Taxation System of India Multiple Choice Questions :-
1. Income tax is the most important source of revenue in India. Income tax is
a) Direct and proportional
b) Indirect and proportional
c) Direct and progressive
d) Indirect and progressive
Answer :- c
2. Which one of the following taxes/cess is levied by states in India?
a) Tax on motor vehicles
b) Tax on hotels
c) Educational cess
d) Tax on wealth
Answer :- a
3. Which of the following relationships is indicated by a Laffer curve?
a) Relationship between money supply and price level in different stages of inflation.
b) The above a certain tax rate, an increase in tax rate causes reduction in tax revenue.
c) A positive relationship between tax revenue and public expenditure.
d) A negative relationship between high rates of income tax and people in tax net.
Answer :- b
4. Corporation tax is a direct tax. Which of the following is a correct statement regarding corporate tax?
a) It is levied and appropriated by the states.
b) It is levied by the union and collected and appropriated by the states.
c) It is levied by the union and shared by the union and the states.
d) It is levied by the union and belongs to it exclusively.
Answer :- c
5. Taxation is a means to redistribute income among various classes. A redistribution of income tax can be best brought through
a) Progressive taxation combined with progressive expenditure
b) Progressive taxation combined with regressive expenditure
c) Regressive taxation combined with regressive expenditure
d) Regressive taxation combined with progressive expenditure
Answer :- b
6. Which one of the following body will decide the tax rates for goods and services under GST regime?
a) Central and State government
b) Finance Commission
c) NITI Aayog
d) GST Council
Answer :- d
7. Which of the following statements is correct in relation to GST?
a) The service provider can avail input credit only on services
b) The goods trader can avail input credit only on goods.
c) The service provider cam claim input credit on goods used for personal consumption.
d) The service provider can avail input credit on services as well as goods.
Answer :- d
8. Which one of the following statements regarding the levying, collecting, and distribution of customs duty is correct?
a) The union levies, collects, and distributes proceeds of customs duty between itself and the states.
b) The union levies, collects, and keeps all the proceeds of customs duty to itself.
c) The union levies and collects the tax, but all the proceeds are distributed among the states.
d) Only the surcharge levied on customs duty is shared between the union and the states.
Answer :- a
9. Which of the following best describes “tax expenditure”?
a) It is the expenditure incurred by the government during the collection of tax.
b) It is the revenue forgone by the government on account of difficulty in collection.
c) It is the revenue forgone by the government on account of difficulty in collection.
d) It is the expenditure made by the government from the income accrued through taxes.
Answer :- b
10. Which one of the following is not a feature of “value added tax”?
a) It is a method used to levy tax on goods as well as services.
b) It is a tax levied on value addition at each stage from production to sale to final consumer.
c) It is ultimately borne by the consumer.
d) It is levied by the state government on behalf of the central government.
Answer :- d
Taxation System of India Objective Questions
11. Which of the following items will be kept outside GST?
a) Petroleum products
b) Gems and jewellery
c) Alcohol for human consumption
d) Medicines
Answer :- c
12. Which of the following tax is not subsumed by GST?
a) Purchase tax
b) Entry tax
c) Octroi tax
d) Vehicle registration tax
Answer :- d
13. Consider the following statements regarding GST:
The responsibility for the administration of GST is with the respective state governments, while the centre has a role in providing legal framework for GST.
GST will follow the methodology of value added tax as is applicable in indirect taxation system followed at present.
Select the correct answer using the codes given below:
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 or 2
Answer :- b
14. On which of the following inputs, a manufacturer in goods can claim credit under the GST system?
Purchases of goods for consumption during production process
Purchases of services for purpose of business
Purchases of machinery for use in production
Purchases of goods for personal use
Select the correct answer using the codes given below:
a) 1 and 2 only
b) 2 and 3 only
c) 1, 2 and 3 only
d) 1, 2, 3 and 4
Answer :- c
15. Consider the following taxes:
Corporation tax
Customs duty
Wealth tax
Excise duty
Which of the above is/are indirect taxes?
a) 1 only
b) 2 and 4
c) 1 and 3
d) 1, 2, and 3
Answer :- b
16. Consider the following important sources of tax revenue for the central government budgeted for 2017-18:
Corportation tax
Taxes on income other than corporation tax
Customs
Union excise duties
Which one of the following is their correct descending order in terms of gross tax revenue?
a) 1-2-4-3
b) 1-2-3-4
c) 3-1-2-4
d) 2-3-1-4
Answer :- a
17. Under which of the following circumstances may “capital gains” arise?
Profits arising from sale of flats kept as stock by a property dealer
Profit arising from sale of flat to a salaried employee
Profit arising from sale of business premises to a business person
Select the correct answer using the codes given below:
a) 1 only
b) 2 and 3 only
c) 2 only
d) 1, 2, and 3
Answer :- b
18. Consider the following statements regarding taxation:
The tax structure is designed according to the ability of the people to pay taxes.
The tax is levied on people in proportion to the benefit they receive from government programmes
A progressive taxation system has larger impacts on the income of poor people than on the income of rich people
Select the correct answer using the codes given below:
a) 1 only
b) 2 and 3 only
c) 1 and 2 only
d) 1, 2 and 3
Answer :- a
19. An increase in tax-to-GDP ratio of a country indicates which of the following?
Increase in the proportion of formal sector of the economy
Rise in the income level of the people
Select the correct answer using the codes given below:
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer :- c
20. With reference to minimum alternate tax, consider the following statements:
It is a direct tax that facilitates the taxation of “zero tax companies”.
It is levied on high net worth individuals whose assets exceed a certain limit.
It is levied on portfolio investors to discourage withdrawal of investment from India
Which of the statements given above is/are correct?
a) 1 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2, and 3 only
Answer :- a