Q1. With reference to direct and indirect taxes in India, consider the following statements:
- Direct taxes are inherently progressive, while indirect taxes are generally regressive.
- The tax burden for direct taxes cannot be shifted, whereas indirect taxes allow full transfer of tax burden to the end consumer.
- Both types of taxes are administered by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance.
Which of the statements given above are correct?
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2, and 3
Correct Answer: (b) 1 and 2 only
Explanation:
- Direct taxes = Income tax, corporate tax → progressive, cannot shift burden.
- Indirect taxes = GST, excise → regressive, burden can shift to consumer.
- CBDT administers direct taxes only; indirect taxes are administered by CBIC.
Q2. Which of the following is an example of a regressive tax in public finance?
(a) A flat income tax rate applied to all income levels
(b) A regressive tax that increases as income rises
(c) A sales tax on luxury goods
(d) An excise tax on tobacco products
Correct Answer: (d) An excise tax on tobacco products
Explanation:
- Regressive tax → higher burden on low-income groups.
- Tobacco excise affects all consumers equally, irrespective of income → disproportionately affects poor.
- Flat income tax is proportional, not regressive.
Q3. Consider the following:
Assertion: Progressive taxation reduces income inequality.
Reasoning: Progressive taxation imposes higher rates on high-income individuals, redistributing income and reducing inequality.
(a) Both assertion and reasoning are correct and reasoning is the correct explanation
(b) Both assertion and reasoning are correct but reasoning is not the correct explanation
(c) Assertion correct, reasoning incorrect
(d) Assertion incorrect, reasoning correct
Correct Answer: (a) Both assertion and reasoning are correct and reasoning is the correct explanation
Explanation:
- Progressive taxation → higher tax rates on higher income → redistributes income → reduces inequality.
Q4. With reference to borrowings from small savings schemes in India, which of the following statements is/are correct?
- Borrowings from small savings schemes are treated as part of consolidated public debt.
- Borrowings from small savings schemes are excluded from fiscal deficit calculations.
- They contribute to the government’s overall liabilities.
- They do not require repayment by the government.
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 4 only
(d) 3 and 4 only
Correct Answer: (b) 1 and 3 only
Explanation:
- Statement 1 → Correct: These borrowings form part of the consolidated public debt.
- Statement 2 → Incorrect: Small savings borrowings are included in fiscal deficit calculations, not excluded.
- Statement 3 → Correct: They increase the government’s overall liabilities.
- Statement 4 → Incorrect: The government must repay these borrowings with interest.
Q5. Which of the following are direct taxes in India?
- Corporation tax
- Tax on income
- Customs duty
- VAT on petroleum products
- Excise duty
(a) 1 and 2 only
(b) 1, 2 and 4 only
(c) 2, 3 and 5 only
(d) 2, 4 and 5 only
Correct Answer: (a) 1 and 2 only
Explanation:
- Direct taxes: income tax, corporate tax.
- Indirect taxes: customs, excise, VAT.
