1. Consider the following statements about the constitutional provisions on taxation:
1. Article 265 provides that no tax shall be levied or collected except by authority of law.
2. Article 246A gives Parliament and State Legislatures concurrent power to make laws on GST, with Parliament having exclusive power for inter-State supplies.
3. Article 269A provides that GST on inter-State supply is levied and collected by the Government of India and apportioned between the Union and the States.
4. Article 246A gives the Union Government the exclusive power to levy GST on intra-State supplies.
Which of the statements given above are correct?
✅ Correct answer: (C) CONSTITUTIONAL TAX PROVISIONS. Art. 265: the rule of law in taxation ('no taxation without representation' in the Indian form). Art. 246A (inserted by the 101st Amendment): both Parliament and State Legislatures can make laws on goods and services tax imposed by the Union or by a State, but Parliament has EXCLUSIVE power over GST on inter-State supply of goods or services. Intra-State supplies are taxed concurrently by Centre (CGST) and State (SGST), so statement 4 is wrong. Art. 269A: inter-State trade GST (IGST) is levied and collected by the Government of India, apportioned as per Parliament's law on the Council's recommendation; Art. 279A: the GST Council; Art. 268A (service tax, inserted 2003) was omitted. Art. 268, 269, 270, 271 deal with duties levied by the Union but collected/appropriated by States, taxes on sale or purchase of goods in inter-State trade, distribution of the net proceeds of taxes, and surcharge. Taxation is also one subject area under the Seventh Schedule: Union List (income tax on non-agricultural income, customs, corporation tax), State List (agricultural income tax, land revenue, alcohol excise, entertainment tax by local bodies).
2. With reference to Input Tax Credit (ITC) under GST, consider the following statements:
1. ITC is generally available on goods and services used in the course or furtherance of business.
2. ITC is blocked on motor vehicles for personal use, outdoor catering, and membership of a club or health centre, with specified exceptions.
3. ITC on capital goods is allowed to be claimed in the same manner as on other inputs, subject to conditions.
4. ITC is not available on capital goods under any circumstances.
Which of the statements given above are correct?
✅ Correct answer: (D) ITC. The core of GST: a registered taxpayer can take credit of tax paid on inputs (goods, services and capital goods) used for business, subject to conditions: possession of the tax invoice or debit note, receipt of goods/services, tax actually paid to the Government by the supplier, and return filing (matched on GSTR-2B). Blocked credits (Sec. 17(5) CGST Act): motor vehicles for transport of persons (with specified exceptions such as taxi or driving schools), food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, club memberships and health/fitness centre membership, rent-a-cab and life/health insurance (unless obligatory by law), works contract and construction of immovable property (other than plant and machinery), goods lost or stolen, and goods given as free samples or gifts. ITC on capital goods IS allowed (statement 3 correct), but not if the depreciation on the tax component was claimed under the Income Tax Act. Statement 4 is wrong. Concept: ITC makes GST a value-added tax, avoiding cascading.
3. Consider the following statements about the effect of a cut in GST rates on price indices, other things being equal:
1. A cut in the GST rate on consumer goods tends to reduce CPI inflation because CPI measures prices including indirect taxes.
2. The WPI is not directly affected by a cut in GST rates because it is measured before indirect taxes.
3. A GST rate cut raises WPI inflation because producers' costs increase.
Which of the statements given above are correct?
✅ Correct answer: (B) TAX CUTS AND INDICES. CPI records the price the consumer pays, which includes GST; hence a rate cut on, say, packaged foods, toiletries or consumer durables lowers the measured retail price (if passed through) and thereby CPI inflation - one reason inflation was low after the GST rationalisation of September 2025. WPI records transaction prices at the wholesale stage excluding taxes, so it is largely unaffected by a change in GST rates; a cut does not raise producers' costs (it lowers input tax and, with ITC, tax is not a cost to the producer), so statement 3 is wrong. The pass-through is imperfect: firms may keep part of the cut (the anti-profiteering provision exists under Sec. 171 of the CGST Act), and the fiscal cost of revenue loss must be weighed against the demand stimulus. Therefore only 1 and 2 are correct.
4. Consider the following statements regarding principles of taxation:
1. Adam Smith's four canons of taxation are equity, certainty, convenience and economy.
2. A progressive tax takes a higher percentage of income from higher-income earners.
3. A regressive tax takes a larger proportion of income from low-income earners than from high-income earners.
4. According to the Laffer curve, tax revenue always rises as the tax rate is increased.
Which of the statements given above are correct?
✅ Correct answer: (A) TAXATION PRINCIPLES. Adam Smith ('The Wealth of Nations', 1776): equity (ability to pay), certainty (not arbitrary), convenience (time and manner of payment), economy (low collection cost). Progressive: the average rate rises with income (income tax slabs); proportional: constant share; regressive: the share falls as income rises (indirect taxes like GST on essentials weigh heavily on the poor since they spend a larger share of income on consumption). Benefit principle vs ability-to-pay principle. The Laffer curve (Arthur Laffer) shows revenue first rising then falling as the tax rate approaches 100%, so there is an optimal rate; at very high rates avoidance and reduced work effort cut revenue - statement 4 ('always rises') is wrong. Other terms: tax incidence (who finally bears) vs impact (who first pays), tax evasion (illegal) vs avoidance (legal exploitation of loopholes), tax buoyancy, and Pigouvian taxes (to correct externalities, e.g. carbon tax).
5. With reference to inflation targeting in India, consider the following statements:
1. New Zealand was the first country to adopt formal inflation targeting in 1990.
2. India adopted flexible inflation targeting through a Monetary Policy Framework Agreement between the Government and the RBI in February 2015.
3. The framework was given statutory backing through the amendment of the RBI Act in 2016.
4. The inflation target is defined in terms of the Wholesale Price Index.
Which of the statements given above are correct?
✅ Correct answer: (C) INFLATION TARGETING TIMELINE. New Zealand's Reserve Bank Act 1989 and the 1990 Policy Targets Agreement made it the first inflation targeter; the UK, Canada, Sweden and others followed. India: the Urjit Patel Committee (2014) -> the Monetary Policy Framework Agreement signed on 20 February 2015 (4% target by 2018 with a +/-2% band, and 6% by January 2016 as a glide path) -> the Finance Act 2016 amended the RBI Act to set the statutory MPC (September 2016) -> notification of the target (4% +/-2%, CPI-Combined) for 2016-21 and 2021-26. The target is on the CPI (Combined), NOT WPI, because CPI reflects the cost of living of households and is the price index relevant for inflation expectations; WPI excludes services. Statement 4 is wrong. Why a nominal anchor: it anchors expectations, reduces the sacrifice ratio and gives transparency and accountability.
6. Which of the following taxes were subsumed into the Goods and Services Tax from 1 July 2017?
1. Central Excise Duty and Service Tax
2. State Value Added Tax and Octroi/Entry Tax
3. Entertainment Tax (other than local bodies') and Luxury Tax
4. Basic Customs Duty
5. Stamp Duty on registration of property
Select the correct answer using the code given below:
✅ Correct answer: (A) GST COVERAGE. GST subsumed Central taxes (central excise, additional excise duties, service tax, countervailing duty (CVD) and special additional duty (SAD) on imports, central surcharges and cesses on supply) and State taxes (VAT/sales tax, entertainment tax other than local bodies, central sales tax, octroi and entry tax, purchase tax, luxury tax, taxes on lottery, betting and gambling, State cesses and surcharges). NOT subsumed: Basic Customs Duty (still levied on imports in addition to IGST), stamp duty on property registration, property tax, professional tax, toll tax, electricity duty, State excise on alcohol, and excise/VAT on the five petroleum products. Hence 1, 2 and 3 only. The result: a single national market with a destination-based consumption tax and a seamless credit chain, reducing cascading and check posts.
7. Consider the following statements about the GST rate rationalisation ('GST 2.0') implemented from 22 September 2025:
1. The earlier multi-slab structure was simplified into two main rates of 5 per cent and 18 per cent.
2. A special higher rate of 40 per cent was retained for a small group of demerit and luxury goods.
3. The 12 per cent and 28 per cent slabs were largely merged into the new structure.
4. The decision was taken at the 56th meeting of the GST Council.
Which of the statements given above are correct?
✅ Correct answer: (B) GST 2.0. The 56th GST Council meeting (3 September 2025) approved a next-generation reform: the 5%, 12%, 18% and 28% slabs were collapsed into a two-rate structure of 5% (merit/essential goods and services) and 18% (standard), with a 40% rate for a few 'sin' and luxury items (such as tobacco products, pan masala, aerated drinks and high-end cars - the exact list must be checked from the notification). Items in the old 12% slab largely moved to 5%, and most items of the 28% slab moved to 18% or 40%. Individual life and health insurance premiums were exempted, and several daily-use goods were cut to 5% or nil. The aims: simplification, fewer classification disputes, correction of the inverted duty structure and a demand stimulus. All four statements are correct. Concept: 'inverted duty' arises when the tax on inputs exceeds the tax on output, causing accumulated input tax credit. [Source: GST Council decisions / CBIC; recheck item lists.]
8. A manufacturer in a State sells goods within the same State for Rs 1,000 (excluding tax) at a GST rate of 18 per cent. It had purchased inputs worth Rs 600 (excluding tax) within the State at 18 per cent. Consider the following statements:
1. Its net GST liability after claiming Input Tax Credit is Rs 72.
2. Of its net liability, Rs 36 is payable as CGST and Rs 36 as SGST.
3. If the sale had been an inter-State supply, the tax would be levied as IGST.
4. The entire Rs 108 paid on inputs can be claimed as refund in cash if it exceeds the output tax.
Which of the statements given above are correct?
✅ Correct answer: (D) GST ARITHMETIC. Output tax = 18% of 1,000 = Rs 180; Input tax credit = 18% of 600 = Rs 108; net liability = 180 - 108 = Rs 72. Intra-State supply -> CGST 9% + SGST 9%, so the net 72 splits as 36 + 36 (credit is set off in a specified order: IGST credit first against IGST, then CGST, then SGST). Inter-State supply -> IGST (Art. 269A), collected by the Centre and apportioned to the destination State. Statement 4 is wrong: refund of unutilised input credit is allowed only in specific cases - zero-rated supplies (exports) and inverted duty structure - not whenever input tax exceeds output tax; otherwise the excess credit is carried forward. The tax is borne by the final consumer; the system taxes the value added (Rs 400 x 18% = Rs 72), which is exactly the net liability - this is the logic of a value-added tax that removes cascading.
9. Assertion (A): Because petroleum products are kept outside GST, businesses using them as inputs cannot claim input tax credit on the taxes paid on fuel.
Reason (R): Petrol and diesel continue to attract Central excise duty and State VAT, which are not part of the GST credit chain.
Which one of the following is correct?
✅ Correct answer: (A) CASCADING. GST works through a seamless chain of input tax credit: each stage deducts the GST paid on inputs from its output GST. Taxes outside the GST chain - Central excise and State VAT on petrol/diesel/ATF/natural gas, and State excise on alcohol - cannot be set off against GST liabilities, so they become embedded in the cost of production and are taxed again in the final price (tax-on-tax or cascading). Industry therefore demands inclusion of fuel in GST, while States resist because fuel VAT is a major source of own tax revenue and the Union relies on excise (non-shareable cess/surcharge components). Thus A and R are both true and R explains A. Economic effect: fuel prices feed into transport costs and WPI, and hence into broader inflation.
10. Which of the following are supply-side measures to contain food price inflation?
1. Releasing buffer stocks of pulses and cereals in the open market
2. Imposing stock limits on traders under the Essential Commodities Act, 1955
3. Reducing import duty on edible oils and pulses
4. Raising the policy repo rate
5. Reducing government expenditure to lower aggregate demand
Select the correct answer using the code given below:
✅ Correct answer: (B) DEMAND VS SUPPLY MEASURES. Demand-management tools work on aggregate demand: monetary (repo hike, CRR hike, open market sales) and fiscal (lower government spending, higher taxes). SUPPLY-side measures expand availability or reduce cost: buffer stock release (Food Corporation of India, NAFED for pulses and onions), stock limits and anti-hoarding action under the Essential Commodities Act 1955, import duty cuts and tariff-rate quotas, export curbs (restricting external demand on domestic stocks), improved storage, mandis and logistics (e-NAM), the Price Stabilisation Fund and the strategic 'Bharat' brand sales. For food inflation, supply measures work faster; monetary policy works only on second-round effects. Hence 1, 2 and 3 are supply-side; 4 and 5 are demand-management. The Essential Commodities Act places controls on production, supply and distribution of commodities declared essential.
11. With reference to customs duties and trade remedies in India, consider the following statements:
1. Anti-dumping duty is imposed on imports that are sold below their normal value in the exporting country, following an investigation and recommendation of the Directorate General of Trade Remedies.
2. Countervailing duty is imposed to offset subsidies given by the exporting country to its producers.
3. Safeguard duty is imposed against unfair trade practices by the exporting country.
4. The Customs Act, 1962 governs the levy and collection of customs duties.
Which of the statements given above are correct?
✅ Correct answer: (C) TRADE REMEDIES. Anti-dumping duty (WTO Agreement on Anti-Dumping): neutralises dumping (export price below normal value) that causes material injury; DGTR (Ministry of Commerce) investigates and recommends, but the duty is imposed by the Ministry of Finance (Department of Revenue). Countervailing duty: neutralises specific export subsidies/actionable subsidies of the exporting country. Safeguard duty (WTO Agreement on Safeguards): a temporary measure against a SURGE in imports causing serious injury to domestic producers, whether or not the import is unfair; so statement 3 mixing it up with unfair trade practices is wrong. Customs duties are levied under the Customs Act 1962 and Customs Tariff Act 1975: Basic Customs Duty (BCD), Social Welfare Surcharge, Agriculture Infrastructure and Development Cess (AIDC) on specified goods, and IGST on imports. Budget 2026-27 reduced the customs tariff on dutiable goods for personal use from 20% to 10% and removed the Rs 10 lakh per-consignment limit on courier exports.
12. With reference to the GST Compensation Cess, consider the following statements:
1. It was levied on demerit and luxury goods such as tobacco products and aerated drinks.
2. It was meant to compensate States for revenue loss on account of GST implementation, with a guaranteed 14 per cent annual growth over the base year 2015-16 for five years.
3. During the COVID-19 period, the Centre borrowed on behalf of the GST Council and passed on the proceeds to the States as back-to-back loans to bridge the compensation shortfall.
4. The compensation arrangement was extended permanently with the 101st Constitutional Amendment.
Which of the statements given above are correct?
✅ Correct answer: (C) COMPENSATION CESS. The 101st Amendment (Art. 279A(4)) and the GST (Compensation to States) Act 2017 guaranteed States 14% annual growth in SGST revenue over the 2015-16 base for the first five years (1 July 2017 to 30 June 2022), funded by a cess on demerit goods (tobacco, pan masala, aerated drinks, coal, motor vehicles above specified size, etc.) credited to the Compensation Fund in the Public Account. In 2020-21 and 2021-22, because of the pandemic and a revenue shortfall, the Centre raised funds through special borrowing windows and passed them as back-to-back loans, to be repaid from cess collections that were extended up to March 2026. The compensation guarantee ended on 30 June 2022 and was NOT made permanent, so statement 4 is wrong. After the loans are repaid, the cess is not meant to continue as a general levy. [Recheck current status of the cess in the latest GST Council notifications.]
13. Consider the following statements about indexation of wages and allowances to inflation in India:
1. The dearness allowance of Central Government employees is linked to the Consumer Price Index for Industrial Workers.
2. The dearness allowance is revised twice a year with effect from 1 January and 1 July.
3. MGNREGA wage rates are revised annually, with reference to the Consumer Price Index for Agricultural Labourers.
4. The Consumer Price Index for Industrial Workers is compiled by the National Statistics Office.
Which of the statements given above are correct?
✅ Correct answer: (A) INDEXATION. The CPI-IW (Industrial Workers) is compiled by the Labour Bureau (Ministry of Labour and Employment), not the NSO, so statement 4 is wrong. It is used for the DA of central government employees and pensioners (dearness relief), revised twice a year on the basis of the 12-month average CPI-IW; and for the national minimum wage and variable dearness allowance in scheduled employments. CPI-AL and CPI-RL (Agricultural/Rural Labourers) are also compiled by the Labour Bureau; MGNREGA wages (a notified wage rate for each State/UT) are revised each year with reference to the CPI-AL since 2009 (earlier by notification only). Indexation protects fixed-income groups from inflation, but it can create wage-price spirals; the pay commissions (the 7th in 2016, and the 8th constituted for the next cycle) recommend pay matrices that merge DA into basic pay at 50%. [Recheck current status of the 8th Pay Commission.]
14. Consider the following statements about price indices in India:
1. The Consumer Price Index (Combined) is compiled and released by the National Statistics Office (MoSPI), generally on the 12th of each month.
2. The Wholesale Price Index is compiled by the Office of the Economic Adviser, DPIIT, and is generally released on the 14th of each month.
3. The WPI covers both goods and services at the wholesale level.
4. CPI captures prices paid by consumers including indirect taxes, whereas WPI is measured before indirect taxes.
Which of the statements given above are correct?
✅ Correct answer: (D) CPI vs WPI. CPI (Combined for rural + urban; separate CPI-Rural, CPI-Urban) measures the retail prices of a fixed basket paid by households, includes services (education, health, housing) and indirect taxes, and is the RBI's inflation-targeting anchor. The CPI food and beverages group had a weight of about 46% in the 2012 base (the revised series with a 2024 base changes the weights - recheck). WPI measures the price of goods traded in bulk between businesses; it EXCLUDES services and indirect taxes, and its manufactured-products group carries the largest weight (about 64%), followed by primary articles and fuel and power. Other indices: CPI-IW (Labour Bureau, used for dearness allowance), CPI-AL/RL (Labour Bureau, agricultural/rural labourers), and the GDP deflator (broadest). Both indices are Laspeyres-type (fixed base-year weights). Statement 3 is wrong because WPI has no services.
15. In September 2026, WPI inflation was reported at about 11.4 per cent (up from about 9.9 per cent in August), while CPI inflation was about 5.5 per cent. Which of the following can help explain why the WPI inflation is much higher than the CPI inflation?
1. WPI does not include services, whereas CPI does.
2. WPI gives much higher weight to manufactured products and fuel and power, whereas CPI gives high weight to food.
3. WPI is measured before indirect taxes, so it reflects input and producer cost pressures more directly.
4. The RBI's inflation target is defined in terms of WPI, so a higher WPI automatically lifts CPI.
Select the correct answer using the code given below:
✅ Correct answer: (C) WHY INDICES DIVERGE. Different baskets, weights and price points: WPI tracks producer-stage prices of goods (heavy in manufactured goods, metals, chemicals, fuel), so an input-cost or imported-commodity shock (crude, metals, the rupee) shows up there first; CPI is retail, includes services (rents, education, health - which are sticky and often rise slowly) and is food-heavy. A large gap, therefore, signals cost pressure in the pipeline that may or may not pass through to retail prices depending on firms' margins and demand conditions - a reason the October 2026 MPC chose a tightening stance despite headline CPI being within the band. Statement 4 is wrong: the target is on CPI (Combined), and WPI does not automatically feed into CPI; the pass-through is partial and lagged. [WPI of about 11.39% for Sep 2026 and 9.92% for Aug 2026 are as reported from the DPIIT release of 14 Oct 2026; recheck on eaindustry.nic.in.]
16. The CPI (Combined) index was 120.0 in September 2025 and 126.6 in September 2026. Consider the following statements:
1. The year-on-year CPI inflation for September 2026 is 5.5 per cent.
2. If the index had been 126.6 in August 2026 and 128.0 in September 2026, the month-on-month inflation for September would be about 1.1 per cent.
3. A high base (a sharp price rise in the corresponding month of the previous year) tends to lower the current year-on-year inflation rate.
4. Year-on-year inflation is computed as the difference between the current index and the previous month's index.
Which of the statements given above are correct?
✅ Correct answer: (D) COMPUTING INFLATION. Year-on-year inflation = (CPI_t / CPI_(t-12) - 1) x 100 = (126.6 / 120.0 - 1) = 5.5% (statement 1 correct). Month-on-month inflation = (128.0 / 126.6 - 1) = 1.1% (statement 2 correct; annualising 1.1% per month would imply much higher yearly inflation, which is why a one-off monthly spike is treated carefully). BASE EFFECT: if prices rose steeply a year ago, the denominator is large, so the same price level now shows a lower year-on-year rate; conversely a low base inflates it. Statement 4 describes neither: YoY compares with the same month of the previous year, not the previous month. Hence the RBI watches both headline YoY, MoM seasonally adjusted trends and core inflation (CPI excluding food and fuel). In Sept 2026, India's CPI inflation was about 5.54% with food inflation near 7.7% (partly vegetables and onion). [Index values used here are illustrative.]
17. Arrange the following events in the GST journey in India in chronological order:
A. Assent to the 101st Constitutional Amendment Act (GST)
B. Rollout of GST across the country
C. End of the five-year period of GST compensation to States
D. Implementation of the two-rate structure ('GST 2.0')
Select the correct answer using the code given below:
✅ Correct answer: (B) GST TIMELINE. The 101st Constitutional Amendment Act received Presidential assent in September 2016 (Art. 246A, 269A, 279A inserted; Art. 268A on service tax omitted); the GST Council was constituted that month. GST was rolled out on 1 July 2017 (Jammu and Kashmir joined later in July 2017). The GST (Compensation to States) Act, 2017 guaranteed 14% annual growth in State GST revenue for five years, so compensation ended on 30 June 2022 (the compensation cess continued only to repay the back-to-back loans taken during COVID-19, up to March 2026). The reformed two-rate structure took effect on 22 September 2025. The order is therefore A-B-C-D.
18. Assertion (A): Under GST, States with high consumption but low manufacturing tend to gain relative to manufacturing States, compared to the earlier origin-based tax regime.
Reason (R): GST is a destination-based tax in which IGST revenue on inter-State supplies is apportioned to the State where the goods or services are finally consumed.
Which one of the following is correct?
✅ Correct answer: (A) WINNERS AND LOSERS. Under VAT/CST, manufacturing States charged an origin-based Central Sales Tax on exports to other States and kept the revenue. Under GST the revenue follows consumption, so high-consuming populous States (such as Bihar, Uttar Pradesh or Odisha, which import more than they export) gain relative to heavily manufacturing States (Maharashtra, Gujarat, Tamil Nadu, Karnataka, which lose some revenue). That is why the 14% growth guarantee and the compensation cess were put in place for five years, and why disputes now arise over compensation and the GST Council's voting weights. A and R are both true, and R gives the mechanism that causes A.
19. Which of the following are classified as direct taxes in India?
1. Income tax
2. Corporation tax
3. Securities Transaction Tax
4. Customs duty
5. Goods and Services Tax
Select the correct answer using the code given below:
✅ Correct answer: (A) DIRECT vs INDIRECT. A direct tax is one whose burden cannot be shifted: it is levied on and paid by the same person (income tax, corporation tax, capital gains tax, securities transaction tax (STT) - classified by the CBDT as a direct tax, and the minimum alternate tax). Indirect taxes can be shifted to the consumer: GST, customs duty, excise on petroleum, and others. Wealth tax was abolished in 2015-16 (Finance Act 2015) and replaced by a 2% surcharge on the very rich; the Dividend Distribution Tax was abolished from April 2020. Direct taxes are administered by the Central Board of Direct Taxes (CBDT); indirect taxes by the CBIC (Central Board of Indirect Taxes and Customs); both are under the Department of Revenue. The Income Tax Act 2025 replaces the 1961 Act from 1 April 2026; Budget 2026-27 raised STT on futures to 0.05% and on options premium to 0.15%. Direct taxes are progressive, while indirect taxes are regressive in incidence.
20. With reference to the Goods and Services Tax (GST) Council, consider the following statements:
1. It is a constitutional body established under Article 279A, inserted by the 101st Constitutional Amendment Act, 2016.
2. The Union Finance Minister is its Chairperson.
3. The Union Government has one-third of the weighted votes and all the States together have two-thirds.
4. Decisions require a majority of not less than three-fourths of the weighted votes of the members present and voting.
Which of the statements given above are correct?
✅ Correct answer: (D) GST COUNCIL. Article 246A gives Parliament and State legislatures concurrent power to make laws on GST (Parliament exclusively for inter-State supply, Art. 269A); Article 279A creates the GST Council: Chairperson - Union Finance Minister; members - the Union Minister of State in charge of Revenue or Finance and the State/UT (with legislature) ministers in charge of finance or taxation. Voting: the Centre's vote carries a weight of one-third of the total votes cast, and all States together two-thirds; every decision needs at least three-fourths of the weighted votes of members present and voting, which means that the Centre has an effective veto and the States cannot decide without the Centre, nor can the Centre decide without a sizeable State majority. Quorum is one-half of the total members. The Council recommends rates, exemptions, thresholds, model laws and special provisions for certain States. GST began on 1 July 2017.
21. Consider the following statements about the registration and compliance provisions under GST:
1. The basic aggregate turnover threshold for compulsory registration of suppliers of goods is Rs 40 lakh, and for suppliers of services Rs 20 lakh, in most States.
2. The Composition Scheme allows eligible small taxpayers to pay tax at a fixed percentage of turnover, with a turnover limit of Rs 1.5 crore for goods suppliers.
3. A taxpayer under the Composition Scheme can claim input tax credit.
4. The GST Network (GSTN) provides the common IT platform for registration, returns and payments.
Which of the statements given above are correct?
✅ Correct answer: (B) GST COMPLIANCE. Registration: aggregate turnover above Rs 40 lakh (goods; Rs 20 lakh in some States) and Rs 20 lakh (services; Rs 10 lakh in special category States) makes registration compulsory; inter-State suppliers and e-commerce sellers must register irrespective of turnover (with specified exceptions). Composition Scheme: eligible taxpayers (turnover up to Rs 1.5 crore for goods; Rs 75 lakh in some special category States; a separate scheme for service providers up to Rs 50 lakh) pay a small percentage of turnover (typically 1% for manufacturers/traders, 5% for restaurants, 6% for service providers), file simplified returns - but CANNOT claim input tax credit, cannot make inter-State supplies and cannot collect tax from customers, so statement 3 is wrong. GSTN is a non-profit company (Section 8) that runs the IT backbone for returns (GSTR-1, GSTR-3B), e-invoicing and e-way bills. [Recheck threshold amounts on cbic-gst.gov.in.]
22. Consider the following statements about GST as a destination-based consumption tax:
1. The tax revenue accrues to the State where the goods or services are consumed.
2. IGST on inter-State supplies is collected by the Centre and apportioned between the Union and the destination State.
3. Exports are zero-rated, with refund of the input tax paid.
4. Zero-rated supplies bear the tax on exports but no refund of input tax is available.
Which of the statements given above are correct?
✅ Correct answer: (D) DESTINATION PRINCIPLE. Under the origin-based sales tax regime, manufacturing States such as Maharashtra, Gujarat or Tamil Nadu collected CST on goods leaving the State. Under GST (Art. 269A), IGST on an inter-State supply is levied by the Centre and the proceeds are apportioned to the destination (consumption) State, with the credit passing along the chain. Consequently consumption-heavy and lower-industry States (such as Bihar or Uttar Pradesh) benefit relatively more, while manufacturing States lose some revenue, which is why the Compensation Act was needed. Exports are 'zero-rated': no tax is charged on the export itself and the exporter gets a refund of input tax credit (or may export under a bond/LUT without paying IGST), so that tax is not exported; imports bear IGST on the CIF value plus customs. Statement 4 is wrong because zero rating means a refund IS given.
23. Match List-I (Type of inflation or related concept) with List-II (Description) and select the correct answer using the code given below:
List-I (Type of inflation or related concept)
List-II (Description)
(A)Demand-pull inflation
(1)Rise in prices because aggregate demand exceeds aggregate supply
(B)Cost-push inflation
(2)Rise in prices because of higher input costs such as wages and raw materials
(C)Stagflation
(3)High inflation together with high unemployment and low growth
(D)Disinflation
(4)A fall in the rate of inflation without prices actually falling
✅ Correct answer: (D) TYPES OF INFLATION. Demand-pull: 'too much money chasing too few goods' - treat with higher interest rates and lower spending. Cost-push: supply shocks (oil, wages, imported commodities) - monetary tools are weak; supply-side measures (buffer stocks, import duty cuts) work better. Stagflation: high inflation + stagnation + unemployment (1970s oil shocks) - it contradicts the simple Phillips curve trade-off. Disinflation: the inflation rate falls but prices still rise (e.g., from 7% to 5%); deflation is a fall in the general price level (negative inflation); reflation is a deliberate policy push to restore prices/output after deflation; hyperinflation is extremely rapid price rise (conventionally over 50% per month); core inflation excludes food and fuel; 'skewflation' (a term used in Indian policy debates) describes a rise in a few prices while others stay flat. Correct code: A-1, B-2, C-3, D-4.
24. Which of the following are, as per the present constitutional and legal position, outside the scope of GST?
1. Alcoholic liquor for human consumption
2. Petrol and diesel
3. Electricity
4. Information technology services
Select the correct answer using the code given below:
✅ Correct answer: (B) GST EXCLUSIONS. Under the Constitution (Art. 366(12A) as amended), GST applies to all goods and services EXCEPT alcoholic liquor for human consumption (which remains with States as State excise and VAT). Petroleum crude, high-speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel are constitutionally within GST but their date of levy is to be notified on the Council's recommendation; hence they are outside GST in practice and still bear Central excise and State VAT. Electricity is exempt from GST (supply of electricity is a notified exempt supply; States tax it through electricity duty). IT services are taxable at the standard rate (and are exported with zero-rated treatment). So 1, 2 and 3 are outside GST. Note the effect: because fuel is outside GST, tax on inputs used by industry cannot be credited, creating cascading.
25. If the nominal interest rate on a deposit is 10.5 per cent per annum and the annual inflation is 5 per cent, which one of the following is the exact real rate of return (Fisher relation)?
✅ Correct answer: (C) FISHER RELATION. Exact: (1 + nominal) = (1 + real) x (1 + inflation). So 1 + real = 1.105 / 1.05 = 1.05238, hence real = about 5.24%. The common approximation real = nominal - inflation = 10.5 - 5.0 = 5.5% overstates it slightly, and the gap widens at higher inflation. A negative real rate means savers lose purchasing power; this is why the RBI tracks the 'real policy rate' (repo - inflation) as a guide to how tight policy is: with repo at 5.50% and CPI at about 5.54% (September 2026), it is around zero. Related impacts of inflation: debtors gain and creditors lose when inflation is unanticipated, fixed-income earners and savers lose, exports become less competitive, and the tax burden rises through bracket creep if slabs are not indexed.