📑 Topics on this page (Jump to Topic):
📌 1. Taxes: Types & Principles
| Basis | Direct tax | Indirect tax |
|---|---|---|
| Burden | Paid by the person on whom it is levied (cannot be shifted) | Burden can be shifted to others (consumers) |
| Examples | Income tax, corporation tax, securities transaction tax | GST, customs duty |
| Nature | Usually progressive | Usually regressive (heavier on the poor) |
- Progressive tax: rate rises with income; proportional: one flat rate; regressive: effective rate falls as income rises.
- Impact = on whom the tax is levied; incidence = who finally bears it.
- Laffer curve: relation between tax rate and revenue — beyond a point higher rates reduce revenue.
- CBDT (direct taxes) and CBIC (indirect taxes, customs) — under the Central Boards of Revenue Act 1963, in the Finance Ministry's Department of Revenue.
- Abolished taxes: estate duty (1985), gift tax (1998), wealth tax (2015).
📌 2. Income Tax
- The Income-tax Act 2025 replaced the Income-tax Act 1961 — in force from 1 April 2026; it uses a single "tax year" in place of "previous year/assessment year".
- New tax regime (default) slabs: nil up to ₹4 lakh; 4-8 lakh 5%; 8-12 lakh 10%; 12-16 lakh 15%; 16-20 lakh 20%; 20-24 lakh 25%; above 24 lakh 30%.
- Resident individuals get a rebate of up to ₹60,000 — no tax on income up to ₹12 lakh; for salaried people up to ₹12.75 lakh with the ₹75,000 standard deduction.
- Corporation tax: an optional 22% rate (without exemptions) for domestic companies since 2019.
📌 3. Goods and Services Tax (GST)
| Point | Fact |
|---|---|
| Constitutional amendment | 101st Amendment Act 2016 |
| In force | 1 July 2017 |
| Nature | Destination-based consumption tax; dual GST (Centre + states) |
| Articles | 246A (concurrent power of Centre and states), 269A (IGST), 279A (GST Council) |
| Components | CGST + SGST/UTGST (within a state); IGST (inter-state and imports) |
| Kept out | Alcohol for human consumption; GST is not yet levied on 5 petroleum products (crude, petrol, diesel, ATF, natural gas) |
| IT backbone | GST Network (GSTN) |
- GST Council: chaired by the Union Finance Minister; members are finance ministers of all states. Decisions by a 3/4 majority — Centre's vote 1/3, states' 2/3.
- GST 2.0 (from 22 September 2025): main rates 5% (merit) and 18% (standard) + a 40% special rate (luxury/sin goods); most items moved out of the 12% and 28% slabs.
- GST was recommended by the Kelkar Task Force (2003); France (1954) was the first country to adopt GST.
- Input tax credit removes the "tax on tax" (cascading effect).
⚠️ Exam Traps:
- GST is the 101st Amendment, not the 122nd (122 was the Bill number).
- The GST Council is in Art. 279A, not 246A.
- Petrol and diesel are not constitutionally outside GST; GST is not levied on them until the Council recommends it. Alcohol for human consumption is constitutionally outside.
- The Income-tax Act 2025 has applied from 1 April 2026; the 1961 Act no longer governs.
💡 Memory Tip: GST: 101 – 2016 – 1 July 2017 – 279A; GST 2.0: 5 / 18 / 40.
📌 4. Practice MCQs
📝 Practice MCQs (prepared by SF Prep — not PYQs)
Q1. Which of these is a direct tax? Practice
Correct answer: (C)
The company itself bears corporation tax, so it is a direct tax.
The company itself bears corporation tax, so it is a direct tax.
Q2. A tax whose rate rises as income rises is: Practice
Correct answer: (D)
A progressive tax charges higher rates on higher income, like income-tax slabs.
A progressive tax charges higher rates on higher income, like income-tax slabs.
Q3. The final burden of a tax falling on a person is called: Practice
Correct answer: (A)
Impact = on whom it is levied; incidence = who finally bears it.
Impact = on whom it is levied; incidence = who finally bears it.
Q4. The curve showing the relation between tax rate and tax revenue is the: Practice
Correct answer: (B)
The Laffer curve shows revenue starts falling at very high rates.
The Laffer curve shows revenue starts falling at very high rates.
Q5. GST was brought in by which Constitutional Amendment Act? Practice
Correct answer: (A)
The 101st Amendment Act 2016; 122 was the number of the amendment Bill.
The 101st Amendment Act 2016; 122 was the number of the amendment Bill.
Q6. When did GST come into force in India? Practice
Correct answer: (C)
GST came into force at midnight on 1 July 2017.
GST came into force at midnight on 1 July 2017.
Q7. Which Article provides for the GST Council? Practice
Correct answer: (D)
Art. 279A = GST Council; 246A = power to levy; 269A = IGST.
Art. 279A = GST Council; 246A = power to levy; 269A = IGST.
Q8. Who chairs the GST Council? Practice
Correct answer: (B)
The Union Finance Minister chairs it; the Union MoS (Finance/Revenue) and all state finance ministers are members.
The Union Finance Minister chairs it; the Union MoS (Finance/Revenue) and all state finance ministers are members.
Q9. What majority does the GST Council need for a decision? Practice
Correct answer: (B)
The Centre's vote counts for 1/3 and all states for 2/3; decisions need a 3/4 weighted majority.
The Centre's vote counts for 1/3 and all states for 2/3; decisions need a 3/4 weighted majority.
Q10. Which GST applies to inter-state supply? Practice
Correct answer: (C)
Within a state CGST + SGST; between states and on imports IGST.
Within a state CGST + SGST; between states and on imports IGST.
Q11. GST is what kind of tax? Practice
Correct answer: (D)
GST revenue goes to the state where goods or services are consumed.
GST revenue goes to the state where goods or services are consumed.
Q12. Which is correct about GST on alcohol for human consumption? Practice
Correct answer: (A)
The 101st Amendment kept alcohol for human consumption out of GST; states levy excise on it.
The 101st Amendment kept alcohol for human consumption out of GST; states levy excise on it.
Q13. What are the main GST 2.0 rates (from 22 September 2025)? Practice
Correct answer: (D)
GST 2.0 has two main slabs, 5% and 18%, and 40% on luxury/sin goods.
GST 2.0 has two main slabs, 5% and 18%, and 40% on luxury/sin goods.
Q14. Which committee/task force first recommended GST in India? Practice
Correct answer: (A)
The task force headed by Vijay Kelkar (2003) suggested a national GST.
The task force headed by Vijay Kelkar (2003) suggested a national GST.
Q15. Which was the first country to adopt GST? Practice
Correct answer: (B)
France adopted GST (as VAT) in 1954.
France adopted GST (as VAT) in 1954.
Q16. From when has the Income-tax Act 2025 been in force? Practice
Correct answer: (C)
The new Act came into force on 1 April 2026, replacing the Income-tax Act 1961.
The new Act came into force on 1 April 2026, replacing the Income-tax Act 1961.
Q17. Under the new regime, up to what income does a resident individual pay no tax (with rebate)? Practice
Correct answer: (C)
A rebate of up to ₹60,000 makes income up to ₹12 lakh tax-free; ₹12.75 lakh for salaried people with the standard deduction.
A rebate of up to ₹60,000 makes income up to ₹12 lakh tax-free; ₹12.75 lakh for salaried people with the standard deduction.
Q18. Who administers direct taxes? Practice
Correct answer: (D)
The Central Board of Direct Taxes (CBDT) handles income and corporation tax; CBIC handles indirect taxes.
The Central Board of Direct Taxes (CBDT) handles income and corporation tax; CBIC handles indirect taxes.
Q19. When was wealth tax abolished in India? Practice
Correct answer: (A)
Wealth tax was abolished in Budget 2015-16; estate duty ended in 1985 and gift tax in 1998.
Wealth tax was abolished in Budget 2015-16; estate duty ended in 1985 and gift tax in 1998.
Q20. Which feature of GST removes the cascading "tax on tax" effect? Practice
Correct answer: (B)
Credit for tax already paid is given at each stage, so tax falls only on value added.
Credit for tax already paid is given at each stage, so tax falls only on value added.