UPSC Prelims 2010 Q145: Indian Economy – Taxation
Consider the following statements :
In India, taxes on transactions in Stock Exchanges and Futures Markets are
1. Levied by the Union
2. Collected by the States
Which of the statements given above is/are correct ?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (a) 1 only
Explanation
Taxes on Stock Exchange/Futures transactions: checking two statements
The Securities Transaction Tax (STT) and related levies on stock market transactions follow a specific constitutional allocation.
| Statement | Verdict | Reason |
|---|---|---|
| 1. Levied by the Union | Correct | Taxes on stock exchange and futures market transactions (like STT) are levied by the Union Government |
| 2. Collected by the States | Incorrect | These taxes are also collected by the Union, not the States |
Stock market transaction taxes:
| Point | Detail |
|---|---|
| Levied by | Union Government |
| Collected by | Union Government (not States) |
Answer: (a) 1 only.
Why each option is right or wrong
- (a) CORRECT. These transaction taxes are indeed levied by the Union; they are also collected by the Union, not the States.
- (b) Incorrect. States do not collect these specific transaction taxes.
- (c) Incorrect. Statement 2 is false, so 'both' cannot be correct.
- (d) Incorrect. Statement 1 is accurate, so 'neither' is wrong.
Key point
Taxes on Stock Exchange and Futures Market transactions are LEVIED by the Union AND also COLLECTED by the Union — not by the States, contrary to statement 2's claim.
Remember
Taxes on stock exchange and futures market transactions: levied by the Union, and also collected by the Union (not the States).
Common mistakes
- Assuming a levy-collection split between Union and States exists for this specific tax category, when both functions rest with the Union.
- Confusing this tax with other Union-levied-but-State-collected taxes under different constitutional provisions.
- Not knowing the specific Securities Transaction Tax framework.
Exam tip
Stock exchange/futures transaction taxes: Union levies AND collects — no Union-levy/State-collection split here.
Sources
- Constitution of India — Seventh Schedule, Union List, Entry 90 (taxes other than stamp duties on transactions in stock exchanges and futures markets)
- Constitution of India — Articles 268 and 269 (duties and taxes levied by the Union)