Daily Quiz #79 UPSC Prelims Marathon – February 4, 2020

Explanation: A graph showing the degree of inequality in income and wealth in a given population or an economy. It is a rigorous way to measure income inequality. In this method (for example), personal incomes in an economy are arranged in increasing order; the cumulative share of total income is then plotted against the cumulative share of the population. The curve’s slope is thus proportional to per capita income at each point of the population distribution. In the case of complete equality of income, the lorenz curve will be a straight line and with greater curvature the inequality rises proportionally–the Gini Coefficient measures this inequality.

Explanation: In 1996 it was decided to allow the establishment of local banks in the private sector. These banks were expected to bridge the gaps in credit availability and enhance the institutional credit framework in the rural and semi-urban areas and provide efficient and competitive financial intermediation services in their area of operation. The minimum start-up capital of a LAB was fixed at Rs.5 crore. The promoters of these banks were required to bring in the entire minimum share capital up-front. It was also decided that a family among the promoter group could hold equity not exceeding 40% of the capital. The NRI contributions to the equity of the bank were not to exceed 40% of the paid-up capital. The entire initial capital subscribed by the promoters (including their friends and relatives/associates) would carry a lock in period of three years from the date of licensing of the bank. Further, the promoters’ equity to the extent of 40% of the initial paid- up capital was to be locked in at least for two years beyond the aforesaid period of three years subject to review before expiry of five years from the date of licensing of the bank. The promoters of a LAB could be individuals, corporate entities and societies. The number of NRI promoters was not to exceed 20% of the total number of promoters.

Explanation: The International Centre for Settlement of Investment Disputes (ICSID), set up in 1966 is an investment dispute settlement body whose decisions are binding on the parties. It was established under the 1966 Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Though recourse to the centre is voluntary, but once the parties have agreed to arbitration, they cannot withdraw their consent unilaterally. It settles the investment disputes arising between the investing foreign companies and the host countries where the investments have been done. India is not its member (that is why the Enron issue was out of its preview). It is believed that being signatory to it encourages the foreign investment flows into an economy, but risks independent sovereign decisions, too.

Explanation: A dividend is a return given by a company to its shareholders out of the profits earned by the company in a particular year. They are usually given in proportion to the number of shares owned. Dividend distribution tax (DDT) is the tax imposed by the Indian Government on Indian companies according to the dividend paid to a company’s investors.
The various types of direct taxes that are imposed in India are mentioned below:
Income Tax: Depending on an individual’s age and earnings, income tax must be paid. Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid.
Wealth Tax: The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property. In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.
Corporate Tax: Domestic companies, apart from shareholders, will have to pay corporate tax. Foreign corporations who make an income in India will also have to pay corporate tax. Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India are taxable. The below-mentioned taxes are also included under Corporate Tax:
Securities Transaction Tax (STT): The tax must be paid for any income that is earned via security transactions that are taxable.
Dividend Distribution Tax (DDT): In case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
Fringe Benefits Tax: Companies that provide fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
Minimum Alternate Tax (MAT): For zero tax companies that have accounts prepared according to the Companies Act, MAT is levied on them

Explanation: Of all investment options, mutual funds are touted to be the best tool for wealth creation over the long term. They are of several types, and the risk varies with the kind of asset classes these funds invest in. As the name suggests, a mutual fund is a fund that is created when a large number of investors put in their money, and is managed by professionally qualified persons with experience in investing in different asset classes-shares, bonds, money market instruments like call money, and other assets such as gold and property. Their names usually give a good idea about what type of asset class a fund, also called a scheme, will invest in. For example, a diversified equity fund will invest in a large number of stocks, while a gilt fund will invest in government securities, while a pharma fund will mainly invest in stocks of companies from the pharmaceutical and related industries.