Which of the following statement is correct? I. Securities transaction tax is a type of direct tax. II. Value-added tax is a type of indirect tax.

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.