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 civics direct taxes black money and tax evasion meaning of tax public revenue : direct and indirect taxes income tax

If a firm produces goods with Rs. 10,000 and the cost of raw materials is Rs. 10,000 and the firm will pay tax on Rs. 4000. It is paying tax according to:

  1. VAT

  2. CENVAT

  3. MODVAT

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

The firm is paying tax according to the VAT system. VAT stands for Value Added Tax, which is a type of tax that is assessed incrementally, based on the increase in value of a product or service at each stage of production or distribution. 

Multiple choice investement and financial planning banking compound interest comparing quantity maths

Investment in funds like ELSS are admissible for deduction under section $80\text{C}$ of income tax.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Investments in Equity Linked Saving Schemes or ELSS qualify for tax deduction under Section $80C$ of the Income Tax Act. The maximum tax deduction allowed under Section $80C$ is Rs 1.5 lakh under Section $80C$.

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

Gratuity received by a government employee is ______.

  1. Fully exempted

  2. Partly exempted

  3. Fully taxable

  4. Exempted up to Rs:1,00,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Gratuity is a sum of money paid by an employer to an employee for services rendered in the company. However, gratuity is paid only to employees who complete 5 or more years with the company. It can be understood as a form of tip paid by employer to the employee for services offered in the company. Any employee under the state government, central government or local authority receives gratuity amount than the amount is fully exempt from Income Tax.

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

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

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.