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India Cluster818 Verified Questions
Canons of Taxation & Tax Policy GK Questions & Answers
The conceptual foundation of public finance and revenue design originated in Adam Smith's classic treatise, The Wealth of Nations (1776), which articulated the four classical canons of taxation: Equality (ability to pay), Certainty, Convenience of payment, and Economy in collection. Modern public economics has expanded these principles to include the canons of Productivity, Elasticity, Diversity, and Simplicity. A central macroeconomic proposition in supply-side fiscal policy is the Laffer Curve, postulated by economist Arthur Laffer in 1974, illustrating an inverted U-shaped relationship between statutory tax rates and total tax revenues, demonstrating that tax revenues collapse to zero at rates of 0% and 100%, and peak at an optimal rate. In India, post-1991 tax policy has been steered by high-level expert commissions, notably the Tax Reforms Committee (1991–1993) chaired by Dr. Raja J. Chelliah, which advocated rationalizing high marginal tariff and income tax rates while broadening the tax base. Subsequently, the Vijay Kelkar Task Forces on Direct and Indirect Taxes (2002) recommended eliminating multiple tax exemptions, reducing compliance transaction costs, and transitioning toward a unified Goods and Services Tax (GST) framework to enhance tax buoyancy and institutional revenue productivity.
Goods and Services Tax (GST) in India is categorized as which broad type of taxation?
Verified Explanation
GST is a destination-based multi-stage indirect tax levied on the value addition at each transaction point.
2ID: GK-ECON-00097
mediumTaxation Gst
The "Inverted Duty Structure" in indirect taxation refers to which distortionary tariff scenario?
Verified Explanation
An inverted duty structure results in accumulation of unutilized input tax credits (ITC) because tax paid on inputs is higher than on manufactured output.
3ID: GK-ECON-00125
mediumTaxation Gst
The "Tax Deducted at Source" (TDS) mechanism in Indian income taxation is anchored on which core tax administration principle?
Verified Explanation
TDS ensures steady revenue flow to the government, prevents tax evasion, and traces transaction footprints at source.
4ID: GK-ECON-00138
hardTaxation Gst
The "Angel Tax" in Indian corporate taxation, enacted under Section 56(2)(viib) of the Income Tax Act, was designed to tax which funds received by unlisted companies?
Verified Explanation
Section 56(2)(viib) treated excess share premium received over fair market value as taxable income to prevent round-tripping of unaccounted capital.
5ID: GK-ECON-00244
hardTaxation & GST
In Indian taxation law, the 'General Anti-Avoidance Rule' (GAAR), introduced to target aggressive tax avoidance and impermissible avoidance arrangements (IAA), came into effect from:
Verified Explanation
GAAR provisions (Chapter X-A of the Income-tax Act, 1961) formulated on the recommendations of the Parthasarathi Shome Committee officially came into force on 1 April 2017 (Assessment Year 2018-19).
6ID: GK-ECON-00361
easyTaxation & GST
Which of the following is categorized as a Direct Tax in the Indian taxation system?
Verified Explanation
Income Tax is a direct tax levied directly on the personal income or corporate profits of the taxpayer and cannot be shifted onto others.
7ID: GK-ECON-00396
hardTaxation & GST
The 'Inverted Duty Structure' in Indian taxation refers to a condition where:
Verified Explanation
An Inverted Duty Structure occurs when the import duty/tax on raw material inputs is higher than on the finished end-product, creating domestic manufacturing disincentives and GST refund accumulation.
8ID: GK-ECON-00628
mediumTaxation & GST
What is a 'Cess' in Indian taxation, and how does it differ fundamentally from general direct and indirect taxes?
Verified Explanation
A Cess is a tax-on-tax levied under Article 271 of the Constitution for a specific purpose (such as Health and Education Cess); unlike regular taxes under Article 270, its yield is not shared with the States.
9ID: GK-ECON-00805
hardTaxation & GST
Under Section 115BAA introduced into the Income Tax Act via the Taxation Laws (Amendment) Act 2019, what concessional base corporate tax rate was offered to domestic companies foregoing specified exemptions?
Verified Explanation
The Taxation Laws (Amendment) Act, 2019 inserted Section 115BAA into the Income Tax Act, 1961, providing domestic companies the option to pay income tax at a concessional base rate of 22% (effective tax rate of 25.17% inclusive of a 10% surcharge and 4% cess). To avail of this concessional rate, companies must forego specific deductions, tax holidays, and Minimum Alternate Tax (MAT) credit provisions.
10ID: GK-ECON-00806
easyTaxation & GST
In indirect taxation, what is meant by the 'Cascading Effect' of taxes?
Verified Explanation
The Cascading Effect of taxation refers to the phenomenon of 'tax on tax', which occurs when a tax is levied at each successive stage of the production and distribution chain without allowing input tax credit for taxes paid at earlier stages. This artificially inflates consumer prices. A central objective of introducing GST was to eliminate this cascading effect through an uninterrupted input tax credit mechanism across goods and services.