MCQ
Public finance: budget, taxation, GST and fiscal policy MCQ - Practice Questions with Answers
Solve 10 Public finance: budget, taxation, GST and fiscal policy questions for RAS/RPSC preparation.
Practice questions
Q1Match List I with List II: List I: 1. Revenue receipts 2. Capital receipts 3. Revenue expenditure 4. Capital expenditure List II: a. Spending that normally does not create a durable asset b. Receipts that either create a liability or reduce an asset c. Receipts that do not create a future repayment liability d. Spending that creates assets or improves productive capacity Choose the correct code.
One should read budget items through two pairs: revenue versus capital and receipts versus expenditure. Revenue receipts, such as taxes and many non-tax receipts, do not create a future repayment liability. Capital receipts, such as market borrowing or loan recovery, either create a liability or reduce an asset. Revenue expenditure normally does not create a durable asset, while capital expenditure creates assets or improves productive capacity, such as roads, bridges or rail infrastructure.
Q2Which one of the following statements is incorrect about deficits and fiscal policy?
The incorrect statement assigns fiscal policy to the RBI and the Monetary Policy Committee. Fiscal and monetary policy are distinct: fiscal policy belongs to the government and Parliament through the Budget, tax laws and expenditure approval. Monetary policy belongs mainly to the RBI and the Monetary Policy Committee through interest rates and liquidity tools. Revenue deficit, primary deficit and fiscal deficit are described correctly in the other statements, so the institutional mix-up is the only error.
Q3Assertion (A): GST is described as an example of cooperative fiscal federalism. Reason (R): The GST Council under Article 279A gives the Union and the States a joint forum for GST rates, exemptions and administration. Choose the correct answer.
The assertion and the reason both follow. GST is not presented as a simple Union tax; it is a dual structure in which both levels of government depend on the revenue and negotiate rules. Article 279A created the GST Council, where the Union and States discuss rates, exemptions, model laws, thresholds and administration. That joint forum explains why GST is treated as cooperative fiscal federalism rather than only as an indirect tax reform.
Q4Which one of the following pairs correctly matches the tax with its classification?
Taxes differ by where the intended burden falls. Direct taxes are imposed on income, profit or wealth and are normally paid by the same person or entity on whom the burden is meant to fall. Income tax fits this definition. GST and customs duty are indirect taxes because they are imposed on goods and services or transactions and can be passed on through prices. Corporation tax is also given as a direct tax, not an indirect tax.
Q5Which one of the following statements about deficit concepts is incorrect?
The incorrect statement misstates the primary deficit formula. Primary deficit is defined as fiscal deficit minus interest payments, not revenue deficit minus interest payments. Revenue deficit tests whether current revenue receipts cover current revenue expenditure. Fiscal deficit measures the wider borrowing requirement. Public debt is different again: it is the stock built up from accumulated borrowing, while a deficit is an annual flow.
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6Assertion (A): The Finance Commission, rather than the GST Council, recommends the sharing of central taxes and grants-in-aid between the Union and the States. Reason (R): Article 280 provides for a Finance Commission every five years or earlier, while Article 279A creates the GST Council for GST rates, exemptions and administration. Choose the correct answer.
7Match List I with List II in the context of GST: List I: 1. CGST 2. SGST 3. IGST 4. Input tax credit List II: a. Applies to inter-state supply and imports b. Goes to the Union on intra-state supply c. Allows tax paid on inputs to be set off against output tax d. Goes to the State on the same intra-state supply Choose the correct match.
8Which constitutional provision is the basis of the Union Budget being placed before Parliament as the Annual Financial Statement?
9Consider the following statements about constitutional institutions in public finance: Statement 1: Article 112 provides the constitutional basis of the Union Budget as the Annual Financial Statement. Statement 2: Article 280 provides for the Finance Commission, which recommends tax devolution and grants-in-aid between the Union and the States. Which of the statements given above is/are correct?
10Consider the following statements about budget classification: Statement 1: Revenue receipts do not create a future repayment liability. Statement 2: Market borrowing is a capital receipt because it creates a liability. Statement 3: Salaries and pensions are examples of capital expenditure because they improve public service delivery. Which statements are correct?