Prelims · Economy & social development · 34 questions

Budget, taxation & public finance

Every UPSC Prelims question on this topic, 2016–2026, newest first. Tap an option to check yourself; the answer and explanation open below it.

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Prelims 2018 · Q8

Medium

With reference to India's decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?

1.It is introduced as a part of the Income Tax Act.
2.Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the "Double Taxation Avoidance Agreements".

Select the correct answer using the code given below:

Answer & explanation

Answer: (d) Neither 1 nor 2

The 6 per cent Equalisation Levy was created as a separate chapter of the Finance Act, 2016, outside the Income-tax Act, 1961. Because it is not a tax on income, tax treaties do not cover it, so the foreign firm gets no treaty credit at home.

✗ 1. The Finance Bill, 2016 inserted a new chapter titled 'Equalisation Levy' in the Finance Bill itself (Chapter VIII of the Finance Act, 2016); the Income-tax Act only exempted the same income under section 10 to avoid double taxation.
✗ 2. The CBDT's e-commerce committee, which designed the levy, noted that as it is not charged on income, Double Taxation Avoidance Agreements do not apply and no tax credit is available in the country of residence.
• Since then Since then the 6 per cent levy on online advertisement has been abolished with effect from 1 April 2025 (Finance Act, 2025).

Remember · Equalisation Levy (2016): 6% on payments to non-resident online-ad providers without a PE in India; enacted in the Finance Act, not the Income-tax Act; outside DTAAs, so no foreign tax credit.

Sources

Memorandum explaining the provisions in the Finance Bill, 2016 (Direct Taxes), Union Budget 2016-17 ↗ “it is proposed to insert a new Chapter titled "Equalisation Levy" in the Finance Bill, to provide for an equalisation levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment ('PE') in India”
Proposal for Equalization Levy on Specified Transactions: Report of the Committee on Taxation of E-Commerce (CBDT), February 2016 (third-party-hosted copy) ↗ · reference work “As the Equalization Levy is not charged on income, it is not covered by Double Taxation Avoidance Agreements or tax treaties. Thus, no tax credits under the tax treaties will become available to the beneficial owner in the country of its residence”

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2018 · Q9

Medium

Consider the following statements:

1.The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
2.The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
3.As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter.

Which of the statements given above is/are correct?

Answer & explanation

Answer: (c) 1 and 3 only

The N.K. Singh FRBM Review Committee (report made public in 2017) proposed a 60 per cent general-government debt anchor, with the Centre brought down to 40 per cent by FY23 and the States at about 20 per cent. Statement 2 swaps the numbers: it is the Centre whose debt was about 49 per cent of GDP. Article 293(3) makes statement 3 correct.

✓ 1. The committee recommended a glide path that brings the Centre's debt to 40 per cent of GDP by FY23 within a general-government anchor of about 60 per cent, leaving roughly 20 per cent for the States together.
✗ 2. The figures are reversed. The report puts the Union government's debt at 49.4 per cent of GDP and the States' collective debt at only about 19–21 per cent.
✓ 3. Article 293(3) says a State may not raise a loan without the Government of India's consent if any part of a loan made or guaranteed by the Centre is still outstanding.

Remember · FRBM Review (N.K. Singh) Committee: debt anchor 60% of GDP (Centre 40%, States 20%); fiscal deficit 2.5% by FY23. Article 293(3): indebted States need the Centre's consent to borrow.

Sources

FRBM Review Committee Report, Volume I: Responsible Growth, Department of Economic Affairs ↗ “the Committee recommends a path of medium-term consolidation, where the fiscal deficit is envisaged to be on a glide path, to be reduced to 2.5% of GDP, consistent with reducing the centre's debt to 40% by FY23. … This is the case because the Union government, which has a large debt stock of 49.4 percent of GDP, enjoys a greater downward pressure on its debt due to a favourable r-g.”
Constitution of India, Article 293(3) (Legislative Department, Government of India) ↗ “A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India”

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2018 · Q27

Hard

Consider the following statements:

1.In India, State Governments do not have the power to auction non-coal mines.
2.Andhra Pradesh and Jharkhand do not have gold mines.
3.Rajasthan has iron ore mines.

Which of the statements given above is/are correct?

Answer & explanation

Answer: (d) 3 only

Only statement 3 is correct. Rajasthan does produce iron ore, whereas State Governments do hold the auction of mineral concessions and both Andhra Pradesh and Jharkhand have gold mines.

✗ 1. Since the 2015 amendment of the Mines and Minerals (Development and Regulation) Act, mineral concessions are granted by the State Governments and only through auction.
✗ 2. Jharkhand has a working private gold mine at Kunderkocha in Singhbhum East district. Andhra Pradesh has a gold mining lease in Kurnool district (Jonnagiri), so both States have gold mines, even though Karnataka produces about 99% of India's gold.
✓ 3. Rajasthan does have iron ore mines. In 2021-22 Odisha, Chhattisgarh, Karnataka and Jharkhand gave about 96% of India's iron ore, and the rest came from Andhra Pradesh, Madhya Pradesh, Maharashtra and Rajasthan.

Remember · States conduct the auction of mineral concessions (MMDR Act, 2015). Gold mines: Karnataka mainly, also Jharkhand and Andhra Pradesh. Rajasthan has iron ore.

Sources

PIB, Ministry of Mines: Government Promulgates the Mines and Minerals (Development and Regulation) (Amendment) Ordinance, 2015 ↗ “All mineral concessions are granted by the respective State Governments. They will continue to do so but all grant of mineral concessions would be through auctions”
Indian Minerals Yearbook 2017, Gold, Indian Bureau of Mines ↗ “Manmohan Mineral Industries Pvt. Ltd is engaged in mine production of gold at Kunderkocha, in Singhbhum East district, Jharkhand by undeground method of mining.”
Indian Minerals Yearbook 2019, Gold, Indian Bureau of Mines ↗ “Geomysore Services (India) Pvt. Ltd has been granted a mining lease for gold mining in Kurnool district of Andhra Pradesh.”
Indian Minerals Yearbook 2022, Iron Ore, Indian Bureau of Mines ↗ “i.e., 4.29% production was reported from Andhra Pradesh, Madhya Pradesh, Maharashtra and Rajasthan.”

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2018 · Q47

Medium

If a commodity is provided free to the public by the Government, then

Answer & explanation

Answer: (c) the opportunity cost is transferred from the consumers of the product to the tax-paying public.

Free public provision does not remove the cost. The resources used still have other uses, and the bill is met through the government budget, which taxes help to fund, so the burden moves from the user to the tax-paying public.

✓ (c) When goods are provided publicly, they are financed through the budget and users pay nothing directly. Tax revenue is an important part of budget receipts, so taxpayers bear the cost that consumers would otherwise have paid.
✗ (a) Opportunity cost is what is given up when resources are used for one purpose instead of another. Producing the commodity always uses scarce resources, so the cost cannot be zero.
✗ (b) The cost is not ignored in economics. It has only moved from the consumer to someone else.
✗ (d) The government pays for the commodity out of the budget, which is funded mainly by receipts such as taxes. The burden therefore falls on taxpayers, not on the government as a separate bearer.

Remember · Free to the user is not free to society: public provision shifts the cost from the consumer to taxpayers through the budget.

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter) · Class 12 Introductory Microeconomics, Ch 1 (practise this chapter)

Sources

NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “Public provision means that they are financed through the budget and can be used without any direct payment.”
NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “Tax revenues, an important component of revenue receipts, have for long been divided into direct taxes”
NCERT Class 12 · Introductory Microeconomics, Chapter 1 “there is always a cost of having a little more of one good in terms of the amount of the other good that has to be forgone.”

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2018 · Q96

Medium

With reference to the governance of public sector banking in India, consider the following statements:

1.Capital infusion into public sector banks by the Government of India has steadily increased in the last decade.
2.To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected.

Which of the statements given above is/are correct?

Answer & explanation

Answer: (b) 2 only

Statement 2 is correct: SBI absorbed its five associate banks and Bharatiya Mahila Bank in 2017. Statement 1 is wrong because the Government's yearly capital infusion into public sector banks (PSBs) went up and down rather than rising steadily.

✗ 1. The CAG's audit records infusions of ₹1,900 crore (2008-09), ₹1,200 crore (2009-10), ₹20,117 crore (2010-11), ₹12,000 crore, ₹12,517 crore, ₹14,000 crore, ₹6,990 crore (2014-15), then ₹25,000 crore in each of 2015-16 and 2016-17. The dips in between mean it was not a steady increase; the jump to ₹88,139 crore came only in 2017-18.
✓ 2. With Government sanction and in consultation with the RBI, State Bank of India took over State Bank of Bikaner & Jaipur, Hyderabad, Mysore, Patiala and Travancore, plus Bharatiya Mahila Bank. The merger took effect on 1 April 2017.

Remember · SBI merged its five associate banks and Bharatiya Mahila Bank on 1 April 2017; recapitalisation of PSBs was uneven year to year before the 2017-18 surge.

Sources

Report No. 28 of 2017, Chapter III: Infusion of Capital Funds by GOI in PSBs (Comptroller and Auditor General of India), Table 3.1 ↗ “Total 1900 1200 20117 12000 12517 14000 6990 25000 25000 118724”
Recapitalisation of Public Sector Banks (PSBs) (PIB, Ministry of Finance) ↗ “Rs. 88,139 crore was infused by the Government in PSBs during financial year (FY) 2017-18 after the recapitalisation announcement”
Annual Report 2017-18, Department of Financial Services, Ministry of Finance (2.3 State Bank of India Merger) ↗ “acquired the business including all the assets and liabilities of its associate banks (State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore) and Bharatiya Mahila Bank, in 2017.”

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2018 · Q97

Medium

Consider the following items:

1.Cereal grains hulled
2.Chicken eggs cooked
3.Fish processed and canned
4.Newspapers containing advertising material

Which of the above items is/are exempted under GST (Goods and Services Tax)?

Answer & explanation

Answer: (c) 1, 2 and 4 only

Hulled cereal grains, cooked eggs and newspapers are on the GST exemption list, but processed and canned fish is taxed at 12%. So items 1, 2 and 4 are exempt and item 3 is not.

✓ 1. 'Cereal grains hulled' (heading 1104) is in the list of goods exempt from GST in Notification 2/2017-Central Tax (Rate).
✓ 2. The exemption list covers birds' eggs, in shell, fresh, preserved or cooked (heading 0407), which includes chicken eggs.
✗ 3. Prepared or preserved fish (heading 1604) is in Schedule II of the GST rate notification, at 12%. Only fresh, chilled or frozen fish gets the lower rate or exemption.
✓ 4. Newspapers, journals and periodicals, whether or not illustrated or containing advertising material (heading 4902), are exempt.

Remember · GST exempts unprocessed staples: hulled cereal grains, eggs, newspapers. Canned or preserved fish is taxed (12% at launch).

Sources

Notification No. 2/2017-Central Tax (Rate), 28 June 2017 (CBIC, Ministry of Finance): preamble ↗ “the Central Government, being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods … 1104 Cereal grains hulled 77. 1105 Flour, of potatoes [other than those put up in unit container and bearing a registered brand name] … 0407 Birds' eggs, in shell, fresh, preserved or cooked … 4902 Newspapers, journals and periodicals, whether or not illustrated or containing advertising material”
Notification No. 1/2017-Integrated Tax (Rate), 28 June 2017 (CBIC, Ministry of Finance): Schedule II entry ↗ “1604 Prepared or preserved fish; caviar and caviar substitutes prepared from fish eggs”

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

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