UPSC Prelims 2001 Q82: Indian Economy – Taxation
Consider the following taxes:
I. Corporation tax
II. Customs duty
III. Wealth tax
IV. Excise duty
Which of these is/are indirect taxes?
- (a) I only
- (b) II and IV
- (c) I and III
- (d) II and III
Answer: (b) II and IV
Explanation
Which of the taxes are indirect
| Tax | Type |
|---|---|
| I. Corporation tax | Direct — on company profits |
| II. Customs duty | Indirect — on imports and exports, passed on in prices |
| III. Wealth tax | Direct — on net wealth (abolished from 2015-16) |
| IV. Excise duty | Indirect — on manufacture, passed on in prices |
An indirect tax is collected from one person but its burden passes to another, usually the buyer. Customs and excise duties work this way. Corporation and wealth taxes fall on the taxpayer directly.
Answer: (b) II and IV.
Why each option is right or wrong
- (a) Incorrect. Corporation tax is a direct tax.
- (b) CORRECT. Customs and excise duties are indirect taxes.
- (c) Incorrect. Corporation tax and wealth tax are both direct.
- (d) Incorrect. Wealth tax is direct.
Key point
Since July 2017, GST has replaced central excise (except on some petroleum products and tobacco), service tax and many State taxes; customs remains.
Remember
Indirect: customs, excise, GST. Direct: income, corporation, wealth.
Common mistakes
- Thinking corporation tax is indirect because companies pay it.
- Thinking wealth tax is indirect.
- Mixing up who pays with who bears the tax.
Exam tip
Direct = on income or wealth; indirect = on goods and services.
Sources
- NCERT Class XII — Introductory Macroeconomics, chapter 'Government Budget and the Economy'
- Ministry of Finance — Receipt Budget (classification of tax revenue)