Economics · General Awareness

Indian Taxation System

2,325 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 income tax direct taxes commerce black money and tax evasion meaning of tax

According to the Section 2(24) of the Income Tax Act, income include ________.

  1. profit and gains

  2. dividend

  3. voluntary contribution received by a Trust

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Section 2(24) of the Income Tax Act include,

(i)         Profits and gains
(ii)        Dividend
(iii)       Voluntary Contributions received by a trust. Voluntary contributions received by a trust are included in the definition of income. As such contributions received by following types of trusts, funds, associations, bodies etc. are included in the income of such bodies.
Multiple choice income tax direct taxes commerce black money and tax evasion meaning of tax

Interest on bank deposits and securities are charged under the head ______.

  1. Income from Capital Gains

  2. Income from other sources

  3. Profits and Loss from Business or Profession

  4. Income from House Property
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Income from other sources include:
  • Any contribution to a fund for welfare of employees received by the employer.
  • Income received by way of interest on securities.
  • Income from letting out or hiring of plant, machinery or furniture.
  • Income from letting out of plant, machinery or furniture along with building; both the lettings are inseparable.
  • Money received under a Keyman Insurance Policy including bonus.
Multiple choice income tax direct taxes commerce black money and tax evasion meaning of tax

______ means the financial year immediately preceding the assessment year.

  1. Calendar year

  2. Assessment year

  3. Previous year

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

Previous year means the financial year preceding the current assessment year. For example, 2017 is the previous year for the current financial year. 

Multiple choice income tax direct taxes commerce black money and tax evasion meaning of tax

Tax is calculated and compared with the amount paid and assessment order is issued. The year in which whole of this process is under taken is called _______.

  1. Calendar Year

  2. Previous Year

  3. Assessment Year

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

Assessment Year is the year in which one file income tax returns of the year prior to it (i.e. Financial Year). It is the year in which the income that one has earned in the financial year that is just ended is evaluated. Tax is calculated and compared with the amount paid and assessment order is issued.

Multiple choice income tax direct taxes commerce black money and tax evasion meaning of tax

Wealth Tax is a:

  1. Direct tax

  2. Indirect tax

  3. Cooperation tax

  4. Value added tax
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A direct tax is paid by a person upon whom it is legally imposed; its effect is borne by the tax payer, for example, income tax. A direct tax is demanded from the very person who it is intended or devised for.  An example of a direct tax is wealth tax.

Multiple choice social science tax and its importance taxation : need, principles and importance main feature of tax public revenue and taxation

Direct taxes being progressive in nature, it is help to  ___________.

  1. reduce inequality

  2. reduce poverty

  3. reduce price

  4. reduce poverty and prices
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Direct taxes are progressive, meaning higher income earners pay a higher percentage of their income. This structure helps redistribute wealth and reduce economic inequality.

Multiple choice economics tax and its importance taxation : need, principles and importance main feature of tax public revenue and taxation

Chairman of Tax Reform Committee was ________.

  1. Pranab Mukherjee

  2. KP. Narsimham

  3. S. Janakiraman

  4. Raja Chelliah
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Government appointed a Tax Reforms Committee under Prof Raja Chelliah to lay out agenda for reforming India’s tax system. This TRC came up with three reports in 1991, 1992 and 1993 with several measures.

Multiple choice economics tax and its importance taxation : need, principles and importance main feature of tax public revenue and taxation

With reference to contribution from taxes, consider the following statements:
1- Contribution from direct taxes is more than that from indirect taxes.
2- Corporation tax is the largest contributor.

  1. Only 1

  2. Only 2

  3. Both 1 and 2

  4. Neither 1 nor 2
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Since 2007-08, the contribution of direct tax has been more than indirect tax. Before this, the trend was opposite. Corporation tax is the largest contributor among the taxes.

Multiple choice economics tax and its importance taxation : need, principles and importance main feature of tax public revenue and taxation

Income Tax is rounded off to ________________.

  1. Nearest one rupee

  2. Nearest ten rupees

  3. Nearest hundred rupees

  4. Nearest thousand rupees
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An income tax is a tax that governments enforce on income generated by businesses and individuals within their authority. By law, taxpayers must file an income tax return yearly to determine their tax obligations Income taxes are a source of revenue for governments. 

As per Section 288 B of the income tax act, the total tax computed shall be curved off to the nearest Rs 10. The income tax is rounding off would be done on the total tax payable or refundable and not to various dissimilar sub-heads of taxes like income tax, education cess, a surcharge etc.

Thus, the correct option is B.

Multiple choice social science tax and its importance taxation : need, principles and importance main feature of tax public revenue and taxation

A tax that takes away a higher proportion of one's income as the income rises is termed as ___________.

  1. proportional tax

  2. progressive tax

  3. regressive tax

  4. indirect tax
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A progressive tax is defined by a system where the tax rate increases as the taxable amount increases, meaning those with higher incomes pay a higher proportion of their income in taxes.

Multiple choice economics tax and its importance taxation : need, principles and importance main feature of tax public revenue and taxation

Marginal Rate of Tax refers to ____________.

  1. lowest rate of Income Tax

  2. highest rate of Income Tax

  3. average rate of Income Tax

  4. nil rate of Income Tax
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The marginal tax rate is the rate of tax applied to the last unit of currency earned, which corresponds to the highest tax bracket applicable to that individual's income.

Multiple choice social science tax and its importance taxation : need, principles and importance main feature of tax public revenue and taxation

To remove inequalities, the Government uses ___________.

  1. indirect taxes

  2. regressive taxes

  3. progressive taxes

  4. proportional taxes
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Progressive taxes are used as a fiscal tool to redistribute income from the wealthy to the less affluent, thereby reducing economic inequality in society.