Public finance: budget, taxation and GST MCQ - Practice Questions with Answers

Capital expenditure is linked with creating assets or reducing liabilities. Roads, bridges, irrigation structures, school buildings, hospitals, defence equipment and loans for capital projects are given as examples. A new irrigation structure therefore builds future capacity and fits capital expenditure. Salaries, interest payments and subsidies may be important public spending, but they run current services or meet current obligations. That is why they fall under revenue expenditure rather than the capital side of the budget.

The trap is that both institutions relate to Union-State finance, but they do not do the same work. The Finance Commission, under Article 280, recommends how tax proceeds should be shared between the Union and States, how the States' share should be divided among States, and what grants may be needed. The GST Council, under Article 279A, recommends GST rates, exemptions, thresholds and other GST matters. So the assertion of sameness is false, while the reason gives the correct distinction.

Deficit is distinct from debt. Fiscal deficit is the gap when total expenditure exceeds total receipts other than borrowings, so it shows the government’s borrowing requirement for the year. Public debt is different: it is the stock of past borrowings that remains to be repaid. The exam trap is to mix a yearly flow with an accumulated stock. Here, both definitions are exactly aligned.

The Fifteenth Finance Commission chaired by N.K. Singh recommended 41% of the divisible pool for States for the 2021-26 award period. This figure should be read as an award-period recommendation, not as a permanent constitutional percentage. Article 280 is correctly linked with the Finance Commission. Vertical devolution is the Union-State split, and horizontal devolution is distribution among States. The incorrect statement is therefore the claim that 41% is permanent.

Fiscal deficit is a yearly gap: total expenditure is higher than total receipts other than borrowings. It shows how much the government needs to borrow. Public debt is different; it is the accumulated stock of past borrowings still unpaid. The cue is the time frame. Deficit belongs to one financial year, while debt is the built-up burden from earlier borrowing. Since both statements preserve this distinction, they are both correct.