Taxation in India and GST: Types, Articles and PYQs

The correct answer is A, Goods and Services Tax. GST is charged on the supply of goods and services, and although the registered supplier deposits it with the government, the amount is recovered from the buyer in the price. Since the burden is shifted to someone other than the person who pays it in, GST is an indirect tax.

Option B, corporation tax, is a direct tax on the profits of a company, and the company cannot pass the liability on to anyone else. Option C, income tax, is the classic direct tax, levied under the Income-tax Act of 1961 on the income of individuals and other assessees according to their ability to pay. Option D, capital gains tax, is charged on the profit made when a capital asset such as land, a building or a share is sold, and is again borne by the seller who earned the gain. All three are administered by the Central Board of Direct Taxes, while GST falls under the Central Board of Indirect Taxes and Customs.

The correct answer is B, Gift tax. A gift tax is charged on the transfer of money or property from one person to another without consideration; it is a tax on a transfer between persons, not on any sale of goods or supply of services. India abolished the gift tax in 1998, and gifts above the prescribed limit are now taxed in the hands of the receiver as income from other sources.

Option A, sales tax, was the tax states levied on the sale of goods before value added tax and then GST took its place. Option C, luxury tax, was levied by states on hotel accommodation and similar services and has been subsumed into GST. Option D, sin tax, is the general name for a heavy levy on goods considered harmful, such as tobacco and liquor, and in the GST era it appears as the compensation cess on demerit goods. All three of these are levied with reference to goods or services, so only the gift tax stands apart.

The correct answer is B, Article 265. It is the foundation of the whole tax system, because it means the executive cannot demand money from a citizen without a law passed by the competent legislature. Any levy that fails this test can be struck down by a court.

Option A, Article 246A, was inserted by the hundred and first amendment and gives Parliament and the state legislatures concurrent power to make laws on the Goods and Services Tax, which is a different matter from the general requirement of legal authority. Option C, Article 279A, provides for the constitution of the GST Council by the President. Option D, Article 280, provides for the Finance Commission, which the President appoints every fifth year to recommend how central taxes should be distributed between the Union and the states. Only Article 265 states the basic rule that taxation must rest on law.

The correct answer is B, 1 July 2017. GST was rolled out at a midnight session of Parliament and the date is now observed every year as GST Day. From that date a single tax on the supply of goods and services replaced central excise duty, service tax, state value added tax and a long list of smaller state levies.

Option A, 1 April 2016, is the beginning of a financial year but has no connection with GST; the enabling amendment was still before Parliament then. Option C, 1 April 2017, is when several of the GST Acts received assent, but the tax itself was not yet in operation. Option D, 1 January 2018, is later than the rollout and is sometimes confused with the introduction of the electronic way bill, which was phased in during 2018. The single date worth memorising for this chapter is 1 July 2017.

The correct answer is A, the One Hundred and First Amendment Act, 2016. It inserted Article 246A, Article 269A and Article 279A and made the sharing of taxing power between the Union and the states possible, so that both could tax the same supply.

Option B, the hundred and second amendment of 2018, gave constitutional status to the National Commission for Backward Classes and has nothing to do with taxation. Option C is the trap in this question: the hundred and twenty-second was the number of the Bill as introduced in Parliament, and on enactment it became the hundred and first Amendment Act, because amendment Acts are numbered in the order they are passed. Option D, the ninety-seventh amendment of 2011, dealt with cooperative societies and added the right to form them under Article 19. Only the first option names the Act correctly.

The correct answer is B, Article 279A. Under it the President constitutes the GST Council, which is chaired by the Union Finance Minister and includes the Union Minister of State for Finance and a minister nominated by each state. The Council recommends the rates, the exemptions, the threshold limits and the model laws, and it is the forum where the Centre and the states bargain.

Option A, Article 269A, provides for the levy and collection of GST on inter-state supply by the Government of India and its apportionment between the Union and the states. Option C, Article 246A, is the enabling provision that gives both Parliament and the state legislatures power to make laws on GST. Option D, Article 268, deals with duties levied by the Union but collected and appropriated by the states, such as stamp duties, a much older provision. The Council alone belongs to Article 279A.

The correct answer is B, alcoholic liquor for human consumption. The definition of goods and services tax inserted by the hundred and first amendment expressly excludes it, so states continue to levy state excise and value added tax on liquor, and it is a major source of their own revenue.

Option A, tobacco products, are within GST, and in addition the Centre may levy central excise duty on them and a compensation cess is charged, so they are taxed more heavily rather than excluded. Option C, cement, is an ordinary taxable supply under GST. Option D, air-conditioners, are likewise taxable and were placed in the highest slab at the rollout as a consumer durable. Along with liquor, the items still outside the actual levy are the five petroleum products and electricity, but those are excluded by decision rather than by the definition in the Constitution.

The correct answer is C, IGST, the Integrated Goods and Services Tax. It is levied and collected by the Government of India on inter-state supplies under Article 269A, and the proceeds are apportioned between the Union and the state where the goods or services are consumed, which is what makes GST a destination-based tax.

Option A is wrong because Central GST is only the Union's half of the levy on a supply made within a single state. Option B is wrong for the same reason on the state side: State GST applies to an intra-state supply. Option D describes exactly the intra-state case, where CGST and SGST are charged together at half the applicable rate each, and is the distractor that catches candidates who reverse the two situations. In a union territory without a legislature the state half is charged as Union Territory GST instead.

The correct answer is B, France. France adopted the value added tax in 1954, and the idea of taxing only the value added at each stage, with credit for the tax paid earlier, spread from there to most of the world. This is the single most asked international fact from the GST chapter.

Option A, Canada, is important for a different reason: India borrowed the dual model of GST, with a central and a state component levied on the same supply, from the Canadian system, so Canada is the country to remember for the model rather than for being first. Option C, Germany, adopted a value added tax later, in the nineteen sixties, as did most of western Europe. Option D, Japan, introduced its consumption tax only in 1989. Remember the pair: first in France, dual model from Canada.

The correct answer is C, wealth tax. It was levied on the net wealth of individuals, Hindu undivided families and companies, but it collected very little compared with the effort of assessing it, so it was withdrawn in 2015 and replaced by an additional surcharge on very high incomes.

Option A, estate duty, was a tax on property passing on the death of its owner, and it was abolished much earlier, in 1985. Option B, gift tax, was abolished in 1998; since then gifts above a threshold are taxed in the hands of the person who receives them, as income from other sources. Option D, the securities transaction tax, is a small levy on the purchase and sale of securities on a recognised stock exchange and is very much in force, so it is not an abolished tax at all. The order of abolition, 1985, 1998 and 2015, is the part worth memorising.

The correct answer is B, one third. Article 279A provides that a decision of the Council needs a majority of not less than three fourths of the weighted votes of the members present and voting, with the vote of the Centre carrying one third of the total votes cast and the votes of all the state governments together carrying two thirds. The quorum for a meeting is one half of the total number of members.

Option A is wrong because no single member holds half the weight; the design deliberately requires the Centre and a large group of states to agree. Option C states the combined share of all the states, not of the Centre, and is the commonest wrong choice. Option D does not appear anywhere in the provision. The practical effect of the formula is that neither the Centre alone nor the states alone can carry a proposal, and that is the point the question tests.

The correct answer is A, Both I and II. Statement one is correct because the securities transaction tax is charged on the purchase and sale of securities on a recognised stock exchange and is borne by the investor who makes the transaction; the burden cannot be passed on to anybody else, which is the test of a direct tax, and it is administered by the Central Board of Direct Taxes. Statement two is correct because value added tax was levied by the states on the sale of goods at each stage of the chain, with credit for the tax paid on inputs, and the dealer recovered it from the buyer in the price, which is the test of an indirect tax; VAT has since been subsumed into GST for most goods.

Option B rejects the first statement, option D rejects the second, and option C rejects both, so all three miss one or other of these classifications. Remember the rule and not the list: if the payer can shift the burden, the tax is indirect.