Consider the following recommendations regarding Raja J. Chelliah Committee:
1. Introduction of VAT System.
2. Harmonization of State and Central Taxes
3. Standardization of Tax Administration
Which of the statements given above are correct?
Correct Answer:
(D)
All of the above
Raja J. Chelliah Committee (1991):
Introduction of VAT System
Harmonization of State and Central Taxes
Uniform Rate Structure
Input Tax Credit
Exemption of Essential Goods
Standardization of Tax Administration
Taxpayer Education and Training
Ques:
22
Consider the following statements:
1. Tax avoidance is an act of using legal methods to minimize tax liability whereas Tax evasion is an illegal way to minimize tax liability.
2. Tax evasion is taking advantage of the shortcomings in the tax laws whereas Tax avoidance is deliberate manipulation in accounts.
Select the correct statements using the codes given below:
Correct Answer:
(A)
1 only
Statement 1 is correct. Tax avoidance is an act of using legal methods to minimize tax liability whereas Tax evasion is an illegal way to minimize tax liability.
Statement 2 is incorrect. Tax avoidance is taking advantage of the shortcomings in the tax laws whereas Tax evasion is deliberate manipulation in accounts.
Ques:
23
Consider the following statements:
Not reporting cash transactions or income from property or business.
Investing in tax-saving schemes like Public Provident Fund (PPF), National Pension System (NPS), or utilizing home loan interest deductions.
Which of the statements can be example(s) of Tax Evasion?
Correct Answer:
(A)
1 only
Statement 2 is example of Tax Avoidance
Ques:
24
Consider the following statements regarding Double Taxation Avoidance Agreement (DTAA):
It is a treaty signed between two or more countries to avoid a situation where the same income is taxed by two or more jurisdictions.
The main purpose of DTAA is to make a country an attractive investment destination by providing relief on dual taxation.
Which of the statements given above is/are correct?
Correct Answer:
(C)
Both 1 and 2
A DTAA is a tax treaty signed between two or more countries. Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income.
A DTAA applies in cases where a taxpayer resides in one country and earns income in another.
The main purpose of DTAA is to make a country an attractive investment destination by providing relief on dual taxation.
Ques:
25
Q. Which one of the following correctly explains the difference between tax avoidance and tax evasion?
Correct Answer:
(D)
Tax avoidance utilizes legal means to reduce tax burden, while tax evasion involves illegal practices to avoid paying taxes.
Tax avoidance is a legal strategy to minimize taxes using deductions and credits within the law, whereas tax evasion involves illegal activities such as underreporting income to evade taxes.
Ques:
26
Identify the impact(s) of Tax Evasion on the Economy:
Correct Answer:
(D)
All of the above
Impact on Economy:
Less Tax for the Government: The Indian government has failed to collect the estimated amount of tax from the people of our country on numerous occasions, and credit must be given to the black money-fuelled underground economy for this.
Uncontrollable Inflation: When black money circulates in the market, the amount of money in circulation exceeds the government's expectations, leading commodity prices to rise above normal levels.
The emergence of the underground economy has had a significant impact on the distribution of wealth and income in our society.
Corruption: While corruption contributes to the creation of black money in the economy, it can also be a result of the emergence of an underground market.
Inflated Real Estate: People involved in the black money business are usually willing to pay more for a piece of land since it helps them transform their coloured money into lawful currency.
Transfer of Indian Funds to Abroad: India's black money is stashed in tax havens around the world. Two of the most common tactics used by black money holders to transfer money overseas are under-invoicing of exports and over-invoicing of imports.
Ques:
27
Consider the following statements regarding Double taxation avoidance agreement:
It is a tax treaty signed between only two countries.
It completely wave off tax on income for companies from signatories countries.
Mauritius is the biggest contributor of FDI to India in last 15 years because of this agreement.
Which of the statements given above is/are correct?
Correct Answer:
(C)
3 only
The DTAA is a tax treaty signed between two or more countries. Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income. Mauritius accounted for $93.65 billion or one-third of the total FDI flows into India between April 2000 and December 2015.
Ques:
28
Which of the following categories are covered under DTAA:
Correct Answer:
(D)
All of the above
DTAA can either cover all types of income or can target a specific type of income depending upon the types of businesses/holdings of citizens of one country in another. The following categories are covered under the Double Taxation Avoidance Agreements (DTAA):
services
salary
property
capital gains
savings/fixed deposit accounts
Ques:
29
Consider the following statements:
DTAA provides tax certainty to the various investors of both countries through allocation of taxing rights between them.
In some cases, the DTAA also provide concessional rates of tax.
Which of the statements given above is/are correct?
Correct Answer:
(C)
Both 1 and 2
Major benefits of Double Taxation Avoidance Agreements (DTAA) are:
The countries under the DTAA are provided relief from double taxation. Relief on double taxation is provided by the exemption of incomes earned abroad from tax in the resident country or by providing credit to the extent taxes that have been already been paid abroad.
In some cases, the DTAA also provide concessional rates of tax.
DTAA can become an incentive for even legitimate investors to route investments through low-tax regimes to sidestep taxation. This leads to a loss of tax revenue for the country.
DTAA also provides tax certainty to the various investors and businesses of both the countries through the clear allocation of taxing rights between the contracting states by Agreement.
Ques:
30
Consider the following statements:
India signed DTAA with more than 100 countries.
It covers withholding tax on payments such as Dividend, Interest, Royalty etc.
Which of the statements given above is/are correct?
Correct Answer:
(B)
2 only
DTAA is a tax treaty signed between two or more countries.
Objective – Tax-payers in these countries can avoid being taxed twice for the same income.
It applies in cases where a tax-payer resides in one country and earns income in another.
Categories covered under DTAA: services, salary, property, capital gains, savings/fixed deposit accounts
India has signed DTAA agreements with 88 countries, of which 85 are currently in force.
It covers withholding tax on payments such as Dividend, Interest, Royalty etc.