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Question

Difficulty: EasyFiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure

Regarding public finance and the taxation structure in India, which of the following statements are correct?

  1. Corporation Tax and Personal Income Tax are categorized as direct taxes in India.Answer
  2. Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services.Answer
  3. C
    Borrowings by the government are classified under Revenue Receipts in the Union Budget.
  4. D
    Land revenue and stamp duties are collected exclusively by the Union Government under Article 280.

Answer

The correct statements are that Corporation Tax and Personal Income Tax are categorized as direct taxes, and Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services.
Direct taxes like Personal Income Tax and Corporation Tax are borne by the entity that earns the income, while GST is a destination-based consumption tax collected indirectly through suppliers. Both statements accurately describe India's taxation categories.

Step-by-Step Solution

1
Identify the nature of direct vs. indirect taxes in India.
Income Tax and Corporation Tax are paid directly by taxpayers on their earnings (direct taxes). GST is levied on goods and services where the burden is shifted to the consumer (indirect tax).
Direct taxes apply to income/wealth directly, whereas indirect taxes apply to consumption and transactions.
2
Evaluate the budget classification of borrowings.
Borrowings increase government liabilities and are classified as Capital Receipts.
Revenue Receipts do not lead to a debt creation or reduction in assets, unlike Capital Receipts.
3
Evaluate constitutional assignment of state revenues.
Land revenue and stamp duties are state revenue sources under the State List of the Seventh Schedule.
Article 280 mandates the recommendation of tax devotions by the Finance Commission, not the collection of state taxes.

Key Concept

Classification of Direct vs. Indirect Taxes and Budgetary Heads (Capital vs. Revenue Receipts)
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Topics

Fiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure