ECONOMIC SURVEYFinances

Sources of Government’s 2020-21

Revenue Receipts ( Recurring+ Non-Debt+ No Capital Receipts ( Non-Recurring+ Debt Creating+

Decrease in Assets Decrease in Assets
 ECONOMIC
Sources SURVEY
of Government’s 2020-21
Expenditure

Revenue Expenditure Capital Expenditure

 COMPONENTS OF REVENUE AND CAPITAL ACCOUNT

Criteria Revenue Budget Capital Budget

Receipts Receipts which do not create liability or Receipts which create liability or
reduce financial assets. reduce financial assets.
Examples of Tax Revenue (Direct and Indirect Taxes): GST,
Receipts Income Tax, Corporate Tax, Excise Duty, Debt Receipts: Market Borrowings.
Customs duty (In Declining Order)

Fiscal Deficit
Non-Debt Receipts: Disinvestment,
Non-Tax Revenue: Interest Receipts, Recovery of Loans
Dividends of PSUs, User Charges, External
Grants etc.
Expenditure Recurring: Incurred for purposes other than Non-Recurring: Incurred for Asset
creation of Assets creation
Examples of Interest Payments, Subsidies, Salaries and Creation of Roads, railways etc. and
Expenditure Pensions, Defence, Grants to the States for loans to States.
creation of Assets etc.
 Difference between Interim and Full Budget

Full Union Budget Interim Budget

When is it Normal Year Election year
presented?
Applicability Entire Financial Year Part of Financial year until the new Government
takes over
Constitutional Yes No. Constitutional convention which has been
Requirement followed

Fiscal Deficit
Components • Finance Bill: Matters related to Taxation • Usually Finance Bill and Economic Survey not
Proposals presented as a convention.
• Demand for Grants: Matters related to • Comprises of Vote-on-Account.
Expenditure
Announcement of Yes. • As per Convention, no new schemes or
new schemes and changes in tax rates.
Changes in Taxation • No Constitutional Restriction.
• Violation of Convention in some of the years.
 TAXATION
BASICS OF BUDGET
Which among the following are part of
Annual Financial Statement of a particular
Practice MCQ Practice MCQ
year?
Consider the following statements related to Presentation Which among the following is/are part of the Consolidated
1. Budget Estimates of the Next Financial
of Budget in India: Fund of India?
Year.
1. The constitution mandates that the Annual Financial 1. Entire revenue received by Government
2. Revised Estimates of the Present
Statement should distinguish the expenditure on 2. Loans raised by the Government
Financial Year.
Revenue Account from other expenditure. 3. National Disaster Response Fund (NDRF)
3. Actuals of the Previous Financial Year.
2. Article 112 of the Indian Constitution mandates that 4. National Investment Fund (NIF)
the budget must be presented on February 1st every
Select the correct answer using the code
year. Select the correct answer using the code given below:
given below:
(a) 1 only
(a) 1 and 2 only
Which of the statements given above is/are correct? (b) 1 and 2 only
(b) 2 and 3 only
(a) 1 only (c) 1, 2 and 3 only
(c ) 1 and 3 only
(b) 2 only (d) 1, 2, 3 and 4
(d) 1, 2 and 3
(c) Both 1 and 2
(d) Neither 1 nor 2
 TAXATION
BASICS OF BUDGET
Which among the following are part of
Annual Financial Statement of a particular
Practice MCQ Practice MCQ
year?
With reference to Contingency Fund of India, consider the Which of the following documents are mandated to be
1. Budget Estimates of the Next Financial
following statements: provided as part of the Union Budget by the Indian
Year.
1. It has been placed at the disposal of the President but Constitution?
2. Revised Estimates of the Present
operated by Finance Ministry to facilitate meeting of 1. Annual Financial Statement
Financial Year.
urgent unforeseen expenditure. 2. Demand for Grants
3. Actuals of the Previous Financial Year.
2. Parliamentary approval for withdrawal from this fund 3. Finance Bill
is obtained ex-post facto. 4. Macro-Economic Framework Statement
Select the correct answer using the code
3. The present corpus of the fund stands at Rs 30,000
given below:
crores. Select the correct answer using the code given below:
(a) 1 and 2 only
(a) 1 only
(b) 2 and 3 only
Which of the statements given above is/are Correct? (b) 1 and 2 only
(c ) 1 and 3 only
(a) 1 only (c) 1, 2 and 3 only
(d) 1, 2 and 3
(b) 1 and 2 only (d) 1, 2, 3 and 4
(c) 1 and 3 only
(d) 1, 2 and 3
 TAXATION
BASICS OF BUDGET
Which among the following are part of
Annual Financial Statement of a particular
Practice MCQ Practice MCQ
year?
With reference to Public Account of India, consider the Which among the following are part of Annual Financial
1. Budget Estimates of the Next Financial
following statements: Statement of a particular year?
Year.
1. The Public Account of India includes Provident Fund, 1. Budget Estimates of the Next Financial Year.
2. Revised Estimates of the Present
Small Savings collections, income of Government set 2. Estimates of Present financial year.
Financial Year.
apart for expenditure on specific objects like road 3. Actuals of the Previous Financial Year.
3. Actuals of the Previous Financial Year.
development, primary education etc.
2. No Parliamentary approval is required to withdraw Select the correct answer using the code given below:
Select the correct answer using the code
any money from the Public Account of India. (a) 1 only
given below:
(b) 1 and 2 only
(a) 1 and 2 only
Which of the statements given above is/are correct? (c) 2 and 3 only
(b) 2 and 3 only
(a) 1 only (d) 1, 2 and 3
(c ) 1 and 3 only
(b) 2 only
(d) 1, 2 and 3
(c) Both 1 and 2
(d) Neither 1 nor 2
 Practice MCQ Prelims 2011
With reference to Interim Budget, consider the What is the difference between "vote on account" and
following statements: "interim budget"?
1. The Interim Budget is a budget which is presented 1. The provision of a "vote-on-account" is used by a
in an Election year and is applicable for the entire regular Government, while an "interim budget" is a
Financial year. provision used by a caretaker Government.
2. Usually, the Interim Budget does not contain 2. A "vote-on-account" only deals with the
Finance Bill, but includes Vote-on-account. expenditure in Government's budget, while an
"interim budget" includes both expenditure and
Which of the statements given above is/are correct? receipts.
(a) 1 only
(b) 2 only Which of the statements given above is/ are correct?
(c) Both 1 and 2 (a)1 only
(d) Neither 1 nor 2 (b) 2 only
(c) Both 1 and 2
(d)Neither 1 nor 2
 COMPONENTS OF REVENUE AND CAPITAL ACCOUNT

Practice MCQ No. 266 Practice MCQ No. 267

Which among the following is/are part of Revenue account Which among the following is/are part of Capital Account
under the Union Budget? under the Union Budget?
1. External Grant Assistance 1. Borrowings of the Government from RBI
2. Expenditure on Centrally Sponsored Schemes (CSS) 2. Loans received from foreign Governments
3. Transfer of Dividend from PSUs 3. Disinvestment Proceeds
4. Profits earned by PSUs 4. Dividend from PSUs

Fiscal Deficit
Select the correct answer using the code given below: Select the correct answer using the code given below:
(a) 1 and 2 only (a) 1 and 2 only
(b) 1, 2 and 3 only (b) 1 and 3 only
(c) 2, 3 and 4 only (c) 1, 2 and 3 only
(d) 3 and 4 only (d) 1, 2, 3 and 4
 COMPONENTS OF REVENUE AND CAPITAL ACCOUNT

Practice MCQ Practice MCQ

Which among the following components are deducted from
the Gross Tax revenue to calculate the Net Tax revenue of
the Central Government?
1. States' share of Taxes
2. Transfer to National Disaster Response Fund (NDRF)
3. Recoveries of Loans/advances to States
Consider the following statements:
1. All the Grants and Loans received from International
Institutions form part of Capital Account.
2. All the grants and loans given by the Centre to the
states are as treated as Capital Expenditure in Union
Budget.

Fiscal Deficit
Select the correct answer using the code given below: Which of the statements given above is/are correct?
(a) 1 only (a) 1 only
(b) 1 and 2 only (b) 2 only
(c) 1 and 3 only (c) Both 1 and 2
(d) 1, 2 and 3 (d) Neither 1 nor 2
 Terms related to Taxation
✓ Direct and Indirect Taxes
✓ Important Taxes in news
✓ Progressive, Proportional and Regressive Taxation
✓ Ad Valorem Vs Specific Duty
✓ Customs Duty Vs Safeguard Duty Vs Countervailing Duty Vs Anti-dumping Duty
✓ Surcharge and Cess
✓ Tax Buoyancy Vs Tax Elasticity
✓ Bracket Creep and Fiscal Drag
✓ Crowding-in Effect and Government Expenditure Multiplier
✓ Concept of Ricardian Equivalence
✓ Scissors Effect
✓ Pigovian Tax
✓ Tobin Tax
✓ Borrowing Powers of States and Centre
✓ Fiscal Glide and Fiscal Slippage
✓ Crowding-out Vs Crowding-in effect
✓ Phantom Capital
✓ Types of Fiscal Policies
✓ Taxpayers’ Charter
✓ Off-Budget Financing
✓ Centrally Sponsored Vs Central Sector Schemes
 Criteria Direct Tax Indirect Tax
Income, assets or profits Manufacturing, Import and Sale of Goods and
Imposed on
Services
Who pays? Individual and Companies Consumers
Tax Incidence and Tax Fall on the same person. Imposed on the income Fall on different entities. Imposed on the sellers but
Burden of a person and collected from the same person. collected from the buyers of Goods and Services
How much tax is paid? Depends upon income and Profits Same for everyone.
Progressive: As income rises, people pay more Regressive: Irrespective of Income, everyone pays flat
Nature of Tax
tax tax rate.
Impact on Inflation Increase in tax rates can control Inflation Increase in tax rates will lead to Cost-Push Inflation
Impact on Inequality Can help in redistribution of income Limited impact on reducing inequalities
Impact on Nominal GDP No Direct impact Direct Impact since GDP is calculated at Market prices
calculation
Tax Evasion Relatively Easy Relatively Difficult
Collection Relatively difficult Relatively Easy
Centre: Income Tax, Corporate Tax, Capital Gains Centre: GST, Union Excise duty on Petroleum
Tax, Securities Transaction Tax, Commodity products, Customs Duty
Examples Transaction Tax State: Sales Tax on Petroleum products, Excise duty
State: Tax on Agricultural Income, Property Tax, on Alcohol etc.
Professional Tax, Stamp duty etc.
 Central Taxes State Taxes
Income Tax Sales Tax/VAT on Petroleum Products
Corporate Tax Excise duty on Alcohol for human consumption
Minimum Alternate Tax (MAT) Property Tax
Capital Gains Tax Professional Tax
Central Excise duty on Petroleum Products such as Crude oil , Entertainment Tax levied by local bodies
diesel, petrol, natural gas and ATF
Additional Excise duty on Tobacco Tax on Motor Vehicles
Securities Transaction Tax (STT) Stamp duty
Commodity Transaction Tax (CTT) Tax on Agricultural Income
Customs Duty
Safeguard Duty
Countervailing Duty
Buyback tax
Taxes Abolished:
• Dividend Distribution Tax (DDT)
• Wealth Tax
• Fringe Benefit Tax (FBT)
Reduction in Corporate Taxes
Under MAT Regime, Companies would be required to calculate
• Corporate Tax Liability under Income Tax Act and
• MAT Liability under Companies Act (18.5% of Book Profits)

Company would be required to pay either the corporate Tax or

MAT, whichever is higher.
 Abolition of Dividend Distribution Tax (DDT)- Union Budget 2020-21

Earlier Regime

Distributed as Dividend among

Company Profits
shareholders

Corporate Tax Dividend Distribution Tax

Present Regime

Distributed as Dividend among Individuals should add Dividend

Company Profits received to their Total Annual
shareholders
Income and pay Income Tax
accordingly

Corporate Tax
Equalization Levy
 Types of Indirect Taxes
Criteria Ad Valorem Specific tax
Tax rate Tax rate is defined in terms of value of the product Tax rate is defined in terms of unit of product
GST: 3%, 5%, 12%, 18% and 28% Central Excise duty on Petrol: Rs 27.9 per litre
Example:
State’s VAT on Petrol and Diesel Central Excise duty on Diesel: Rs 21.8 per litre.
Collections depend Value of Product Volume of Sales
upon
Impact of Increase in Increase in collection Remains same
Prices of product
(Assuming demand
remains same)
Impact of increase in Increase in collection Increase in collection
Demand
(Assuming prices
remain same)
Much higher impact on Inflation. Minimal impact on Inflation.

Earlier: 5% VAT on Fuel. Fuel price= Rs 100. VAT
Contribution to
applicable: Rs 5. Total Mkt price= Rs 105
Inflation
Now: 5% VAT on Fuel. Fuel Price = Rs 200.
VAT Applicable: Rs 10. Total Mkt Price = Rs 210.
Earlier: Rs 5 Excise duty on Fuel. Fuel price= Rs 100.
Excise duty applicable: Rs 5. Total Mkt price= Rs 105
Now: Rs 5 Excise duty on Fuel. Fuel Price = Rs 200.
Excise duty applicable: Rs 5. Total Mkt price= Rs205.
 Components of Different Central Taxes in Petrol and Diesel
30

25

13
20

8
15
2.5
4
10

11
8
5

1.4 1.8
0
Petrol Diesel
#REF!
Central Road and Infrastructure Fund
Agriculture Infrastructure and Development Cess
Special Additional Excise Duty
Excise Duty
 Total Budget Snapshot of Government’s Finances
Size in 2021-22:
37.5 lakh crores

Revenue Account Capital Account

Receipts (20.5 lakh Expenditure( 31.5 lakh Receipts ( 17 lakh Expenditure (6 lakh
crores/ 8.8% of GDP) crores (13.5% of GDP) crores/ 7.3% of GDP) crores/2.5% of GDP)

Gross Tax Revenue ( 25 Lakh • Interest Payment ( Highest) Debt Receipts: Borrowings (16 • Creation of new assets
crores/11.7% of GDP) • Major Subsidies Lakh crores) and infrastructure
• Direct Taxes: (6.1% • Salaries and Pensions Non-Debt Receipts • Loans and advances
• Indirect Taxes: (5.6%) • Defence Expenditure • Disinvestment
• Decreasing order of Taxes: GST, • Grants to States for Creation • Recoveries of loans and
Corporate Tax, Income Tax, Union of Capital Assets advances
Excise Duty, Customs Duty
Net Tax Revenue (17.5 lakh crores)
Gross Tax Revenue- (State’s share of
Taxes+ Transfer to NDRF)
• GST includes CGST,
Non-Tax Revenue (3 Lakh crores)
UTGST and GST
• Interest Receipts Compensation Cess
• Dividends and profits of PSUs • Corporate Tax > Income
• User charges Tax
• External Grant Assistance
• Non-tax revenue of UTs
PRESENT STATUS OF TAX COLLECTION

This is as per the Budget 2022-23.

But as per the latest data, the share of
Direct Taxes is 6.1% and share of Indirect
taxes is 5.6%
PRESENT STATUS OF TAX COLLECTION
PRESENT STATUS OF TAX COLLECTION

Fiscal Deficit
 PRESENT STATUS OF TAX COLLECTION
Practice MCQ
With respect to Trends in Tax-GDP ratio, consider the
following statements:
1. The year 2021-22 marks the highest Tax-GDP Ratio.
2. The share of Direct taxes is higher than the share of
indirect taxes in 2021-22
3. In the last decade, the share of direct taxes has
always been higher than Indirect taxes

Which among the statements given above is/are

correct?
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
 Ad Valorem Vs Specific Tax

Practice MCQ Practice MCQ

Consider the following statements related to The Central Excise duty on the Petrol and Diesel is a specific tax.
Specific duty: Which among the following statements best describes such a regime
1. The Specific duty is a form of tax in which tax on petroleum products?
rate is specified in terms of value of the (a) The Excise duty collections of the Government depend upon the
product. International crude oil prices.
2. Goods and Service Tax is a form of Specific (b) The Excise duty collections of the Government depend upon the
duty. domestic prices.
(c) The Excise duty collections of the Government depend upon the
Which among the statements given above is/are volume of sale of Petrol and Diesel
correct? (d) The Excise duty collections of the Government depend upon the
(a) 1 only overall economic condition.
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
 Ad Valorem Vs Specific Tax

Practice MCQ Practice MCQ

The State VAT on Petrol and Diesel in a particular state is a
Ad Valorem tax. Which among the following statements
best describes such a regime on petroleum products?
(a) The Tax collections would directly depend upon the
International crude oil prices.
(b) The tax collections would directly depend upon the
domestic prices.
(c) The tax collections would directly depend upon the
volume of sale of Petrol and Diesel
(d) The tax collection would depend upon the overall
economic condition.
Consider the following statements:
1. Reduction in Specific Duty would have far higher impact
on reducing Inflation in comparison to reduction in Ad
Valorem duty.
2. In event of Inflation, collection of Ad Valorem duties are
likely to increase more than that of Specific duties.
Which among the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
 Types of Import Duties
Basic Customs Duty Imposed on Imported Goods

• Additional Customs duty. Imposed in addition to Customs duty.

• Imposed to counter artificially low prices that are a result of subsidies or assistance granted by the
Government in the exporting country to its local industry.
Countervailing Duty
• Subsidies can be in form of subsidized loans, tax exemptions, indirect payments, etc., because of which
exporters are able to export at lower prices
• Governed under Customs Tariff Act, 1957 and WTO Agreement on Subsidies and Countervailing
measures.
• Safeguard measure is used when imports of a particular product increase unexpectedly to a point that
Safeguard Duty they cause or threaten to cause serious injury to domestic producers
• Governed under Customs Tariff Act, 1957 and WTO Safeguards agreement.
• Dumping takes place when the price of a product when sold in the importing country is less than the price
of that product in the exporting country.
Anti-dumping Duty
• Duty imposed on such dumping of products is referred to as Ant-Dumping duty.
• Governed under Customs Tariff Act, 1957 and WTO Safeguards agreement.
• Quasi-Judicial Body functioning under Ministry of Commerce and Industry.
Directorate General of
• Makes recommendations for imposition of Ant-Dumping, Countervailing and Safeguard duties.
Trade Remedies
• Final Decision regarding imposition of these duties is taken by the Ministry of Finance
 Criteria SURCHARGE CESS
Meaning Additional Tax Tax on Tax.

When is it Imposed? Income level above a certain threshold Payment of tax.

Surcharge on Income Tax: • Health and Education Cess: 4% on major central taxes such
➢ Greater than 50 lakhs and less than 1 crore→ as Corporate Tax, Income Tax etc.
10% • Health Cess: Imported Medical Devices.
➢ Greater than 1 crore and less than 2 crores→ • Road and Infrastructure Cess: Rs 13 per litre on sale of petrol
Examples 15% and Rs 8 on diesel
➢ Greater than 2 crores and less than 5 • Agriculture Infrastructure and Development Cess: Additional
crores→ 25% Excise duty on Petrol and Diesel + Additional Customs duty
➢ Greater than 5 crores→ 37% on Gold and Silver, Alcohol, Apples, Coal, Cotton etc.
• Cess on Crude Oil: 20% of Crude oil produced in India.
Calculated as Percentage of Income Tax Percentage of (Income Tax + Surcharge)
Credited into which Consolidated Fund of India (CFI) May Initially get credited to CFI. Transferred to separate
fund? dedicated fund outside CFI and remain non-lapsable.

Government’s prerogative Utilized for the purpose the cess is collected

Purpose of Utilization

Part of Central No No
Divisible Pool
 Practice MCQ Practice MCQ
Consider the following statements related to imposition Which among the following statements related to
and collection of Cess in India: Surcharge:
1. Unlike cess, the Surcharge can be used for any purpose
1. The Cess does not get credited to the Consolidated by the Central Government.
Fund of India and is maintained in a dedicated fund 2. Unlike Cess, Surcharge needs to be distributed between
outside the Consolidated Fund of India. Centre and States.
2. The proceeds of the Cess are lapsable in nature and
cannot be carried forward to the next year. Which among the statements given above is/are correct?
3. The Cess can be imposed only by the Centre and not (a) 1 only
by the states. (b) 2 only
(c) Both 1 and 2
Which of the statements given above is/are incorrect? (d) Neither 1 nor 2
(a) 1 only
(b) 1 and 2 only
(c ) 2 and 3 only
(d) 1, 2 and 3
 • Average tax rate or Tax paid as a percentage of income increases as the taxpayer’s income increases
• People with higher incomes pay a higher tax rate. ( Higher Burden falls on Richer)
Progressive tax
• Taxes can be progressive if the tax is levied on Goods which are more common amongst wealthier
people (Example: Higher tax on Luxury cars)
• Tax paid as a percentage of income decreases as the taxpayer’s income increases.
Regressive Tax
• People with lower incomes pay higher share of their income in form of tax.
Proportional Tax Average tax rate remains same for all irrespective of income levels