GST & Tax — Set 2

Correct Answer: D. Income Tax

• **Income Tax** = Income Tax is a direct tax because the person liable to pay it and the person who bears the actual burden are the same. • **Indirect taxes are shifted to consumers** — Indirect taxes like GST and Customs Duty are paid by the seller but shifted to the final consumer through pricing. • 💡 Wrong-option analysis: Excise Duty: excise duty was an indirect tax that has been subsumed into GST; Customs Duty: customs duty is an indirect tax on imports, not a direct tax; Service Tax: service tax was an indirect tax that has been merged into GST.

Correct Answer: B. One-third

• **One-third** = The Central Government holds one-third of the total votes cast in the GST Council. • **States hold two-thirds together** — All state governments combined hold the remaining two-thirds of the total vote weightage. • 💡 Wrong-option analysis: Two-thirds: two-thirds is the combined weightage of all states, not the Centre alone; One-half: the Centre does not hold half the votes; One-fourth: one-fourth is not the correct vote share for the Centre.

Correct Answer: B. 5 years

• **5 years** = The Central Government originally promised to compensate states for any revenue loss from GST implementation for a period of 5 years. • **July 2017 to June 2022** — The compensation period ran from the GST launch on 1 July 2017 and ended on 30 June 2022. • 💡 Wrong-option analysis: 3 years: the promised compensation period was 5 years, not 3; 10 years: the compensation window was only 5 years; 2 years: the compensation period was 5 years, not 2.

Correct Answer: A. Basic Customs Duty

• **Basic Customs Duty** = Basic Customs Duty is still levied on imports and has not been merged into the GST system. • **CVD and SAD replaced by IGST** — However, Additional Duties of Customs (CVD) and Special Additional Duty (SAD) were replaced by IGST on imports. • 💡 Wrong-option analysis: Luxury Tax: luxury tax was subsumed into GST; Central Excise Duty: central excise duty (except on petroleum and tobacco) has been subsumed into GST; Service Tax: service tax has been fully subsumed into GST.

Correct Answer: D. Goods

• **Goods** = GSTN stands for Goods and Services Tax Network, which is the IT backbone of the entire GST system. • **Common portal for compliance** — GSTN provides a common portal for taxpayer registration, return filing, and tax payments. • 💡 Wrong-option analysis: Global: 'Global' is not what 'G' stands for in GSTN; Governance: 'Governance' is not the correct expansion; Government: GSTN stands for Goods and Services Tax Network, not Government Services Tax Network.

Correct Answer: C. Relationship between tax rates and tax revenue

• **Relationship between tax rates and tax revenue** = The Laffer Curve illustrates that there is an optimal tax rate that maximises total government revenue. • **Too-high rates reduce revenue** — If tax rates are set too high, they discourage economic activity and actually reduce total tax revenue collected. • 💡 Wrong-option analysis: Relationship between income and savings: this describes the consumption function, not the Laffer Curve; Relationship between exports and imports: this relates to trade balance, not the Laffer Curve; Relationship between inflation and unemployment: this describes the Phillips Curve.

Correct Answer: C. Rs. 40 Lakhs

• **Rs. 40 Lakhs** = For most normal category states, the threshold for mandatory GST registration for goods suppliers is an aggregate turnover of Rs. 40 Lakhs. • **Rs. 20 Lakhs for services** — For service providers and special category states, the threshold remains Rs. 20 Lakhs. • 💡 Wrong-option analysis: Rs. 20 Lakhs: this is the registration threshold for services and special category states, not goods in normal states; Rs. 50 Lakhs: this is the Composition Scheme threshold, not the registration threshold; Rs. 10 Lakhs: this is the registration threshold for some special category states.

Correct Answer: A. Small taxpayers with limited turnover

• **Small taxpayers with limited turnover** = The Composition Scheme is designed for small taxpayers to reduce their compliance burden under GST. • **Fixed percentage of turnover as tax** — It allows small businesses to pay a flat rate on their turnover and file simplified quarterly returns. • 💡 Wrong-option analysis: Government departments: government departments follow a different GST framework, not the Composition Scheme; Large multinational corporations: large businesses cannot opt for the Composition Scheme; Exporters: exporters are not eligible for the Composition Scheme as it does not allow inter-state supply.

Correct Answer: D. It places a higher burden on low-income earners

• **It places a higher burden on low-income earners** = A regressive tax takes a larger percentage of income from low-income earners relative to high-income earners. • **GST is regressive in nature** — Most indirect taxes like GST are considered regressive because everyone pays the same rate regardless of income level. • 💡 Wrong-option analysis: It is always a direct tax: a regressive tax is typically indirect, not direct; Tax rate decreases as income increases: this describes a regressive tax in one way, but the key correct answer is about the burden on the poor; Tax rate increases as income increases: this describes a progressive tax, not a regressive one.

Correct Answer: A. Kelkar Task Force

• **Kelkar Task Force** = The Kelkar Task Force on Indirect Taxes first recommended a comprehensive GST based on the VAT principle in 2003. • **National market integration** — The task force argued GST would integrate the national market, reduce cascading, and boost economic growth. • 💡 Wrong-option analysis: Chelliah Committee: this committee focused on tax reforms in the 1990s but did not recommend GST in 2003; Rangarajan Committee: this committee is known for poverty estimation, not GST; Verma Committee: this committee is not associated with the GST recommendation.