Ramesh Singh Test: Tax Structure In India - UPSC MCQ

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.

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.

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.

- 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.

The Faceless Assessment Scheme has made it much easier for people and businesses in India to pay their taxes. Here’s how:

• It removes the need for physical meetings between taxpayers and tax officers.
• The process is now completely online, making it faster and more transparent.
• This approach reduces the chances of corruption and errors.
• Taxpayers can now submit documents and replies digitally, saving time and effort.

• Statement 1: Correct. The Union Budget 2020 abolished DDT effective April 1, 2020, shifting the tax burden to shareholders, who now pay tax on dividends based on their income tax slabs.
• Statement 2: Correct. The Taxation Laws (Amendment) Act, 2019, introduced a 15% corporate tax rate (plus surcharge and cess, ~17.01%) for new manufacturing companies incorporated on or after October 1, 2019, provided they forgo exemptions and start production by March 31, 2024 (extended in some cases).
• Statement 3: Incorrect. While the Tax Ombudsman was phased out post-2020, the Faceless Assessment Scheme (introduced in 2020) is not a direct replacement for grievance redressal. Instead, mechanisms like CPGRAMS and e-Nivaran handle taxpayer grievances, with Faceless Assessment focusing on tax scrutiny and compliance.

Thus, only statements 1 and 2 are correct.

Securities Transaction Tax (STT) is an example of a direct tax in India.

• Direct taxes are paid directly by individuals or organisations to the government.
• STT is paid by investors when they buy or sell shares on the stock exchange, and cannot be passed on to others.
• Unlike indirect taxes like GST or Excise Duty, direct taxes are not included in the price of goods or services.

• Pair 1: Correct. The Faceless Assessment Scheme, launched in August 2020, enables automated, online tax assessments to enhance transparency and reduce corruption.
• Pair 2: Correct. e-Nivaran is a digital platform introduced by the Income Tax Department to address taxpayer grievances related to income tax, such as refund delays or assessment issues.
• Pair 3: Incorrect. The GSTN is a technology platform for managing Goods and Services Tax (GST), an indirect tax, not direct tax compliance.
• Pair 4: Correct. Aykar Seva Kendra (ASK) centers are established by the Income Tax Department to provide efficient taxpayer services, including assistance with tax return filing and query resolution.

Thus, pairs 1, 2, and 4 are correctly matched.

The primary purpose of the Faceless E-Assessment Scheme, launched in August 2020, is to streamline tax assessments through an automated, online process that eliminates physical interactions between taxpayers and tax officers. This enhances transparency, reduces corruption, and improves efficiency in tax scrutiny.

• Option A: Incorrect, as the scheme focuses on process efficiency, not increasing tax burdens.
• Option C: Incorrect, as it pertains to income tax, not GST.
• Option D: Incorrect, as penalties are subject to review under the scheme’s protocols.

• Statement 1: Correct. The Sixteenth Finance Commission was constituted in December 2023, chaired by Dr. Arvind Panagariya, to recommend tax devolution and fiscal transfers for 2026-31.
• Statement 2: Correct. The Faceless Appeal Scheme, launched in September 2020, enables taxpayers to file appeals against tax assessments online, without personal hearings, to enhance efficiency and transparency.
• Statement 3: Correct. The Vivad Se Vishwas Scheme, initially introduced in 2020, was relaunched in the Union Budget 2024 to settle pending direct tax disputes by offering taxpayers reduced penalties and interest waivers.

Thus, all three statements are correct.