Budget Basics — Set 5

Correct Answer: B. Tax rates and Tax revenue

• **Direct Tax** = a tax that is levied directly on the income or wealth of a person and cannot be shifted to another person — the incidence and impact fall on the same individual. • **Examples: Income Tax, Corporate Tax** — these are progressive in nature and administered by the Central Board of Direct Taxes (CBDT). • 💡 Wrong-option analysis: [Option A] Indirect Tax: the burden can be shifted to the consumer (e.g., GST); [Option C] Proportional Tax: takes a fixed percentage of income; 'direct' refers to who bears the burden, not the rate structure; [Option D] Regressive Tax: takes a higher proportion from lower-income groups, a rate concept not a collection mechanism.

Correct Answer: D. Outcome Budget

• **Indirect Tax** = a tax levied on goods and services (not income) where the legal taxpayer can shift the burden to the final consumer. • **GST is the main indirect tax** — replaced VAT, service tax, and central excise from 2017; administered by the Central Board of Indirect Taxes and Customs (CBIC). • 💡 Wrong-option analysis: [Option A] Direct Tax: burden cannot be shifted; income tax is the primary example; [Option B] Progressive Tax: rates increase with income; indirect taxes can actually be regressive; [Option D] Surcharge: an additional charge on existing tax, not a tax category.

Correct Answer: C. To examine the audit reports of the CAG

• **Income Tax** = a direct tax levied on the income of individuals, Hindu Undivided Families (HUFs), and other entities above a prescribed threshold. • **Governed by Income Tax Act 1961** — administered by CBDT; the 2024–25 budget restructured tax slabs under the new regime (0% up to ₹3 lakh, 5% for ₹3–7 lakh, etc.). • 💡 Wrong-option analysis: [Option A] Corporate Tax: levied on companies' profits, not individuals; [Option B] Wealth Tax: abolished in 2015 and replaced with surcharge; [Option D] Capital Gains Tax: levied on profits from sale of assets, a sub-category of income tax.

Correct Answer: C. Personal Income Tax

• **Corporate Tax** = a direct tax levied on the net income (profits) of companies registered in India at rates prescribed in the Finance Act each year. • **Reduced to 22% (existing) / 15% (new)** — in 2019, the corporate tax rate was cut from 30% to 22% for existing companies and 15% for new manufacturing companies to boost investment. • 💡 Wrong-option analysis: [Option A] Income Tax: levied on individuals and HUFs; [Option C] Dividend Distribution Tax: abolished in 2020, was paid by companies on dividends declared; [Option D] Minimum Alternate Tax (MAT): applicable only when corporate tax payable falls below a threshold.

Correct Answer: A. High government borrowing reduces private investment

• **Securities Transaction Tax (STT)** = a direct tax levied on the purchase and sale of securities listed on Indian stock exchanges, introduced in 2004. • **Discourages short-term speculation** — STT applies to equity shares, futures, options, and mutual fund units sold on exchanges; it is collected by the exchange on behalf of the government. • 💡 Wrong-option analysis: [Option A] Capital Gains Tax: levied on profit from asset sale, not the transaction value; [Option B] Stamp Duty: a state-level tax on documents including share transfers, separate from STT; [Option D] Dividend Tax: on dividend income, not securities transactions.

Correct Answer: B. Governor

• **Minimum Alternate Tax (MAT)** = a tax introduced to ensure that companies with significant book profits but zero or negligible taxable income (due to deductions/exemptions) pay a minimum amount of tax. • **15% of book profit** — MAT rate was 18.5% before 2019, reduced to 15%; companies can carry forward MAT credit for up to 15 years. • 💡 Wrong-option analysis: [Option A] Corporate Tax: the regular tax on net taxable income, not book profit; [Option B] Alternate Minimum Tax: similar concept applied to non-corporate assessees; [Option D] Surcharge: additional levy on existing tax, not a stand-alone minimum tax.

Correct Answer: D. Loans given to states and UTs

• **Dividend Distribution Tax (DDT)** = a tax that was payable by companies on dividends declared to shareholders, effectively taxing profits distributed rather than profits earned. • **Abolished from 2020–21** — DDT was removed and replaced with classical system where dividends are taxed in the hands of the recipient shareholder at applicable income tax rates. • 💡 Wrong-option analysis: [Option A] Corporate Tax: levied on company profits, not on dividend distribution; [Option B] Withholding Tax: tax deducted at source on various payments; [Option D] Securities Transaction Tax: levied on trading of listed securities, not dividends.

Correct Answer: D. Revenue Deficit - Grants for asset creation

• **Capital Gains Tax** = a tax on the profit (capital gain) made from selling a capital asset such as land, property, shares, or bonds. • **STCG vs LTCG** — Short-Term Capital Gains (held < 12 months for equity) taxed at 15%; Long-Term Capital Gains (held > 12 months) above ₹1 lakh taxed at 10% for equity (introduced 2018). • 💡 Wrong-option analysis: [Option A] Income Tax: levied on regular income, not asset sale profits; [Option B] Securities Transaction Tax: levied on transaction value, not on the profit; [Option D] Wealth Tax: abolished in 2015, was on net wealth ownership not on sale.

Correct Answer: B. Article 280

• **Goods and Services Tax Network (GSTN)** = the IT backbone of the GST system, a non-government, private limited company that provides the technology platform for GST registration, return filing, and refunds. • **Majority government-owned since 2018** — originally 51% private sector; in 2018 the Centre and States together acquired 100% ownership making it a fully government-owned entity. • 💡 Wrong-option analysis: [Option A] GST Council: constitutional body that decides GST rates and policy; [Option B] CBIC: implements and enforces GST law; [Option D] NIC: National Informatics Centre, provides government IT services but is not the GST-specific entity.

Correct Answer: C. 2021

• **Article 265 of the Constitution** = the provision that states 'no tax shall be levied or collected except by authority of law' — it is the fundamental basis of India's taxation system. • **Protects against arbitrary taxation** — no executive order can impose a tax; it must be backed by legislation passed by the appropriate legislature. • 💡 Wrong-option analysis: [Option A] Article 110: defines Money Bills; [Option B] Article 112: Annual Financial Statement; [Option D] Article 270: distribution of taxes between Centre and States, not the basic right against arbitrary taxation.