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 taxes is not imposed on the manufacture of television in India?

  1. Value Added Tax

  2. Excise duty

  3. Service tax

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The service tax is not imposed on television. The service tax is charged or imposed on the services provided. The manufacture of television is the product manufactured and not the service provided to any customer. Hence, service tax is not charged on the manufacture of television.

Multiple choice

Which of the following statements is not true about the impact of tax?

  1. It refers to the initial burden of tax.

  2. It can be easily shifted.

  3. It cannot be shifted.

  4. It is upon the person who pays it in the first instance.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This statement is not true about impact of tax. The impact of tax can be shifted in case of indirect tax. For instance, the custom duty is to be paid to the government by the importer of commodity, but is shifted to the ultimate consumer as it is charged from the consumer by including in the price. Thus, the impact of tax can be shifted.

Multiple choice

Which of the following is an example of non- ad valorem tax?

  1. Excise Duty

  2. Value Added Tax

  3. Import duty

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is an example of non-ad valorem tax. The non-ad valorem tax is charged not on the value, but on the other factors such as weight, price etc. The excise duty charged is the tax based on the cost of goods manufactured and not on its value. Hence, excise duty is an example of non-ad valorem tax.

Multiple choice

The process of passing on the money burden of tax to another person cannot be possible in import duty when

  1. the commodity is imported for own use by the importer

  2. the commodity imported is sold to another person.

  3. the commodity imported is exported to another country

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is not possible in custom duty, when the commodity is imported for own use by the importer. If the commodity is imported for its own use by the importer, the burden of import duty cannot be passed to any other person and importer himself has to bear the burden of import duty. Another person will bear the burden of import duty only when he purchases the commodity imported.

Multiple choice

Which of the following statements is not true about the incidence of tax?

  1. It refers to the initial burden of tax.

  2. It is upon the person who actually bears the burden of tax

  3. It cannot be shifted.

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This statement is not true about incidence of tax. The incidence of tax refers to the ultimate burden of tax, not to the initial burden. For example, in sales tax, the impact of tax, i.e. the initial burden is on the seller who pays the sales tax to the government, but its incidence, i.e. the ultimate burden actually falls on the consumer or purchaser as sales tax is included in the price. Hence, the incidence of tax refers to the ultimate burden, not the initial burden.

Multiple choice

Which of the following is correct about 'tithe'?

  1. It was the loan that the French government had to pay back.

  2. It was the rent on the land that was cultivated by peasents, but owned by the nobles.

  3. It was the tax levied by the church on the peasants comprising ten percent agricultural produce.

  4. It was the direct tax paid to the state by the third estate.

  5. It was the indirect tax levied on articles of everyday consumption like salt or tobacco.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This is the correct answer. Tithe was the tax levied by the church on the peasants. This included ten percent agricultural produce.

Multiple choice

Which of the following is not a cash inflow from extraordinary item?

  1. Winning cash from gambling

  2. Refund of tax paid earlier under dispute

  3. Cash received from playing online games

  4. Cash received from interest on investment
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The cash received from interest on investment is the cash received from the ordinary item. As when we invest somewhere we can expect to receive, the interest with surety. Hence, it is the cash inflow from the ordinary item.

Multiple choice

Which of the following options is correct?

  1. Premium paid by a client for health cover enjoys income tax deduction under section 80C of the Income Tax Act.

  2. Premium paid towards health cover earns income tax rebate under section 80D of the Income Tax Act.

  3. Premium paid for a health cover does not qualify for tax benefit under any provision of the Income Tax Act.

  4. There is no upper limit to sum assured in a health insurance policy.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Section 80D of the Income Tax Act deals with rebates.

Multiple choice

Which of the following statements is not correct?

  1. One should avail potential tax saving opportunities.

  2. Purpose of tax saving is to minimize taxes and not to evade them.

  3. Tax planning helps to gain maximum advantage of tax laws.

  4. Agents are not much helpful in advising on tax planning.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Agents may not be helpful in tax planning.

Multiple choice

Which of the following is a tax that is levied on all transaction codes on the stock exchange at rates prescribed by the Central Government from time to time?

  1. Transactions Tax

  2. Stock Exchange Transactions Tax

  3. Securities Transaction Tax

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

Securities Transaction Tax (STT) is a tax that is payable in India on the value of securities (excluding commodities and currency) transacted through a recognised stock exchange. The tax is not applicable on off-market transactions or on commodity or currency transactions.

Multiple choice

A redistribution of income in a country can be best brought about through

  1. Progressive taxation combined with progressive expenditure

  2. Progressive taxation combined with regressive expenditure

  3. Regressive taxation combined with regressive expenditure

  4. Regressive taxation combined with progressive expenditure
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Progressive taxation combined with progressive expenditure best redistributes income. Progressive taxation (higher rates on higher incomes) reduces inequality by collecting more from the wealthy. Progressive expenditure (spending more on welfare, education, healthcare for lower-income groups) further aids redistribution. Options B and D mix incompatible approaches. Option C (both regressive) would worsen inequality as it places disproportionate burden on the poor while benefiting the wealthy.

Multiple choice

Which of the following regarding return of service tax is/are correct?

  1. Return is to be submitted on half yearly basis on Form ST-3.

  2. Return is to be submitted on quarterly basis on Form ST-5.

  3. Return is to be submitted on half yearly for March and December.

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

ST-3 Return is required to be filed twice in a financial year ± half yearly. Other options are not true.