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.

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Indian Taxation System Questions

Multiple choice

Fill blank 1.

Directions: Read the following passage with numbered blanks.

“Between the year 1964 and the year 1973, I did not file any income tax returns.” With that _____1_____ statement, Hitesh embarked on an account of his encounter with the famed Income Tax Department. “I originally owed 2,00,000 in unpaid taxes. With ____2_____ and ___3___, the 2,00,000 became 6,00,000. The Income Tax Department then went into action, and I learned first hand just how much power the Tax Department wields. Royalties and trust funds can be ____4____; automobiles may be ____5____, and auctioned off. Nothing belongs to the ___6_____ until the case is settled.”

  1. oblique

  2. ostentatious

  3. discreet

  4. blunt

  5. pretentious
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The given statement is straightforward and the best answer is blunt, which means direct.

Multiple choice

Fill blank 6.

Directions: Read the following passage with numbered blanks.

“Between the year 1964 and the year 1973, I did not file any income tax returns.” With that _____1_____ statement, Hitesh embarked on an account of his encounter with the famed Income Tax Department. “I originally owed 2,00,000 in unpaid taxes. With ____2_____ and ___3___, the 2,00,000 became 6,00,000. The Income Tax Department then went into action, and I learned first hand just how much power the Tax Department wields. Royalties and trust funds can be ____4____; automobiles may be ____5____, and auctioned off. Nothing belongs to the ___6_____ until the case is settled.”

  1. purchaser

  2. victim

  3. investor

  4. offender

  5. dupe
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A person not paying taxes is a legal offender. Hence, offender is the correct answer.

Multiple choice

Which of the following is not a part of multiple taxation on machine tools in India?

Directions: Read the following passage carefully and answer the question that follows. Some words/phrases are printed in bold to help you locate them while answering the question.

Today, the import duty on a complete machine is 30% for all practical purposes, whereas the import duty on raw materials and components ranges from 35.85%. The story does not end here. After paying such high import duties on components, once a machine is made, it suffers excise duty from 5% – 10% (including on the customs duty already paid). At the time of sale, the machine tools suffer further taxation, i.e. Central Sales Tax or State Sales Tax which range from 4% – 16%. This much for the tax angle. Another factor, which pushes the cost of manufacture of machine tools, is the very high rate of interest payable to banks ranging up to 22%, as against 4% – 7% prevailing in advanced countries.
The production of machine tools in India being not of the same scale as it is in other countries, the price which India's machine tool builders have to pay for components is more or less based on the pattern of high pricing applicable to the prices of spares.
The machines tool industry in India has an enviable record of very quick technology absorption, assimilation and development. There are a number of success stories about how machine tool builders were of help at the most critical times. It will be a pity, in fact a tragedy, if we allow this industry to die and disappear from the scene.
It is to be noted that India is at least 6500 km away from any dependable source of supply of machine tools. The Government of India has always given a great deal of importance to the development of small scale and medium scale industries. This industry has also performed pretty well. Today, they are in need of help from India's machine tool industry to enable them to produce quality components at reduced costs. Is it anybody's case that the needs of the fragile sector (which needs tender care) will be met from 6500 km away?
Then, what is it that the industry requests from the government? It wants a level playing field. In fact, all of us must have a deep introspection and recognise the fact that the machine tool industry has a very special place in the country from the point of strategic and vital interest of the nation. Most importantly, it requests for the Government's consideration and understanding. It is therefore, high time that the government gives due attention to this industry which has good potential.

  1. Import duty on complete machine

  2. Import duty on components

  3. Excise duty on complete machine

  4. Sales Tax on components

  5. Sales Tax on complete machine
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The gist of the passage is that indigenously built machine tools and machines have to face taxation at various levels, whereas a complete machine being imported has to face taxation only once, i.e. when it is imported it faces only one taxation (i.e. import duty).

Multiple choice

Which of the following statements is correct?

  1. Income tax was abolished in India in 1991.

  2. Gift tax was abolished in India in 1998.

  3. All the states have adopted the VAT.

  4. Estate duty was abolished in 1995.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Gift tax was abolished in India in 1998 to simplify the tax structure and reduce administrative burden. Income tax was NOT abolished in 1991 (it's a major revenue source). VAT has NOT been adopted by all states (GST replaced VAT later, but even before GST, some states had issues). Estate duty was abolished in 1985, not 1995.

Multiple choice

Which of the following subjects is not included in the Union list?

  1. Defence

  2. Income tax

  3. Railway

  4. Sales tax
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Sales tax has traditionally been a State subject under the State List, while Defence (Entry 1), Income tax (Entry 82), and Railway (Entry 20) are all explicitly mentioned in the Union List under the Seventh Schedule of the Constitution. Though GST has now subsumed sales tax, the question reflects the traditional constitutional arrangement where states had primary taxation powers over sales within their jurisdiction.

Multiple choice

In which type of taxes are all incomes taxed at a uniform rate?

  1. Regressive Tax

  2. Progressive Tax

  3. Proportional Tax

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

It is a proportional tax. In this type of tax, all the incomes are taxed at a uniform rate whether low or high, and it is not linked with the income of tax payer. Hence, in this type of tax the income is taxed at a uniform rate.

Multiple choice

In which of the following does the impact and incidence fall on the different persons?

  1. Custom duty

  2. Income Tax

  3. Wealth Tax

  4. Capital Gains Tax
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is custom duty. Custom duty is an indirect tax. Hence, its impact and incidence falls on different persons. The custom duty is paid by the importer of the commodity, but is charged from the customer to whom the commodity is sold, as it is included in the price. Hence, its impact falls on the importer and its incidence falls on the consumer who ultimately pays for it.

Multiple choice

Which of the following taxes is easier to evade?

  1. Sales Tax

  2. Income Tax

  3. Custom duty

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

It is income tax. The income tax is a direct tax. As the income tax is charged on the income or salary of the person, the tax payer can evade it through fraud or cheating. The individual may show that his income does not come within the tax slab and thus evade it.

Multiple choice

Which of the following taxes is deducted at source from salary of people?

  1. Income tax

  2. Sales tax

  3. Property tax

  4. Capital gains tax
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is income tax. The income tax is the tax, which is deducted at source from the salary of the employees. When a person gets his or her salary, the income tax is deducted before he or she takes the salary to his or her home.

Multiple choice

Which of the following is used for the common benefit of all people?

  1. Price

  2. Income earned by an individual

  3. Tax

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

It is tax. The tax collected by government is used for common benefit of all people by construction of roads, improving infrastructure, providing health facilities to the citizens of country. Hence, the tax is used for common benefit of all people whether they pay the tax or not.

Multiple choice

Which of the following is a border tax?

  1. Excise Duty

  2. Custom Duty

  3. Value Added Tax

  4. Estate Duty
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It is a border tax. The custom duty is a tax charged on the goods imported from the foreign countries and the goods exported to foreign countries. As in this the goods cross the border of two countries, it is a border tax.

Multiple choice

Which of the following is not a demerit of direct tax?

  1. Unpopular

  2. Inconvenient

  3. Elasticity

  4. Discourage saving and investment
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It is not a demerit of tax, but a merit of direct tax. Direct tax is flexible that is the rate of direct tax can be increased or decreased according to requirements of economy. In case of emergency, the rates of tax can be increased to have larger revenue, and in case of depression the rate of tax can be decreased as the people do not have much to pay.

Multiple choice

Which of the following is a non-tax revenue for the government?

  1. Custom duty

  2. Estate duty

  3. Excise duty

  4. Grants in Aid
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

It is a non-tax revenue. The grants in aid are non-tax revenue for the government. The grants in aid are the aid or assistance received from foreign countries as well as from international organisations. It is not a tax imposed on anything. Hence, it is non- tax revenue for the government.