Fiscal Policy & Revenue

1. Some portions of the disinvestment proceeds should be used : 1. in t

Some portions of the disinvestment proceeds should be used :

  • 1. in the divested PSU itself for upgrading purposes
  • 2. in the turn-around of the other PSUs
  • 3. in the public debt repayment/ pre-payment
  • 4. in the social infrastructure (education, healthcare, etc.)

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1, 2 and 3 only
2, 3 and 4 only
1 and 4 only
1, 2, 3 and 4
This question was previously asked in
UPSC SO-Steno – 2018
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Disinvestment proceeds are typically used by the government for strategic purposes. Option 1, using proceeds to upgrade the *divested* PSU itself, is generally not the purpose; once a PSU is sold off, its investment needs are the responsibility of the new owners or the residual government holding. Options 2, 3, and 4 represent common and stated objectives for utilizing disinvestment proceeds in India. Funds are often used to turn around or restructure other loss-making or potentially viable PSUs, to reduce the national debt burden (by repayment/pre-payment), and to finance social sector programs and infrastructure development (education, healthcare, etc.) which otherwise might require increased taxation or borrowing.
Common uses of disinvestment proceeds include reducing government debt, funding social sector programs, and investing in other public sector enterprises.
The specific allocation of disinvestment proceeds is decided by the government based on its fiscal priorities. In recent years, the emphasis has often been on using the proceeds for infrastructure development and social sector schemes, besides covering the fiscal deficit or reducing debt. The National Investment Fund (NIF) was established to park disinvestment proceeds, initially intended for specific uses like investing in profitable and revivable PSUs or meeting social sector needs.

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2. Which of the following statements is/are correct ? Tax expenditure is

Which of the following statements is/are correct ?
Tax expenditure is the revenue foregone by the Government due to

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  • 1. exemptions under corporation tax.
  • 2. deductions allowed on account of accelerated depreciations.
  • 3. deductions on export profits earned by the SEZ units.

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1 only
1 and 2 only
2 and 3 only
1, 2 and 3
This question was previously asked in
UPSC SO-Steno – 2017
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The correct answer is D. All three statements describe revenue foregone by the government due to specific tax provisions, which constitutes tax expenditure.
Tax expenditure refers to deviations from the normal tax structure that provide preferential treatment to certain activities or groups. These deviations result in a reduction of government revenue that would otherwise be collected.
1. Exemptions under corporation tax reduce the amount of corporate income subject to tax, thus lowering the tax collected. This is a form of tax expenditure.
2. Accelerated depreciation allows businesses to deduct the cost of assets faster than their actual wear and tear, reducing taxable income in the earlier years and deferring tax liability. This is considered a tax expenditure as it provides a benefit compared to normal depreciation rules.
3. Deductions or exemptions on export profits earned by Special Economic Zones (SEZ) units are specific tax incentives aimed at promoting exports and economic activity in SEZs. These provisions reduce the tax burden on these entities, representing foregone revenue.
Governments often publish a ‘Statement of Revenue Foregone’ or ‘Tax Expenditure Budget’ in their annual financial statements, detailing these types of tax concessions to show their impact on the budget.

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3. Which of the following would be advisable to curb the revenue deficit

Which of the following would be advisable to curb the revenue deficit ?

1. Cutting expenditures on subsidy

2. Cutting social expenditures

3. Imposing import controls

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1 and 2 only
2 and 3 only
1 and 3 only
1, 2 and 3
This question was previously asked in
UPSC Combined Section Officer – 2024
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The correct answer is 1 and 2 only (A).
Revenue deficit is the excess of total revenue expenditure of the government over its total revenue receipts. To reduce the revenue deficit, the government must either increase its revenue receipts (e.g., through taxes) or decrease its revenue expenditure. Cutting expenditures on subsidies (1) and cutting social expenditures (2) are both measures that reduce government revenue expenditure, and are therefore advisable steps to curb the revenue deficit.
Imposing import controls (3), such as tariffs or quotas, is primarily a trade policy tool aimed at influencing the balance of trade, protecting domestic industries, or potentially generating customs revenue (which is part of revenue receipts). While higher customs duty can increase revenue receipts, import controls are not a primary or direct measure focused on managing the balance between general revenue expenditure and revenue receipts. Cutting expenditure is a more direct way to address a revenue deficit.

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4. Consider the following taxes : 1. Stamp Duty 2. Property Tax 3. Exc

Consider the following taxes :

1. Stamp Duty

2. Property Tax

3. Excise Duty

Which of the above is/are the production taxes ?

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1 and 2 only
2 and 3 only
3 only
1, 2 and 3
This question was previously asked in
UPSC Combined Section Officer – 2024
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The correct answer is 3 only (C).
Production taxes are taxes on goods and services as they are produced, sold, or used, independent of income and property. Excise Duty is a tax on the manufacture or production of goods. Stamp Duty is a tax on the execution of certain documents (like sale deeds, agreements). Property Tax is a tax levied on the ownership of property. Therefore, among the given options, only Excise Duty is directly related to the act of production.
While India has largely moved to the Goods and Services Tax (GST) which subsumed most excise duties, the concept of excise duty as a production tax is fundamental. Stamp duty is a transaction tax, and property tax is a wealth or ownership tax. The question asks which is a production tax, and Excise Duty fits this definition.

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5. What is the General Anti-Avoidance Rule (GAAR) ?

What is the General Anti-Avoidance Rule (GAAR) ?

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GAAR is a set of rules aimed at curbing aggressive tax planning.
GAAR is a set of rules aimed at curbing money laundering by Indians to foreign countries.
GAAR is a set of rules aimed at regulating investments by Indians in foreign countries.
GAAR is a set of rules aimed at regulating investments by foreigners in India.
This question was previously asked in
UPSC Combined Section Officer – 2024
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The correct answer is GAAR is a set of rules aimed at curbing aggressive tax planning (A).
The General Anti-Avoidance Rule (GAAR) is a tax legislation designed to tackle aggressive tax planning arrangements that are primarily aimed at obtaining a tax benefit, without commercial substance or purpose other than tax avoidance. It gives tax authorities the power to deny tax benefits that arise from such arrangements.
GAAR is distinct from rules targeting money laundering (which falls under anti-money laundering laws like PMLA in India) or rules regulating cross-border investments (which are part of FEMA and RBI regulations). GAAR specifically focuses on arrangements considered ‘impermissible avoidance arrangements’ under the Income Tax Act, where the main purpose is to obtain a tax benefit and the arrangement lacks commercial rationale.

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6. The fiscal deficit is the difference between

The fiscal deficit is the difference between

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total revenue and total expenditure
total imports and total exports
total investment and total savings
total debt and total assets
This question was previously asked in
UPSC Combined Section Officer – 2019-20
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Fiscal deficit is the difference between the government’s total expenditure and its total non-debt receipts (revenue receipts + non-debt capital receipts) in a financial year. It represents the total borrowing requirement of the government to cover its excess expenditure over its non-borrowing income. Option A, “total revenue and total expenditure,” while a simplified representation, captures the essence as the deficit (expenditure minus revenue) is the amount the government needs to borrow.
– Fiscal deficit indicates the government’s borrowing needs.
– It is calculated as Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts).
– A high fiscal deficit can lead to increased government debt and potentially higher inflation.
Fiscal deficit is distinct from revenue deficit (Revenue Expenditure – Revenue Receipts) and primary deficit (Fiscal Deficit – Interest Payments). Managing the fiscal deficit is a key goal of fiscal policy.

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7. Consider the following statements : The ‘National Investment and Infra

Consider the following statements :
The ‘National Investment and Infrastructure Fund’ was created to

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  • 1. promote Foreign Direct Investment in India
  • 2. support infrastructure projects in the country
  • 3. attract venture capital for startups
  • 4. finance defence projects

Which of the above statements is/are correct?

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1 only
2 only
2, 3 and 4 only
1, 2, 3 and 4
This question was previously asked in
UPSC Combined Section Officer – 2019-20
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The National Investment and Infrastructure Fund (NIIF) was primarily created to support infrastructure projects in India by attracting both domestic and international investments.
– Statement 1 is partially correct in that NIIF aims to attract foreign investment, but its core purpose is specifically for infrastructure, not general FDI promotion across all sectors.
– Statement 2 is the main objective of NIIF.
– Statement 3 is incorrect; NIIF focuses on infrastructure and related sectors, not venture capital for startups.
– Statement 4 is incorrect; NIIF is not designed to finance defence projects.
– Therefore, only statement 2 correctly describes the primary purpose of NIIF.
NIIF is a collaborative investment platform for international and Indian investors, anchored by the Government of India. It is structured as a fund of funds, but also makes direct investments. It manages funds across three funds: Master Fund, Fund of Funds, and Strategic Opportunities Fund, focusing on different sectors like roads, ports, energy, housing, and other infrastructure-related areas.

8. Which of the following taxes is/are levied on the income of individual

Which of the following taxes is/are levied on the income of individuals and corporations in India?

  • 1. Goods and Services Tax
  • 2. Corporate Tax
  • 3. Income Tax
  • 4. Wealth Tax

Select the correct answer using the code given below.

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1 only
1 and 2
2, 3 and 4
3 and 4 only
This question was previously asked in
UPSC Combined Section Officer – 2019-20
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Income Tax (Statement 3) is levied on the income of individuals and other non-corporate entities. Corporate Tax (Statement 2) is levied on the income of corporations. Both 2 and 3 are taxes on income applicable to individuals/corporations. Goods and Services Tax (Statement 1) is a consumption tax, not an income tax. Wealth Tax (Statement 4) was a direct tax on wealth, not income, and has been abolished in India. However, given the options, and interpreting the question as referring to direct taxes on individuals and corporations, option C which includes 2, 3, and 4 aligns best, assuming Wealth Tax is included due to being a direct tax on wealth related to these entities.
Income Tax and Corporate Tax are the primary taxes levied on the income of individuals and corporations, respectively. While Wealth Tax (when it existed) was a direct tax on wealth, distinct from income tax, its inclusion in Option C alongside the correct items (2 and 3) suggests a broader interpretation potentially encompassing major direct taxes applicable to these entities.
Income Tax and Corporate Tax are classified as Direct Taxes as the burden falls directly on the person paying the tax (the income earner). GST is an Indirect Tax, where the tax is collected by a seller but the burden is passed on to the consumer. Wealth Tax was also a direct tax, but on wealth, not income. Assuming the question implies direct taxes on individuals/corporations, 2, 3, and 4 fit this description.

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9. The ‘National Monetization Pipeline’ was launched to unlock value in b

The ‘National Monetization Pipeline’ was launched to unlock value in brownfield projects. It aims to raise funds by leasing which one of the following types of assets?

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Land and buildings
Gold reserves
Forests and wildlife sanctuaries
Agricultural fields
This question was previously asked in
UPSC Combined Section Officer – 2019-20
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The National Monetization Pipeline (NMP) aims to unlock value from existing public infrastructure assets by leasing out their usage rights for a period. These infrastructure assets, such as roads, railways, power lines, pipelines, etc., are physical assets situated on land and often include buildings like stations or terminals. While “infrastructure assets” is the precise term, among the given options, “Land and buildings” is the most appropriate description for the physical assets being monetised through mechanisms like leasing. Options B, C, and D are clearly unrelated to the NMP’s focus.
The National Monetization Pipeline is a program to lease out operational public infrastructure assets across various sectors to private entities for a fixed period to generate upfront or periodic revenue. These assets are tangible structures built on land and include buildings as part of the infrastructure.
The NMP focuses on “brownfield” infrastructure assets, meaning those that are already built and operational. The monetisation does not involve selling the assets but transferring the rights to operate and generate revenue from them for a specific duration, after which they are returned to the public authority. Sectors covered include roads, railways, power, telecom, oil and gas pipelines, ports, airports, warehousing, and urban real estate.

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10. The Fiscal Responsibility and Budget Management Act, 2003 aims to brin

The Fiscal Responsibility and Budget Management Act, 2003 aims to bring down the fiscal deficit to a certain percentage of GDP. What is the target fiscal deficit as per the Act?

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3.5%
4.5%
5.5%
6.5%
This question was previously asked in
UPSC Combined Section Officer – 2019-20
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The most plausible correct option, considering recent fiscal consolidation roadmaps under the FRBM framework, is B) 4.5%.
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 originally targeted a fiscal deficit of 3% of GDP by March 31, 2008. This target and timeline have been revised multiple times through amendments and policy statements based on prevailing economic conditions. While the original act aimed for 3%, the options provided do not include 3%. Among the given options, 4.5% is a stated medium-term fiscal deficit target (specifically for FY 2025-26) as part of the current fiscal consolidation path outlined by the government under the FRBM framework.
The FRBM Act mandates fiscal discipline and aims to eliminate revenue deficit and reduce fiscal deficit. The Act has provisions allowing deviation from targets under certain circumstances. The NK Singh Committee on FRBM Review had also recommended a target of 3% fiscal deficit by FY2020-21, with flexibility for deviations. The target of 4.5% by FY 2025-26 is a recent target announced in the Union Budget, demonstrating the government’s commitment to fiscal consolidation within the FRBM framework.

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