UPSC CIVIL SERVICES PRELIMS 2012 PAPER - I SOLUTIONS WITH EXPLANATIONS
1. Under which of the following circumstances may “capital gains” arise?
1. When there is an increase in the sales of a product2. When there is a natural increase in the value of the property owned3. When you purchase a painting and there is a growth in its value due to increase in its popularitySelect the correct answer using the codes given below:(a) 1 only (b) 2 and 3 only(c) 2 only (d) 1, 2 and 3Ans. (b)Exp: Capital gains arise from sale of capital investments. It can be a home, a farm, a business,shares, mutual fund, jewellery, art and paintings, bonds, other real estate, etc. It excludes items forpersonal use like apparel, motor vehicle, furniture. It also excludes stock-in-trade for business andagricultural land.
Capital Gains Tax can be triggered by the ‘Transfer’ of above mentioned assets, which includes:
Acquisition of an asset
Sale of asset
Exchange of asset
Relinquishing of asset
Extinguishment of rights of an asset, etcMoreover this tax is related to the value of the asset rather than the quantum of sales of it,therefore statement 1 cannot be true rather statement 2 and 3 are true.2. Which of the following measures would result in an increase in the money supply in the economy?1. Purchase of government securities from the public by the Central Bank2. Deposit of currency in commercial banks by the public3. Borrowing by the government from the Central Bank4. Sale of government securities to the public by the Central BankSelect the correct answer using the codes given below:(a) 1 only (b) 2 and 4 only(c) 1 and 3 (d) 2, 3 and 4