Consider the following statements: Statement-I. Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable. Statement-II. InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’. Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(c) Statement-I is correct but Statement-II is incorrect

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.

Asked in 10 of 11 years · most in 2025 (5)

UPSC syllabus: “Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.” See the full syllabus →

Prelims 2023 · Q21

Hard

Consider the following statements:

Statement-I: Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable.
Statement-II: InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’.

Which one of the following is correct in respect of the above statements?

Answer & explanation

Answer: (d) Statement-I is incorrect but Statement-II is correct

An InvIT is a 'pass-through' vehicle: interest it receives from its project SPVs is not taxed at the trust level but is taxed when distributed to unitholders, so Statement-I gets it the wrong way round. The Finance Act, 2021 widened the SARFAESI Act's definition of 'borrower' to include pooled investment vehicles such as InvITs, so Statement-II is right.

✗ Statement-I Under section 115UA of the Income-tax Act, interest income that an InvIT passes on to its unitholders is deemed to be their income and is taxed in their hands; it is not exempt.
✓ Statement-II From 1 April 2021, clause (f) of section 2(1) of the SARFAESI Act covers 'any person who, or a pooled investment vehicle' that has taken financial assistance, and business trusts such as InvITs and REITs are pooled investment vehicles. Lenders can therefore enforce security against them.

Remember · InvIT/REIT = business trust = pooled investment vehicle. Interest passed to unitholders is taxable in their hands. Since 2021, InvITs and REITs count as 'borrowers' under SARFAESI.

Sources

Finance Bill 2021, Part X, Amendment to the SARFAESI Act, 2002 (Union Budget 2021-22) ↗ “It is proposed to amend clause (f) of sub-section (1) of the said section so as to clarify that the definition of “borrower” in the said Act shall also include a pooled investment vehicle … “pooled investment vehicle” means a fund established in India in the form of a trust or otherwise, such as mutual fund, alternative investment fund, collective investment scheme or a business trust”
Memorandum explaining the provisions in the Finance Bill, 2020 ↗ “distributed income of the nature as referred to in clause (23FC) or clause (23FCA) of section 10 shall be deemed to be income of the unit holder and shall be charged to tax as income of the previous year.”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q29

Medium

Consider the following:

1.Demographic performance
2.Forest and ecology
3.Governance reforms
4.Stable government
5.Tax and fiscal efforts

For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

Answer & explanation

Answer: (b) Only three

The Fifteenth Finance Commission shared the divisible pool among states on six criteria: income distance (45%), population (15%), area (15%), forest and ecology (10%), demographic performance (12.5%) and tax and fiscal efforts (2.5%). Governance reforms and stable government were not criteria, so three of the listed items were used.

✓ 1. Demographic performance carried a 12.5% weight: the Commission used Census 2011 population but wanted to reward states that had done better on the demographic front.
✓ 2. Forest and ecology carried a 10% weight in the 15th Finance Commission's formula.
✗ 3. Governance reforms were not a criterion in the devolution formula.
✗ 4. 'Stable government' was never part of the formula.
✓ 5. Tax and fiscal efforts carried a 2.5% weight: the Commission re-introduced the tax effort criterion to reward fiscal performance.

Remember · 15th FC horizontal devolution: income distance 45, population (2011) 15, area 15, demographic performance 12.5, forest and ecology 10, tax and fiscal efforts 2.5. States' share: 41%.

Sources

PIB (Ministry of Finance), The Report of the Fifteenth Finance Commission, 1 February 2021: horizontal devolution ↗ “Criteria Weight (%) Population 15.0 Area 15.0 Forest & ecology 10.0 Income distance 45.0 Tax & fiscal efforts 2.5 Demographic performance 12.5 Total 100 … XVFC has assigned a 12.5 per cent weight to the demographic performance criterion. … States’ share at 41 per cent of divisible pool comes to 42.2 lakh crore for 2021-26 period.”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q37

Hard

With reference to Finance Bill and Money Bill in the Indian Parliament, consider the following statements:

1.When the Lok Sabha transmits Finance Bill to the Rajya Sabha, it can amend or reject the Bill.
2.When the Lok Sabha transmits Money Bill to the Rajya Sabha, it cannot amend or reject the Bill, it can only make recommendations.
3.In the case of disagreement between the Lok Sabha and the Rajya Sabha, there is no joint sitting for Money Bill, but a joint sitting becomes necessary for Finance Bill.

How many of the above statements are correct?

Answer & explanation

Answer: (b) Only two

UPSC's official answer: (b) · the answer UPSC accepted, and the one that counts in the exam

Also defensible: (a)

Statement 2 is correct on any reading: under Article 109(2) the Rajya Sabha must 'return the Bill to the House of the People with its recommendations' within fourteen days.
Statement 3 fails on 'becomes necessary': Article 108 only says the President 'may' summon a joint sitting on a non-Money Bill; it is never compulsory, and a Money Bill has no joint sitting at all.
Statement 1 depends on what 'Finance Bill' means. UPSC's key treats it as a financial Bill that is not a Money Bill, which the Rajya Sabha can amend or reject like any other Bill, so 1 and 2 are correct: two, option (b).
But the Finance Bill of the Budget, defined in Lok Sabha Rule 219 as 'the Bill ordinarily introduced in each year to give effect to the financial proposals of the Government of India', is certified a Money Bill: 'A Finance Bill is a Money Bill but not all money bills are Finance Bills' (Arthapedia, Indian Economic Service). On that reading the Rajya Sabha cannot amend or reject it, 1 fails too, and only 2 holds: option (a).

UPSC's key is (b), reading 'Finance Bill' as the non-Money financial Bill; read as the annual Finance Bill, a Money Bill, only statement 2 survives, giving (a). In the exam, when UPSC sets 'Finance Bill' against 'Money Bill', read it as the non-Money financial Bill, and never let 'necessary' pass for 'possible'.

Rules of Procedure and Conduct of Business in Lok Sabha, Rule 219 (Finance Bill), 17th edition (sansad.in) ↗““Finance Bill” means the Bill ordinarily introduced in each year to give effect to the financial proposals of the Government of India”
Arthapedia (Indian Economic Service, ies.gov.in): Finance Bill or Finance Act ↗“A Finance Bill is a Money Bill but not all money bills are Finance Bills.”
Constitution of India, Article 109(2) (Legislative Department) ↗“the Council of States shall within a period of fourteen days from the date of its receipt of the Bill return the Bill to the House of the People with its recommendations”

This box is Minimalist IAS's analysis, with its sources; it does not change UPSC's answer.

Statements 1 and 2 are correct and statement 3 is not, so two are correct. The question sets a Finance Bill against a Money Bill, so the Finance Bill here is a financial Bill that is not a Money Bill: the Rajya Sabha can amend or reject it like any other Bill (1), while a Money Bill it can only return with recommendations within 14 days (2). Statement 3 fails on 'becomes necessary': Article 108 lets the President summon a joint sitting on a non-Money Bill, but it is never compulsory.

✓ 1. Article 117(1) restricts a financial Bill only at introduction: the President's recommendation, and no introduction in the Rajya Sabha. Once transmitted, the Rajya Sabha can amend or reject it; Article 108 itself contemplates such a Bill being 'rejected by the other House' or the Houses disagreeing on amendments.
✓ 2. Article 109(2): the Council of States must return a Money Bill within fourteen days with recommendations, and the House of the People may accept or reject any of them.
✗ 3. No joint sitting for a Money Bill is right (Article 108 proviso), but a joint sitting never 'becomes necessary': on a disagreement the President 'may' notify a joint sitting, and the Bill may simply lapse. A possible remedy is not a necessary one.

Remember · Money Bill: Lok Sabha only; Rajya Sabha may only recommend within 14 days; no joint sitting. Other financial Bills: Rajya Sabha can amend or reject; a joint sitting is possible (the President 'may' summon one), never necessary.

Sources

Constitution of India, Article 109(2) (Legislative Department) ↗ “the Council of States shall within a period of fourteen days from the date of its receipt of the Bill return the Bill to the House of the People with its recommendations … his intention to summon them to meet in a joint sitting for the purpose of deliberating and voting on the Bill: Provided that nothing in this clause shall apply to a Money Bill. … and a Bill making such provision shall not be introduced in the Council of States … (a) the Bill is rejected by the other House; or (b) the Houses have finally disagreed as to the amendments to be made in the Bill … the President may, unless the Bill has elapsed by reason of a dissolution of the House of the People, notify to the Houses by message if they are sitting or by public notification if they are not sitting, his intention to summon them to meet in a joint sitting”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). Permalink ·

Prelims 2023 · Q89

Easy

Consider the following statements:

The 'Stability and Growth Pact' of the European Union is a treaty that

1.limits the levels of the budgetary deficit of the countries of the European Union
2.makes the countries of the European Union to share their infrastructure facilities
3.enables the countries of the European Union to share their technologies

How many of the above statements are correct?

Answer & explanation

Answer: (a) Only one

Only statement 1 is correct. The Stability and Growth Pact is a set of fiscal rules that keeps member states' budget deficits (3% of GDP) and public debt (60% of GDP) within limits; it says nothing about sharing infrastructure or technology.

✓ 1. The Pact is meant to ensure sound public finances and coordinated fiscal policies, and compliance is checked against reference values of 3% of GDP for the government deficit and 60% for gross debt.
✗ 2. The Pact is a budgetary-discipline framework. It does not oblige countries to pool or share infrastructure facilities.
✗ 3. Technology sharing is not part of the Pact, which deals only with fiscal policy.

Remember · EU Stability and Growth Pact: fiscal rules limiting deficits (3% of GDP) and debt (60% of GDP), enforced through the excessive deficit procedure.

Sources

European Commission, Economy and Finance: Stability and Growth Pact ↗ “The Stability and Growth Pact (SGP) is a set of rules designed to ensure that countries in the European Union pursue sound public finances and coordinate their fiscal policies.”
European Central Bank: Fiscal policies ↗ “Compliance with this rule is to be examined on the basis of reference values for the general government deficit (3%) and gross debt (60%) in relation to GDP”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

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