Economics Test -04


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#1 Which of the following statement is correctrelated to the perquisites tax??Solution (a)

This tax is on benefit given by employer to employee. e.g. If your company provides you non- monetary benefits like car with driver, club membership, ESOP etc. All this benefit is taxable under perquisite Tax.

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#2 Which of the following is/are the part of Foreign Exchange Reserves? 1. Gold and Silver reserves 2. Special Drawing Rights 3. Reserve position in the IMF. Select the correct answer using the codes givenbelow:?Solution (c)

  • The Foreign exchange reserves of India are India’s holdings of cash, bank deposits, bonds, and other financial assets denominated in currencies other than India’s national currency, the Indian rupee.
  • The reserves are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets.
  • Foreign exchange reserves act as the first line of defense for India in case of economic slowdown, but acquisition of reserves has its own costs.
  • Foreign exchange reserves facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. Reserve Bank of India accumulates foreign currency reserves by purchasing from authorized dealers in open market operations. Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising.

The Foreign exchange reserves of India consists of below four categories

· Foreign Currency Assets
· Gold
· Special Drawing Rights (SDRs)

· Reserve Tranche Position in the IMF

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#3 Which of the below mentioned policies would increase the tax base? 1. Reasonable Rates of Taxation 2. Fair Tax Administration 3. Digital Transactions. Select the appropriate code?Solution (d)

Tax base is defined as the income or asset balance used to calculate a tax liability, and the tax liability formula is tax base multiplied by tax rate.ie. INCREASE INCOME

Reasonable rates of taxation create incentive for paying tax and unreasonably high tax rates create disincentives for paying tax.

A fair tax administration would reduce harassment by tax authorities and increase ease in paying taxes. This will increase tax compliance.

Digital transactions will increase traceability of transactions, increase formalization and consequently increase tax base.

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#4 What is Tax expenditure??Solution (d)

The divergence between the statutory tax rate and effective tax rate (defined as the ratio of total tax revenue collected to the aggregate tax base) is mainly on account of tax exemptions.

Tax expenditure is also termed as ‘revenue forgone’, but it does not necessarily imply that this quantum of revenue has been waived by the government.

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#5 Which of the following is/ are the part of Non-Tax Revenue receipts? 1. Long-term loans raised by the Government. 2. Fees, Penalties and Fines received by the Government. 3. Grants which the Governments receives. Select the correct answer using the code given below:?Solution (b)

Non-tax Revenue Receipts
This includes all money earned by the government from sources other taxes. In India they are— · Profits and dividends which the government gets from its public sector undertakings (PSUs).

· Interests received by the government out of all loans forwarded by it, be it inside the country (i.e., internal lending) or outside the country (i.e., external lending). It means this income might be in both domestic and foreign currencies.

· Fiscal services also generate incomes for the government, i.e., currency printing, stamp printing, coinage and medals minting, etc.

· General Services also earn money for the government as the power distribution, irrigation, banking, insurance, community services, etc.

· Fees, Penalties and Fines received by the government.

· Grants which the governments receive —it is always external in the case of the central government and internal in the case of state governments.

Long-term loans raised by the government come under Capital receipts.

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