Ramesh Singh Test: Tax Structure In India - UPSC MCQ

1. The Minimum Alternate Tax (MAT) was first imposed in the financial year 1997-98: This statement is correct. MAT was introduced to ensure that companies that were showing zero or negative taxable income due to various exemptions still paid a minimum amount of tax based on their book profits.

2. The corporate tax rate for new manufacturing companies in India is higher than most ASEAN countries: This statement is incorrect. The corporate tax rate for new manufacturing companies in India is actually lower than most ASEAN countries. This move was made to attract investment and create jobs, making India competitive in the global market.

3. Dividend Distribution Tax (DDT) was a direct tax paid by the companies before distributing dividends to shareholders: This statement is correct. DDT was indeed a direct tax that companies had to pay before distributing dividends to their shareholders, which added to the tax burden on investors.

Therefore, the correct statements are 1 and 3 only.

1. Incidence of Tax - The point where tax looks as being imposed is known as the incidence of tax. (Incorrectly matched)

2. Direct Tax - The tax which has incidence and impact both at the same point. Examples include income tax and interest tax. (Correctly matched)

3. Regressive Taxation - This method has decreasing rates of tax for increasing value or volume on which the tax is being imposed. (Incorrectly matched)

4. Value Added Tax (VAT) - A tax collected at every stage of value addition, imposed and collected at different points of the value addition chain. (Correctly matched)

So, only pairs 2 and 4 are correctly matched.

The primary purpose of having an Ombudsman for taxpayer grievance resolution is to bridge the gap between tax departments and taxpayers for dispute resolution. This institution ensures a non-adversarial approach to resolving issues, thereby enhancing efficiency and fairness in addressing taxpayer grievances. Ombudsman systems in various countries have successfully protected taxpayer rights and resolved disputes without resorting to legal proceedings, emphasizing the importance of this mechanism in fostering trust and cooperation between taxpayers and tax authorities.

All three statements provided are correct based on the source material:

1. The Ombudsman for taxpayer grievance and rights protection was indeed formally set up by the government in 2011. This institution was initially established in 2010 and then officially set up to support taxpayers in grievance resolution.

2. The Aykar Seva Kendra (ASK) is indeed designed for effective and efficient taxpayer services. This aligns with the effort to handle both direct and indirect tax grievances efficiently.

3. The Fifteenth Finance Commission, chaired by N.K. Singh, did submit its final report for 2021-26, which included key recommendations such as devolution criteria and grants-in-aid. This report was tabled in Parliament in February 2021.

Thus, the correct answer is Option D, as all the statements are accurate and correctly represent the information provided.

1. Commodities Transaction Tax (CTT) : Levied on agricultural commodity futures - Incorrect. CTT is levied only on non-agricultural commodity futures at the rate of 0.01%.

2. Securities Transaction Tax (STT) : Introduced in 2004 - Correct. STT was introduced in India on 1 October, 2004.

3. Short Term Capital Gain (STCG) : Tax rate for assets sold within 12 months similar to income tax slab - Incorrect. Short Term Capital Gain (STCG) for assets sold within 12 months like shares, mutual funds, units of UTI, and zero coupon bonds is taxed at a flat rate of 15%, not according to the income tax slab.

4. Formality defined in terms of being part of the GST net suggests a formal sector payroll of 53 per cent of the non-agricultural workforce - Correct. Formality defined in terms of being part of the GST net suggests a formal sector payroll of 53% of the non-agricultural workforce.

Hence, pairs 2 and 4 are correctly matched.

India's rank for ease of paying taxes has improved from 156 in 2014 to 115 in 2019. This signifies a positive trend in the country's performance in this aspect over the specified period.

The Commodities Transaction Tax (CTT) in India aims to discourage excessive speculation in the market and bring parity between securities and commodities markets. By imposing this tax, the government seeks to prevent market distortions caused by speculative trading activities. Additionally, the CTT plays a role in widening the tax base by capturing transactions in the commodity derivatives market, similar to how the Securities Transaction Tax (STT) operates in the stock market.

1. As of 2019, India ranked 115th in the world for ease of paying taxes.
This statement is correct. India's rank in ease of paying taxes improved from 156 in 2014 to 115 in 2019.

2. In 2019, taxpayers in India took an average of 254 hours per year to pay taxes.
This statement is correct. The average time taken for taxpayers in India to pay taxes was between 250-254 hours per year.

3. Brazil has fewer tax payments per year compared to China.
This statement is incorrect. Brazil has 10 tax payments per year, while China has only 7.

Therefore, the correct answer is Option B.

1. Minimum Alternate Tax (MAT): Correctly matched. MAT was introduced in 1997-98 and is imposed on zero tax companies at a rate of 18.5% on their book profit.

2. Corporate Tax Rate for Domestic Companies: Incorrectly matched. The original rate for domestic companies was 30%, not 25%.

3. Dividend Distribution Tax (DDT): Correctly matched. DDT is a direct tax on dividends paid to shareholders before they receive the dividend.

4. Collection Rate: Incorrectly matched. The collection rate is the ratio of total customs revenue to the total value of imports for a year, not exports.

Thus, pairs 1 and 3 are correctly matched.

- Statement 1: This statement is incorrect. In a progressive taxation system, the tax rate increases as the value or volume on which the tax is imposed increases, not decreases.

- Statement 2: This statement is correct. In a proportional taxation system, the tax rate remains constant irrespective of the level of income or production.

- Statement 3: This statement is correct. Horizontal equity means that individuals in identical or similar situations pay identical or similar taxes.

Thus, the correct statements are 2 and 3 only, making the correct answer Option C: 2 and 3 Only.