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

CENVAT is associated with

  1. rate of Income Tax

  2. rate of Indirect Tax

  3. rate of Direct Tax

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

CENVAT (Central Value Added Tax) is a form of indirect tax in India that allows manufacturers to claim credit for taxes paid on inputs. It replaced the earlier MODVAT system and applies to excise duties and service taxes. Income tax is a direct tax, not indirect, and CENVAT specifically deals with indirect taxation on goods and services.

Multiple choice

The proposed Direct Tax Code will replace archaic

  1. Income Tax Act, 1961

  2. Income Tax Act, 1971

  3. Income Tax Act, 1951

  4. Income Tax Act, 1991
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Once enacted, the DTC will replace archaic Income Tax Act, 1961. However, many provisions in Income Tax Act will be a part of DTC as well.

Multiple choice

Which of the following is not a direct tax?

  1. Estate tax

  2. Sales tax

  3. Corporation tax

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

Direct taxes are paid directly to the government by the taxpayer, like income tax, corporation tax, and estate tax. Sales tax is an indirect tax because it is collected by intermediaries (retailers) from consumers and then passed to the government - the burden can be shifted. Estate tax, corporation tax, and wealth tax are direct taxes.

Multiple choice

Ad valorem is a tax on

  1. value added services

  2. price

  3. industrial output

  4. commercial transactions
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

 Ad valorem is a tax on price.

Multiple choice

Which of the following statements is/are correct in respect of the three-year plan unveiled by the former Finance Minister Pranab Mukherjee for moving to a Goods and Services Tax (GST) regime?

I. The GST will have Central GST as well as State GST. II. The first year of GST will have three rates. III. GST will have only a single rate for goods as well as services from third year onwards.

  1. I and II only

  2. II only

  3. II and III only

  4. I, II and III
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Former Finance Minister Pranab Mukherjee unveiled a three-year plan for moving to a single-rate goods and services tax (GST) regime of 16 per cent for the Centre as well as the states. He suggested, the Centre to adopt a three-rate formula. While Mukherjee proposed that the rate of taxation for services be fixed at 8 per cent, a dual-rate regime for goods was recommended at the meeting of the empowered committee of state finance ministers. The Centre plans to keep a lower rate of 6 per cent for certain goods and maintain a standard rate of 10 per cent in the first year. In case the states agree to the formula, the standard GST rate had been 20 per cent since the states and the Centre will levy 10 per cent each on goods. For products which attracted a lower rate, the total GST burden had been 12 per cent, assuming that the Centre and the states agreed to levy 6 per cent each on these products.

Multiple choice

Which of the following is/are correct regarding the proposed Direct Tax Code?

  1. Corporate Tax will remain at 30 percent, but without surcharge and cess.
  2. MAT will be 20 percent of book profit.
  3. Once enacted, the DTC will completely replace the archaic Income Tax Act, 1961.

  1. Only 2

  2. Only 1 and 2

  3. Only 2 and 3

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

Some highlights of the Direct Taxes Code Bill are as follows:  Corporate Tax will remain at 30 percent, but without surcharge and cess. MAT will be 20 percent of book profit, up from 18.5 percent. Once enacted, the DTC will replace the archaic Income Tax Act, 1961. However, many provisions of the Income Tax Act will be a part of DTC as well. Hence, statement 3 is wrong. 

Multiple choice

Which of the following taxes are levied by the State Government?

  1. Value Added Tax (VAT)
  2. Stamp Duty
  3. Land Revenue
  4. Profession Tax

  1. Only 1 and 3

  2. Only 1, 3 and 4

  3. Only 1, 2 and 3

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

India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. Central Government levies taxes on income (except tax on agricultural income, which the State Government can levy), customs duties, central excise and service tax. Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax are levied by the State Governments.

Multiple choice

Under how many heads does the Income Tax Act of 1961 impose tax on income?

  1. Two

  2. Four

  3. Five

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

The Income Tax Act of 1961 imposes tax on income under the following five heads:

Income from house and property

Income from business and profession
Income from salaries
Income in the form of capital gains
Income from other sources The Income Tax Act of 1961 has been in the news because it is going to be replaced by the Direct Tax Code.

Multiple choice

Which of the following statements is/are correct?

  1. The fringe benefit tax (FBT) was imposed on employers by India's Finance Act, 2005.
  2. The fringe benefit tax was abolished in the 2009 Union budget of India by the then Finance Minister Pranab Mukherjee.
  3. According to the new proposed Direct Tax Code (DTC), fringe benefit tax will be charged to the employee rather than the employer.

  1. Only 1

  2. Only 1 and 2

  3. Only 1 and 3

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

All of the given statements are perfectly correct. A student may get confused in statement 3, but the proposed DTC carries the provision for fringe benefit tax to be charged on the employee rather than the employer.