Exchequer due to tax evasion

Explanation:

2. Which one of the following is not a feature of “Value Added Tax”?

(a) It is a multi point destination based system of taxation.

(b) It is a tax levied on value addition at each stage of transaction in the production-distribution chain.

(c) It is a tax on final consumption of goods or services and must ultimately be borne by consumer.

(d) It is basically subject of the central government and state government are merely facilitator for its successful implementation.

Explanation:

3. Consider the following items:

1. Cereal grains hulled
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspapers containing advertising material

Which of the above items is/are exempted under GST (Good and Services Tax)?

(a) 1 only

(b) 2 and 3 only

(c) 1, 2 and 4 only

(d) 1, 2, 3 and 4

Explanation:

4. With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?

1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Explanation:

5. What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’? 

1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Explanation:

6. Consider the following statements:

1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither I nor 2

Explanation:

7. The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of

(a) Mining operation by multinational companies in resource-rich but backward areas

(b) Curbing of the tax evasion by multinational companies

(c) Exploitation of genetic resources of a country by multinational companies

(d) Lack of consideration of environmental planning and developmental costs in the implementation of projects

Explanation:

8. With reference to the Fourteenth Finance Commission, which of the following statements is/are correct?

1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent.
2. It has made recommendations concerning sector-specific grants.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Explanation:

9. A decrease in tax to GDP ratio of a country indicates which of the following? 

1. Slowing economic growth rate
2. Less equitable distribution of national income

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither1 nor 2

Explanation:

10. The sales tax you pay while purchasing a toothpaste is a 

(a) tax imposed by the Central Government

(b) Tax imposed by the Central Government but collected by the State Government

(c) Tax imposed by the State Government but collected by the Central Government

(d) Tax imposed and collected by the State Government

Explanation:

11. Under which of the following circumstances may ‘capital gains arise? 

1. When there is an increase in the sales of a product
2. When there is a natural increase in the value of the property owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 and 3 only

(c) 2 only

(d) 1, 2 and 3

Explanation: