Fiscal Policy

Cash Management bills.
•The Government of India, in consultation with the RBI, decided to issue a new
short-term instrument, known as Cash Management Bills, since August 2009
to meet the temporary cash flow mismatches of the government.
•The Cash Management Bills are non-standard and discounted instruments
issued for maturities less than 91 days.
•The CMBs have the generic character of Treasury Bills (issued at discount to the
face value); are tradable and qualify for ready forward facility; investment in it is
considered as an eligible investment in government securities by banks for SLR.

The Consumer Welfare Fund Rules were framed and notified in the Gazette of
India in 1992, which have been incorporated in Consumer Welfare Fund Rule 97 of the
CGST Rules, 2017. Consumer Welfare Fund has been setup under section 57 of the CGST
Act, 2017.
Financial assistance from CWF is given to various Institutions including Universities,
Voluntary Consumer Organization (VCOs) and States to promote and protect the welfare and interests of the consumers, create consumer awareness and strengthen consumer movement in the country. Grants from CWF have been given for the following major projects:
•Creation of Consumer Law Chairs/ Centres of Excellence in Institutions/Universities of repute to foster research and training on consumer related issues.
•Projects for spreading consumer literacy and awareness.

The introduction of the Goods and Services Tax (GST) is a very significant step in the field of indirect tax reforms in India.
By amalgamating a large number of Central and State taxes into a single tax, GST will mitigate ill effects of cascading or double taxation in a major way and pave the way for a common national market.
The government rolled out GST with effect from 1st July 2017. State taxes that would be subsumed within the GST are:-
• State VAT
• Central Sales Tax
• Purchase Tax
• Luxury Tax
• Entry Tax (All forms)
• Entertainment Tax and Amusement Tax (except those levied by the local bodies)
• Taxes on advertisements
• Taxes on lotteries, betting and gambling
• State cesses and surcharges in so far as they relate to supply of goods and services.

In simple terms, buyback of shares means a situation when the company repurchases its own shares. A company may opt to buy back the shares under any one of the following situations:
• When the quoted price on the stock exchange for the company’s share does not represent the true value of the shares; or
• When the company doesn’t have paths to invest its accumulated funds, and it goes for buyback of shares with a view to return the capital; or
• When the promoters are planning to increase their shareholding in the company.

A company which has distributable surplus has the following two options:
• Declare dividend; or
• Purchase its own shares (i.e. buyback its shares).

The declared dividend is chargeable to Dividend Distribution Tax, whereas, earlier, the amount distributed as buy-back of shares was chargeable to capital gains. Being treated as capital gains, the income tax was paid at lower rates on buyback of shares.
In order to avoid the tax, unlisted companies started resorting to buyback of shares instead of declaring dividends. As an anti-tax avoidance measure, the government introduced Section 115QA under the Income Tax Act vide the Finance Act, 2013.
Provisions of Section 115QA were initially applicable only to unlisted companies. However, vide the Finance (No. 2) Act, 2019, the provisions of Section 115QA were amended and the same is made applicable to the listed companies also. The amended Section 115QA basically aims to bring the tax on dividend and the tax on buyback of shares at par.

When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment.
• The Department of Investment and Public Asset Management (DIPAM) which comes under the Finance Ministry defines Strategic disinvestment as follows:

Strategic disinvestment would imply the sale of a substantial portion of the Government shareholding of central public sector enterprises (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.”
• The Cabinet Committee on Economic Affairs (CCEA) approves the strategic divestment of government holdings.

The framework is being drafted by the Department of Investment and Public Asset Management (DIPAM). The policy framework lays down the Institutional framework for monetization of the following:
• Identified non-core assets of CPSEs under strategic disinvestment;
• Immovable Enemy Property under the custody of Custodian of Enemy Property (CEPI), MHA as per sub section 6 of section 8A of the Enemy Property Act, 1968;
• This framework is also available for use to monetize assets of other CPSEs/PSUs/other Government Organizations with the approval of the Competent Authority;
• Sick/Loss making CPSEs under closure normally follow the DPE closure guidelines dated 14.06.2018 in this regard. However, any sick/loss making CPSE can also adopt this framework with the approval of Competent Authority.

The objective of the asset monetization programme of the Government of India is to unlock the value of investment made in public assets which have not yielded appropriate or potential returns so far.

A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation.
Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).
G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
• Treasury Bills (T-bills): Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day.
• Cash Management Bills (CMBs): In 2010, Government of India, in consultation with RBI introduced a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government of India. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.
• Dated G-Secs: Dated G-Secs are securities which carry a fixed or floating coupon (interest rate) which is paid on the face value, on half-yearly basis. Generally, the tenor of dated securities ranges from 5 years to 40 years.

National Small Savings Fund (NSSF) was established in 1999 within the Public Account of India for pooling the money from different small saving schemes (SSSs).
• Collections from all small savings schemes are credited to the NSSF.
• Similarly, withdrawals under small savings schemes by the depositors are made out of this Fund.
• The money in the account is used by the centre and states to finance their fiscal deficit.
• The balance in the Fund is invested in Central and State Government Securities.
• Pattern of utilization of the fund among the centre and states is decided from time to time by the Government of India.

The interim report of the Fifteenth Finance Commission, tabled together with the Union Budget for 2020-21, leaves the tax devolution formula between the centre and states largely unchanged.
• It, however, calls for greater clarity on government finances, a new fiscal legislation and improvements in the implementation of the Goods and Services Tax.
• The commission will submit its final report only in October 2020. Its interim recommendations will underpin the 2020-21 budget while final recommendations will be used for subsequent years.
• The finance commission, headed by NK Singh, recommended an aggregate share of 41 percent of the net proceeds of the union taxes to be devolved to states in FY21.
• The Fourteenth Finance Commission has increased the devolution to states to 42 percent.
• The demographic performance is the new crucial parameter that has been added to the mix.

The 73rd Constitutional Amendment requires both the Centre and states to help Panchayati Raj institutions to evolve as a unit of self-governance by assigning them funds, functions and functionaries.
The Finance Commission Grants, in the Union Budget, provides funds to local bodies, state disaster relief funds and compensates any revenue loss to states after devolution of taxes.
The Finance Commission Grants are primarily divided into four sub-heads.
1. Grants for rural local bodies: The three-tier model of governance envisioned in the Constitution assigns clear roles and responsibilities to Gram Panchayats.
• The Finance Commission recommendations ensure that these local bodies are adequately funded.
• In fact, nearly half of the Finance Commission Grants in Union Budget goes to village local bodies.
2. Grants for urban local bodies: In addition to units of self-governance at the village level, the Constitution also envisages cities as units of self-governance.
• Urban local bodies like municipal councils receive the largest chunk of Finance Commission Grants after Rural Local Bodies and Post Devolution Deficit Grants to states.

3. Assistance to SDRF: The central government also provides funds to State Disaster Relief Funds in addition to funding the National Disaster Management Authority (NDMA).
•The assistance to state government’s disaster relief authorities is provided as per the recommendations of the Finance Commission.
4. Post devolution revenue deficit grants: About a third of the total revenue collected by the Centre is directly transferred to states as their share in the divisible pool.
• However, the Finance Commission also provides a mechanism for compensation of any loss incurred by states, which is called post-devolution revenue deficit grants.
• This Finance Commission Grant forms the second largest chunk of Finance Commission transfers after the assistance to local rural bodies.

A stimulus package is a number of incentives and tax rebates offered by a government to boost spending in a bid to pull a country out of a recession or to prevent an economic slowdown.
• A stimulus package can either be in the form of a monetary stimulus or a fiscal stimulus.
• A monetary stimulus involves cutting interest rates to stimulate the economy.
• When interest rates are cut, there is more incentive for people to borrow as the cost of borrowing is reduced.
• An increase in borrowing means there’ll be more money in circulation, less incentive to save, and more incentive to spend.
• Lowering interest rates could also weaken the exchange rate of a country, thereby leading to a boost in exports.
• When exports are increased, more money enters the economy, encouraging spending and stirring up the economy

National Calamity Contingent Duty (NCCD) is levied as a duty of excise on certain manufactured goods specified under the Seventh Schedule of Finance Act, 2001. The Union Budget proposed an increase in the NCCD on tobacco products (except bidi).

Currently, the price build-up of petrol comprises the base price of ₹32.81 and freight cost of ₹0.35 per litre. The price charged to dealers (excluding excise duty and VAT) is ₹33.16.
• With excise duty at ₹19.98 per litre, average dealer commission of ₹3.55 per litre and VAT (including VAT on dealer commission) of ₹15.30 per litre, the retail selling price at Delhi is rounded off to ₹71.99 per litre.
• Similarly, price build-up of diesel includes the base price of ₹37.15 per litre. With freight cost of ₹0.32 per litre, the price charged to dealers (excluding excise duty and VAT) is ₹37.47 per litre.
• With an excise duty of ₹15.83 per litre, average dealer commission of ₹2.49 per litre and VAT (including VAT on dealer commission) of ₹9.64 per litre, the retail selling price at Delhi is rounded off to ₹65.43 per litre.

The Securities Transaction Tax (STT) is a type of ‘financial transaction tax’ levied in India on transactions done on the domestic stock exchanges.
• The rates of STT are prescribed by the central government through its budget from time to time. In tax parlance, this is categorised as a direct tax. The tax came into effect from 1 October, 2004.
• In India, STT is collected for the Government of India by the stock exchanges.
• With charging of STT, long-term capital gains tax was made zero and short-term capital gains tax was reduced to 10 per cent (subsequently, changed to 15 per cent since 2008).

Statement 1 is incorrect. The provisions relating to Service Tax were brought
into force with effect from July 1, 1994 by chapter V of the Finance Act, 1994.
Goods and Services Tax was launched all over India with effect from 1 July 2017.
Statement 2 is correct. Destination based tax or consumption tax are levied where goods
and services are consumed. GST is a destination-based tax, i.e., the goods/services will be
taxed at the place where they are consumed and not at the origin.

Statement 1 is correct. Input Tax Credit (ITC) allows a person to avail credit
of tax paid on the inward supply of goods or services or both which is used or intended to
be used in the course or furtherance of business.
ITC is a mechanism to avoid cascading of taxes, i.e., ‘tax on tax.
Statement 2 is incorrect. Uninterrupted and seamless chain of input tax credit is one of
the key features of Goods and Services Tax.
One of the most important features of the GST system is that the entire supply chain is
subject to GST to be levied by Central and State Government concurrently. As the tax
charged by the Central or the State Governments would be part of the same tax regime,
credit of tax paid at every stage would be available as set-off for payment of tax at every
subsequent stage.

In view of the unprecedented COVID-19 pandemic, the Central Government
had in May, 2020 allowed additional borrowing limit of up to 2 percent of Gross State
Domestic Product (GSDP) to the States for the year 2020-21.
One percent of this is subject to implementation of following four specific State level
reforms, where weightage of each reform is 0.25 percent of GSDP:
– Implementation of One Nation One Ration Card System;
– Ease of doing business reform;
– Urban Local body/ utility reforms; and
– Power Sector reforms

Public Debt denotes liabilities payable by the Central Government, which are
contracted against the Consolidated Fund of India, as provided under Article 292 of the
Constitution of India. It has been further classified under two heads, i.e., Internal Debt and
External Debt.
Internal debt of the Central Government consists of marketable securities and
nonmarketable securities.
– Marketable securities include fixed tenor and fixed/ floating rate dated securities, and
short-term borrowings through treasury bills.
– Nonmarketable securities in internal debt are the special Central Government securities
issued to National Small Savings Fund (NSSF), securities issued to international financial
institutions, special securities issued against securitisation of balances under postal
insurance and annuity funds (POLIF and RPOLIF), compensation & other bonds, special
securities issued to public sector banks/ EXIM Bank and 14-day Intermediate Treasury
Bills.

Both statements are correct.
Repurchase (buyback) of G-Secs is a process whereby the Government of India and State
Governments buy back their existing securities, by redeeming them prematurely, from the
holders.
The objectives of buyback can be reduction of cost (by buying back high coupon securities),
reduction in the number of outstanding securities and improving liquidity in the G-Secs
market (by buying back illiquid securities) and infusion of liquidity in the system.

Statement 1 is incorrect. The Goods and Services Tax (Compensation to
States) Act is to provide for compensation to the States for the loss of revenue arising on
account of implementation of the goods and services tax in pursuance of the provisions
of the Constitution (One Hundred and First Amendment) Act, 2016.
Statement 2 is correct. As per the act the projected nominal growth rate of revenue
subsumed for a State during the transition period shall be fourteen percent per annum.
The projected revenue for any year in a State is calculated by applying the projected growth
rate over the base year revenue of that State.
For the purpose of calculating the compensation amount payable in any financial year
during the transition period, the financial year ending 31st March, 2016, is taken as the base year.

Revenue neutral rate (RNR) is a structure of different rates established
under the new GST regime in order to match the previous revenue generation.
The RNR is aimed to keep the revenue as constant as possible in the new regime as was
under previous taxation. The government had entrusted the then (2015) chief economic
advisor Arvind Subramanian to head a panel with the task of proposing a revenue neutral rate (RNR), or a rate at which there will be no revenue loss to states under the GST regime

Both statements are correct.
Repurchase (buyback) of G-Secs is a process whereby the Government of India and
State Governments buy back their existing securities, by redeeming them prematurely,
from the holders.
The objectives of buyback can be reduction of cost (by buying back high coupon
securities), reduction in the number of outstanding securities and improving liquidity in the G-Secs market (by buying back illiquid securities) and infusion of liquidity in the system.

Option 1 is incorrect. When the RBI feels that there is excess liquidity in the
market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly,
when the liquidity conditions are tight, RBI may buy securities from the market, thereby
releasing liquidity into the market.
Option 2 is correct. When the RBI pursues a tight monetary policy, it takes money out of
the system by selling government securities. This raises interest rates because the
demand for credit is high that lenders price their loans higher to take advantage of the
demand.
The purchase of securities by RBI on other hand has potential to lower the lending rates in economy s it increases the money supply.

Statement 1 is correct. Cess taxes have an earmarked purpose but do not
give the contributor an entitlement to a quid pro quo benefit.
# The CAG’s has recently reported that the Centre retained ₹47,272 crore of GST
compensation cess in the Consolidated Fund instead of crediting it to the GST compensation
fund in the very first two years of the implementation of GST.
Statement 2 is incorrect. Article 270(1) identifies the taxes that form a part of the divisible pool, meaning the taxes, proceeds of which are to be distributed between the Union and the State Governments.

However, Article 270 states that any cess levied for ‘specific purposes’ under any law passed by the Parliament is an exception i.e. the proceeds from cesses are not part of the divisible pool.

Statement 1 is incorrect. The Members of the Goods and Services Tax Council choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide.
Statement 2 is correct. One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.
Statement 3 is correct. The Goods and Services Tax Council’s mandate includes that it can make recommendations to the Union and the States on any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster

In view of the unprecedented COVID-19 pandemic, the Central Government had in May, 2020 allowed additional borrowing limit of up to 2 percent of Gross State Domestic Product (GSDP) to the States for the year 2020-21.
One percent of this is subject to implementation of following four specific State level reforms, where weightage of each reform is 0.25 percent of GSDP:
– Implementation of One Nation One Ration Card System;
– Ease of doing business reform;
– Urban Local body/ utility reforms; and
– Power Sector reforms

Public Debt denotes liabilities payable by the Central Government, which are contracted against the Consolidated Fund of India, as provided under Article 292 of the Constitution of India. It has been further classified under two heads, i.e., Internal Debt and External Debt.
Internal debt of the Central Government consists of marketable securities and nonmarketable securities.
– Marketable securities include fixed tenor and fixed/ floating rate dated securities, and short-term borrowings through treasury bills.
– Nonmarketable securities in internal debt are the special Central Government securities issued to National Small Savings Fund (NSSF), securities issued to international financial institutions, special securities issued against securitisation of balances under postal insurance and annuity funds (POLIF and RPOLIF), compensation & other bonds, special securities issued to public sector banks/ EXIM Bank and 14-day Intermediate Treasury Bills.

Statement 1 is incorrect. The provisions relating to Service Tax were brought into force with effect from July 1, 1994 by chapter V of the Finance Act, 1994.
Goods and Services Tax was launched all over India with effect from 1 July 2017.
Statement 2 is correct. Destination based tax or consumption tax are levied where goods and services are consumed. GST is a destination-based tax, i.e., the goods/services will be taxed at the place where they are consumed and not at the origin.

Statement 1 is correct. Input Tax Credit (ITC) allows a person to avail credit of tax paid on the inward supply of goods or services or both which is used or intended to be used in the course or furtherance of business.
ITC is a mechanism to avoid cascading of taxes, i.e., ‘tax on tax.
Statement 2 is incorrect. Uninterrupted and seamless chain of input tax credit is one of the key features of Goods and Services Tax.
One of the most important features of the GST system is that the entire supply chain is subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage.

Statement 1 is incorrect. The Goods and Services Tax (Compensation to States) Act is to provide for compensation to the States for the loss of revenue arising on account of implementation of the goods and services tax in pursuance of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016.
Statement 2 is correct. As per the act the projected nominal growth rate of revenue subsumed for a State during the transition period shall be fourteen percent per annum.
The projected revenue for any year in a State is calculated by applying the projected growth rate over the base year revenue of that State.
For the purpose of calculating the compensation amount payable in any financial year during the transition period, the financial year ending 31st March, 2016, is taken as the base year.

Alcohol for human consumption has been kept outside the purview of GST in India at present. These goods are subject to existing State levies.
Petroleum Products such as petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel etc. are also kept outside the purview of GST in India.
At present, electricity is not subject to GST and power companies pay multiple taxes on capital goods and other inputs like excise duty, customs duty etc.

Statement 1 is correct. The GST e-invoice system was launched on 1st October, 2020 for the businesses with aggregate turnover of more than Rs. 500 Crores in the financial year.
Note: The Government is planning to reduce the aggregate turnover cut off to Rs 100 Crores for generation of IRN by the tax payers in coming days.
Statement 2 is correct. Each Invoice uploaded by the tax payer will get the unique number called as Invoice Reference Number (IRN). IRN is of 64 Characters length.
This IRN is unique number in the GST system, irrespective of tax payer, financial year and document type. It is hash of Supplier GSTIN + Fin. Year + Doc Type + Doc Number.

Both statements are incorrect.
Rs 1,05,155 crore of gross GST revenue have been collected in the month of October 2020. The revenues for the month are 10% higher than the GST revenues in the same month last year.

Statement 1 is correct. Input tax credit (ITC) is the tax paid by the buyer on purchase of goods or services. Such tax which is paid at the purchase when reduced from liability payable on outward supplies is known as input tax credit.
ITC is one of the key features of Goods and Services Tax. ITC is a mechanism to avoid cascading of taxes.
Statement 2 is incorrect. The mobility aids used by disabled citizens are not exempt from GST at present. It is subject to five percent GST.
# On October 27, the Supreme Court of India heard an appeal on the constitutional validity of the levy of Goods and Services Tax (GST) on mobility aids used by disabled citizens. But it said that the taxation was a matter of policy over which the judiciary ought not to ordinarily interfere and advised petitioner to appeal to the GST Council.

Statement 1 is correct. The Direct Tax Vivad se Vishwas Act, 2020 provides a mechanism for resolution of pending tax disputes related to income tax and corporation tax.

It proposed a resolution mechanism under which an appellant can file a declaration to the designated authority to initiate resolution of pending direct tax disputes. Based on the declaration, the designated authority will determine the amount payable by the appellant against the dispute and grant a certificate.

Once the designated authority issues the certificate, appeals pending before the Income Tax Appellate Tribunals and the Commissioner (Appeals) will be deemed to be withdrawn.  In case of appeals or petitions pending before the Supreme Court and High Courts, the appellant is required to withdraw the appeal or petition.

Statement 2 is correct. The proposed mechanism does not cover certain disputes: (i) where prosecution has been initiated before the declaration is filed, (ii) which involve persons who have been convicted or are being prosecuted for offences under certain laws (such as the Indian Penal Code), or for enforcement of civil liabilities, and (iii) involving undisclosed foreign income or assets.

Both statements are correct.

Along with the launch of ‘Transparent Taxation — Honoring the Honest’ platform, Government also unveiled faceless appeal and expanded the scope of faceless assessment, eliminating physical interface between taxpayers and tax authority.

It does away with territorial jurisdiction and substitutes individual discretion with team-based assessment, thereby bringing in transparency.

The exceptions are: Serious Frauds, Major Tax Evasion, International Tax, Black Money and Benami Property.

Inverted duty structure (IDS) is a situation where the rate of tax on inputs used is higher than the rate of tax on the finished good.

It also refers to a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods. When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price.

The term ‘Inverted Tax Structure’ under GST refers to a situation where the GST rate on inputs purchased (or inward supplies) is more than the GST rate on finished goods (or outward supplies).

Both statements are correct.

The Fiscal management principles under Section 4 of Fiscal Responsibility and Budget Management (FRBM) Act state that the Central Government shall:

-take appropriate measures to limit the fiscal deficit upto three per cent. of gross domestic product by the 31st March, 2021;

-endeavour to ensure that— (i) the general Government debt does not exceed sixty per cent.; (ii) the Central Government debt does not exceed forty per cent., of gross domestic product by the end of financial year 2024-2025;

-not give additional guarantees with respect to any loan on security of the Consolidated Fund of India in excess of one-half percent of gross domestic product, in any financial year.

# “General Government debt” means the sum total of the debt of the Central Government and the State Governments, excluding inter-Governmental liabilities.

Option 1 is correct. Consolidated Fund of India and for every state is established by virtue of article 266(1) of the Constitution for all revenues received by the Government, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans.

Option 2 is incorrect. The Contingency Fund is not established by the Constitution rather article 267 empowers the Parliament to establish such fund. Accordingly, Parliament enacted the Contingency fund of India Act 1950. The fund is held by the Finance Secretary (Department of Economic Affairs) on behalf of the President of India and it can be operated by executive action.

Option 3 is incorrect. National Small Savings Fund (NSSF) was established in 1999 within the Public Account of India for pooling the money from different small saving schemes (SSSs). Collections from all small savings schemes are credited to the NSSF.

Public Account of India is established by the Constitution under article 266(2).

Both statements are correct.

The direct tax collection of India, comprising mainly of corporate and personal income tax has been higher than indirect tax collection. It constitutes around 54 per cent of Gross Tax Revenue (GTR) of India (2019-20 BE).

Of the total Gross Tax Revenue (GTR) of India, Corporate Tax revenue accounts for 31%, while the GST accounts for 27% of GTR (2019-20 BE).