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Which one of the following taxes is not included in the Central Pool to be shared with the States according to the recommendations of Finance Commission of India ?

[amp_mcq option1=”Personal Income Tax” option2=”Corporate Profit Tax” option3=”Surcharge and Cess” option4=”Excise Duties” correct=”option3″]

This question was previously asked in

UPSC CDS-2 – 2024

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The correct option is C. The question asks which one of the listed taxes is *not* included in the Central Pool to be shared with the States according to the recommendations of the Finance Commission of India.

Finance Commissions recommend the vertical devolution (sharing) of Union taxes between the Union government and the states. The divisible pool of taxes typically includes major central taxes like Personal Income Tax, Corporate Tax, and Union Excise Duties (now largely subsumed under GST, whose division is also recommended). However, Surcharges and Cesses levied by the Central Government are generally not part of this divisible pool. They are usually levied for specific purposes and accrue solely to the Central Government, unless explicitly included in the divisible pool by specific legislation or Finance Commission recommendation for a particular cess/surcharge (which is rare).

The Constitution of India (Article 270) provides for the sharing of certain Union taxes with the States. Surcharges (Article 271) and Cesses are constitutionally distinct and are not ordinarily shared. Finance Commissions, in their recommendations, specify the percentage of the net proceeds of the divisible pool of Union taxes that should go to the states. The composition of this divisible pool has evolved over time but generally excludes surcharges and cesses.

The Fourteenth Finance Commission assigned different weights to the following parameters for distribution of tax proceeds to the States :

1. Income distance
2. Population
3. Demographic changes
4. Area

Arrange the aforesaid parameters in descending order in terms of their weights.

[amp_mcq option1=”1-2-3-4″ option2=”1-2-4-3″ option3=”1-3-2-4″ option4=”4-3-2-1″ correct=”option1″]

This question was previously asked in

UPSC CDS-2 – 2018

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The correct answer is A.

The Fourteenth Finance Commission (FFC) used the following criteria and weights for horizontal distribution of tax proceeds among states: Income Distance (50%), Population (2011) (27.5%), Demographic Change (17.5%), Area (15%), and Forest Cover (7.5%). Arranging the parameters given in the question (Income distance, Population, Demographic changes, Area) in descending order of their weights: Income Distance (50%) > Population (27.5%) > Demographic changes (17.5%) > Area (15%). This corresponds to the order 1-2-3-4.

The FFC notably increased the weight given to Income Distance and introduced Demographic Change (reflecting efforts towards population control) as a criterion, while also increasing the share of central taxes devolved to states to 42%. The use of the 2011 population data, instead of 1971 data used by previous commissions, also significantly altered the distribution.

11. Which one of the following taxes is not included in the Central Pool t

12. The Fourteenth Finance Commission assigned different weights to the fo