Economics · General Awareness

Indian Taxation System

2,347 Questions

The Indian taxation system comprises direct and indirect levies including income tax, goods and services tax, and property tax. Understanding these tax structures is crucial for general awareness sections in banking and government exams. The practice set covers central and state tax collections, exemptions, and capital gains rules.

Goods and Services TaxIncome tax rulesProperty tax assessmentsTax exemptionsCentral versus state taxes

Indian Taxation System Questions

Multiple choice

Which of the following statements are true?

  1. Excise duty is a tax on the sale, or production for sale, of goods produced within the country.
  2. Excise duty is an indirect tax.
  3. This tax is now known as the Central Value Added Tax (CENVAT).
  4. Central excise revenue is the biggest single source of revenue for the Government of India.

  1. Only 1, 2 and 3

  2. Only 1 and 2

  3. All 1, 2, 3 and 4

  4. Only 2, 3 and 4
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Statement 1 is wrong: Please note that Excise duty is not a tax on sale of goods but it is a tax on manufacture or production of goods for sale (in India). Rest of the three statements are perfectly correct. 

Multiple choice

Identify the correct statement(s):

  1. Customs duties include both import and export duties.
  2. Export duties contribute only nominal revenue to the Government.
  3. In India, customs duty is imposed on goods belonging to the Government as well as goods not belonging to the Government.

  1. Only 1 and 3

  2. Only 1

  3. 1, 2 and 3

  4. Only 1 and 2
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

While customs duties include both import and export duties, but as export duties contribute only nominal revenue, due to emphasis on raising competitiveness of exports, import duties alone constitute major part of the revenue from customs duties. As per Section 12 of the India Customs Act, customs duty is imposed on goods belonging to Government as well as goods not belonging to Government.

Multiple choice

Which of the given statements is/are true?

  1. Service tax is a part of Central Excise in India.
  2. It is a tax levied on services provided in whole of India.
  3. The responsibility of collecting the tax directly lies with the Central Board of Indirect Taxes.

  1. Only 1

  2. Only 1 & 3

  3. 1, 2 & 3

  4. Only 3
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Service tax is a part of Central Excise in India.

It is a tax levied on services provided in India, except the State of Jammu and Kashmir. The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC).
Multiple choice

Which of the following statements is/are incorrect?

  1. The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India.
  2. It is India's official Financial Action Task Force unit.

  1. Only 1

  2. Only 2

  3. Both of these

  4. Neither of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India. It is India's official FATF unit. The purpose of the FATF is to develop policies to combat money laundering and terrorism financing.

Multiple choice

Which of the following statements is/are correct regarding the Goods and Services Tax (GST)?

  1. The states and the federal government will impose the GST on almost all goods and services produced in India or imported.
  2. Exports will not attract GST.
  3. Goods like crude oil, diesel, petrol and alcohol are exempted from the ambit of GST.

  1. Only 1

  2. Only 1 and 2

  3. 1, 2 and 3

  4. Only 1 and 3
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The GST is an indirect tax that will replace existing levies such as excise duty, service tax and value-added tax (VAT). The states and the federal government will impose the tax on almost all goods and services produced in India or imported. Exports will not attract GST. The GST will not cover goods like crude oil, diesel, petrol and alcohol. These goods are major sources of revenues for most states. Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle. 

Multiple choice

According to the distribution of taxes in the Constitution of India, some taxes are levied, collected and retained by the Centre. Which of the following does not come under this list?

  1. Customs Duty

  2. Corporation Tax

  3. Taxes on sale or purchase of newspapers

  4. Taxes on Capital (other than Agricultural Land)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The taxes are levied, collected and retained by the Centre include Customs Duty, Corporation Tax, Taxes on Capital (other than Agricultural Land), etc. Some taxes are levied and collected by the Centre, but the proceeds are to be distributed among States. Tax on sale or purchase of newspapers and ads is one such tax.

Multiple choice

With the implementation of the Direct Tax Code, which of the following categories of income (earlier exempted) will lose tax benefits?

  1. Equity Mutual Funds (ELSS)
  2. Term deposits and NSC (National Savings certificates)
  3. Unit Linked Insurance Plans (ULIPs)
  4. Long term infrastructure bonds

  1. Only 1 and 3

  2. Only 1, 2 and 3

  3. Only 2, 3 and 4

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

DTC removes most of the categories of exempted income. Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Unit Linked Insurance Plans (ULIPs), Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will lose tax benefits.

Multiple choice

Service Tax act/Rules in India has provided exemption to small scale service providers from service tax up to aggregate value of taxable services provided up ___________in a Financial Year.

  1. Rs. 1 lakh

  2. Rs. 2.5 lakhs

  3. Rs. 5 lakhs

  4. Rs. 10 lakhs

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Small service providers were exempt from Service Tax if their aggregate taxable services didn't exceed Rs. 10 lakhs in a financial year. This threshold was designed to support small businesses and reduce compliance burden. The limit has been revised over time but was Rs. 10 lakhs in the relevant period.

Multiple choice

Which of the following statements is/are correct regarding the Budget 2012-13?

  1. Securities Transaction Tax (STT) reduced from 0.125 percent to 0.1 percent.
  2. Tax exemption of up to Rs. 10,000 for health insurance for annual preventive health checkup.
  3. Rs. 10,000 crores allocated to NABARD to fund RRBs.

  1. 1 and 2

  2. 1 and 3

  3. 2 and 3

  4. 1, 2, and 3
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Statement 1 is correct: STT was reduced from 0.125% to 0.1% in Budget 2012-13. Statement 2 is incorrect: the tax exemption was for Rs. 5,000, not Rs. 10,000. Statement 3 is correct: Rs. 10,000 crores were allocated to NABARD for refinance to RRBs. Therefore, only statements 1 and 3 are correct.

Multiple choice

Which of the following statements is/are correct regarding the Budget 2012-13?

  1. 12% excise duty imposed on branded retail garments.
  2. 5% customs duty exempted on equipment for fertilizer plants.
  3. Cuts customs duty on rail equipment to 5% from 10%.

  1. 1 and 2

  2. 1 and 3

  3. 2 and 3

  4. 1, 2, and 3
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Statement 1 is correct: 12% excise duty was imposed on branded retail garments (raised from 10%). Statement 2 is correct: 5% customs duty exemption was granted on equipment for fertilizer plants. Statement 3 is incorrect: customs duty on rail equipment was reduced to 5%, but this was from 10%, making it a reduction, not a cut to 5% from 10%. Only statements 1 and 2 are correct.

Multiple choice

Which of the following types of tax has an adverse effect on the willingness to earn more and work?

  1. Proportional Tax

  2. Progressive Tax

  3. Regressive Tax

  4. Digressive Tax
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It is progressive tax. The progressive tax is the tax in which the rate of tax increases with the increase in income. Hence, if the person's income increases, he or she knows that a large part of income will have to be paid as tax to government. Thus, it has an adverse effect on the willingness to earn and there is reluctance to work more.

Multiple choice

Which of the following taxes is narrower in scope in India?

  1. Value Added Tax

  2. Excise Duty

  3. Corporate Tax

  4. Entertainment Tax
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The corporate tax is narrower in scope in India. The corporate tax is charged on the annual income of the domestic as well as foreign companies operating in India. Thus, only the corporate companies contribute to the Corporate Tax and the general public does not contribute to this tax.

Multiple choice

Which of the following taxes is the most unjust for the poor?

  1. Proportional Tax

  2. Regressive Tax

  3. Progressive Tax

  4. Digressive Tax
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It is the regressive tax. The regressive tax is the tax in which the rate of tax decreases with the increase in income. Thus, the poor with less income pays a proportion of income as tax and are left with little money. So, it may be said to be the most unjust tax for the poor to pay.