Fiscal Policy & Revenue

41. Fiscal deficit in the Union Budget means :

Fiscal deficit in the Union Budget means :

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the difference between current expenditure and current revenue.
net increase in the borrowings of the Union Government from the Reserve Bank of India.
the sum of budgetary deficits and the net increase in internal and external borrowings.
None of the above
This question was previously asked in
UPSC CAPF – 2023
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Fiscal deficit represents the total borrowing requirement of the government. It is defined as the difference between the government’s total expenditure and its total receipts (excluding borrowings). This difference must be financed by borrowing from domestic sources (like the market, banks, public) and external sources. Therefore, the fiscal deficit is equal to the net increase in the government’s liabilities, which primarily comprises internal and external borrowings. Option C, despite potentially awkward phrasing (“sum of budgetary deficits and…”), is the only option that directly relates fiscal deficit to the total borrowing (net increase in internal and external borrowings) needed to finance the government’s gap. The magnitude of the fiscal deficit is precisely equal to the net increase in total borrowings (including other liabilities and accounting for cash balance changes, which are usually minor).
Fiscal deficit is the difference between government spending and its revenue (excluding borrowings), representing the total amount the government needs to borrow. This borrowed amount is the net increase in its liabilities, including internal and external borrowings.
Option A describes revenue deficit. Option B describes borrowing from the RBI, which is only one part of internal borrowing and not the definition of the entire fiscal deficit. The concept of “budgetary deficits” in Option C is confusing, but the latter part, “net increase in internal and external borrowings,” accurately reflects how the fiscal deficit is financed and its magnitude.

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42. GST is a/an

GST is a/an

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destination-based consumption tax
origin-based production tax
destination-based sales tax on transaction
origin-based tax on sales transaction
This question was previously asked in
UPSC CAPF – 2022
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The correct answer is A) destination-based consumption tax.
– Goods and Services Tax (GST) is levied at the point of consumption. This means the tax accrues to the consuming state rather than the producing state.
– It is a tax on the consumption of goods and services. It is applied to the value addition at each stage of the supply chain, but the burden is ultimately borne by the final consumer.
– Before GST, India had a complex indirect tax structure with taxes levied at various points by both central and state governments (like excise duty, service tax, VAT, etc.). GST aimed to subsume most of these taxes into a single, unified tax.
– The destination-based nature of GST differs from origin-based taxes (like manufacturing excise duty), where the tax is levied at the point of production.

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43. The proceeds from disinvestment are included as

The proceeds from disinvestment are included as

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non-tax revenue
revenue receipts
capital receipts
tax revenue
This question was previously asked in
UPSC CAPF – 2022
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The correct option is C. The proceeds from disinvestment are included as capital receipts.
– Government receipts are broadly classified into Revenue Receipts and Capital Receipts.
– Revenue Receipts are those receipts that do not create a liability or lead to a reduction in assets. Examples include tax revenues (income tax, corporation tax, etc.) and non-tax revenues (fees, fines, interest receipts, dividends from PSUs).
– Capital Receipts are those receipts that either create a liability (like borrowings) or lead to a reduction in financial assets (like disinvestment or recovery of loans).
– Disinvestment involves the sale of government’s equity stake in Public Sector Undertakings (PSUs). This reduces the government’s financial assets (its ownership in PSUs). Therefore, the money received from disinvestment is treated as a Capital Receipt.
– Capital receipts are part of the Capital Budget of the government.
– Capital receipts are used to finance capital expenditure (like infrastructure development) or to repay debt.
– Disinvestment is a way for the government to raise funds, improve efficiency of PSUs, and promote market competition.

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44. Which one of the following functions as an automatic stabilizer in the

Which one of the following functions as an automatic stabilizer in the context of fiscal and monetary policies of an economy?

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Personal income tax
Reverse repo rate of bank
Open market operation
Bond price
This question was previously asked in
UPSC CAPF – 2021
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Personal income tax functions as an automatic stabilizer because tax revenue automatically increases during economic booms (as incomes rise) and decreases during recessions (as incomes fall), helping to moderate the business cycle without requiring explicit policy changes.
Automatic stabilizers are government programs or policies that counteract the business cycle automatically. During an economic downturn, they stimulate the economy by increasing spending or reducing taxes (e.g., unemployment benefits, progressive income tax). During an upturn, they restrain the economy by decreasing spending or increasing taxes.
Reverse repo rate and open market operations are tools of monetary policy used by the central bank, requiring deliberate action (discretionary policy), not automatic adjustment. Bond prices are market outcomes, not policy tools acting as stabilizers. Other examples of automatic stabilizers include corporate profit taxes and welfare benefits.

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45. Which one of the following has the largest contribution to the Gross T

Which one of the following has the largest contribution to the Gross Tax Revenue of Government of India in 2019-20 (BE) ?

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Goods and Services Tax
Corporation Tax
Customs
Union Excise Duties
This question was previously asked in
UPSC CAPF – 2020
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According to the Union Budget 2019-20 Budget Estimates (BE), Goods and Services Tax (GST) was projected to be the largest component of the Gross Tax Revenue of the Government of India. The BE for GST was ₹6,63,343 crore, while Corporation Tax BE was ₹6,01,000 crore, Income Tax (other than Corporation Tax) BE was ₹5,69,000 crore, Union Excise Duties BE was ₹2,48,000 crore, and Customs BE was ₹1,38,000 crore. While actual collections can differ, based on the budget estimates, GST was the largest contributor.
Gross Tax Revenue comprises taxes on income and expenditure, taxes on property and capital transactions, taxes on commodities and services, etc. Major components include Corporation Tax, Income Tax, Goods and Services Tax (GST), Union Excise Duties, and Customs.
The introduction of GST in 2017 significantly altered the structure of India’s indirect tax collection. The relative contributions of major taxes like Corporation Tax, Income Tax, and GST can vary year to year based on economic performance and policy changes.

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46. If farmers’ loans are waived in India, how will it affect the aggregat

If farmers’ loans are waived in India, how will it affect the aggregate demand in the economy?
1. Private consumption impact via increase in private sector net wealth
2. Public sector impact via changes in government expenditure/taxes
3. Crowding-out impact via higher borrowing by State Governments
4. Crowding-in impact via higher credit availability as bank NPAs fall
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1, 2 and 3 only
1, 2, 3 and 4
3 and 4 only
1 and 2 only
This question was previously asked in
UPSC CAPF – 2018
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Farmer loan waivers affect aggregate demand through multiple channels, including increasing private consumption, impacting government finances (expenditure/taxes), and potentially leading to crowding out of private investment due to increased government borrowing. The impact on credit availability via falling NPAs (crowding-in) is less certain or potentially offset by other factors like moral hazard and fiscal strain.
– Aggregate demand (AD) is influenced by Consumption (C), Investment (I), Government Spending (G), and Net Exports (X-M).
– Loan waivers directly affect farmers’ disposable income (boosting C) and government finances (impacting G or taxes, affecting C/I).
– Increased government borrowing to fund waivers can raise interest rates, potentially reducing private investment (crowding out I).
– The impact on bank NPAs and subsequent credit availability (crowding in or out) is complex and debated, not a guaranteed positive effect.
1. **Private consumption:** Reduced debt burden increases farmers’ disposable income, leading to higher consumption (C). This directly increases aggregate demand.
2. **Public sector impact:** The cost is borne by the government (usually state governments). This requires either increased government expenditure (G) for the waiver itself or adjustments in other spending/taxation, which can impact AD components.
3. **Crowding-out:** State governments often finance waivers through borrowing. Higher government borrowing increases demand for funds, potentially raising interest rates and reducing private sector investment (I). This crowds out private investment.
4. **Crowding-in:** While NPAs might technically decrease immediately post-waiver, the fiscal cost, potential for future waivers (moral hazard), and overall risk perception can make banks cautious about lending to the agricultural sector or state governments, potentially leading to overall credit squeeze or crowding out rather than crowding in. Therefore, the positive ‘crowding-in’ effect via falling NPAs is not a universally accepted or certain outcome for aggregate demand stimulus.

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47. Which one of the following statements with regard to the Union Budget

Which one of the following statements with regard to the Union Budget of India for the year 2015-2016 is *NOT* correct ?

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India Financial Code to be introduced soon in the Parliament
Allocation in defence sector is kept unchanged at around 5 % of GDP
A Student Financial Aid Authority will be instituted
No change in the rate of personal income tax
This question was previously asked in
UPSC CAPF – 2015
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The statement “Allocation in defence sector is kept unchanged at around 5 % of GDP” is NOT correct.
Defence allocation as a percentage of India’s GDP has typically been in the range of 2-2.5% in the years surrounding 2015-2016, not around 5%. A figure of 5% of GDP for defence spending would represent a significant portion of the national economy.
The Union Budget 2015-2016 did propose the introduction of the India Financial Code, the institution of a Student Financial Aid Authority, and generally maintained personal income tax rates with some adjustments to deductions and surcharges. The defence budget allocation, while a large absolute figure, was significantly less than 5% when measured as a proportion of GDP.

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48. Under Section 10(26) of the Income Tax Act, which of the following cat

Under Section 10(26) of the Income Tax Act, which of the following category of people are exempted from income tax ?

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Members of the Scheduled Tribes in Chhattisgarh
Members of the Scheduled Tribes and the Scheduled Castes in Special Category States
Members from the Economically Backward Class in All States
Members of the Scheduled Tribes in States of Manipur, Mizoram, Nagaland and Tripura
This question was previously asked in
UPSC CAPF – 2015
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Under Section 10(26) of the Income Tax Act, members of the Scheduled Tribes in States of Manipur, Mizoram, Nagaland and Tripura are exempted from income tax.
Section 10(26) of the Income Tax Act, 1961, provides exemption from income tax on income arising from any source in the areas specified in the clause or income by way of dividend or interest on securities to a member of a Scheduled Tribe residing in these specific areas.
The exemption under Section 10(26) applies to members of Scheduled Tribes residing in specified areas, primarily the North Eastern states of Arunachal Pradesh, Mizoram, Meghalaya, Nagaland, Tripura, and the Ladakh region in Jammu and Kashmir. Option D lists four of these states where the exemption is applicable. The exemption is not applicable to STs in all states or to SCs.

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49. Data presented in Interim Budget for 2014 – 2015 reveal that for the f

Data presented in Interim Budget for 2014 – 2015 reveal that for the financial year 2013 – 2014, the revised estimates do not show a decline in :

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Revenue deficit
Effective revenue deficit
Fiscal deficit
Primary deficit
This question was previously asked in
UPSC CAPF – 2014
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According to the Interim Budget presented in February 2014, the revised estimates for the financial year 2013-14 showed a decline in Revenue Deficit (from 3.3% to 3.2% of GDP), Effective Revenue Deficit (from 2.2% to 2.1% of GDP), and Fiscal Deficit (from 4.8% to 4.6% of GDP) compared to the Budget Estimates. However, the Primary Deficit showed an increase, from 1.3% of GDP (Budget Estimate) to 1.4% of GDP (Revised Estimate). Therefore, the Revised Estimates for 2013-14 did not show a decline in Primary Deficit.
In the Interim Budget 2014-15, the Revised Estimates for FY 2013-14 indicated an increase in the Primary Deficit compared to the Budget Estimates, while other deficit measures showed a slight decline.
Primary Deficit is the fiscal deficit minus interest payments. It indicates the government’s borrowing requirement excluding the interest burden from past debts. The increase in the primary deficit suggested that even excluding interest payments, the government’s non-interest expenditure exceeded its non-debt receipts to a greater extent than initially estimated.

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50. Which of the statements given below is/are correct ? 1. In India, th

Which of the statements given below is/are correct ?

  • 1. In India, the provisions of General Anti-Avoidance Rule (GAAR) will be implemented with effect from 1 April 2015
  • 2. The provisions of GAAR were aimed at checking tax avoidance by overseas investors

Select the correct answer using the code given below :

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC CAPF – 2014
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Statement 1 is incorrect. The General Anti-Avoidance Rule (GAAR) was introduced in the Finance Act, 2012, with an initial proposed date of implementation from 1 April 2014. However, its implementation was postponed based on recommendations from the Shome Committee. The Finance Act, 2015, deferred the implementation of GAAR to 1 April 2017. Therefore, it was not implemented with effect from 1 April 2015.
Statement 2 is correct. While GAAR is applicable to all taxpayers (both residents and non-residents) engaging in tax avoidance arrangements, a significant part of the concern it aimed to address was tax avoidance by overseas investors structuring their investments or transactions in India to exploit tax treaties or other loopholes. Thus, checking tax avoidance by overseas investors was indeed one of the aims of the GAAR provisions.
– GAAR implementation date: 1 April 2017.
– GAAR’s purpose: Counter aggressive tax planning and arrangements whose main purpose is to obtain a tax benefit.
– GAAR applies to: Any taxpayer (resident or non-resident).
GAAR empowers tax authorities to deny tax benefits arising from arrangements considered impermissible avoidance arrangements. An arrangement is considered impermissible if its main purpose is to obtain a tax benefit and it lacks commercial substance, creates rights/obligations not ordinarily created, or involves transactions that are not at arm’s length. Concerns were raised by foreign investors about the potential for discretionary application of GAAR, which led to the deferral of its implementation.

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