UPSC Prelims 1999 · General Studies

Question 18: Economy and Social Development

Which one of the following statements regarding the levying, collecting and distribution of Income Tax is correct?

aThe Union levies, collects and distributes the proceeds of income tax between itself and the States

bThe Union levies, collects and keeps all the proceeds of income tax to itself

cThe Union levies and collects the tax but all the proceeds are distributed among the States

dOnly the surcharge levied on income tax is shared between the Union and the States

AnswerThe answer is (a).

Under Article 270, the Union levies and collects income tax (other than on agricultural income) and the proceeds are distributed between the Union and the States on the Finance Commission's recommendation. The Union does not keep it all, and it does not hand it all over. A surcharge on income tax is different: under Article 271 it is levied for Union purposes and stays with the Union. Remember: levied and collected by the Union, shared with the States.

Why each option is right or wrong

(a) Right. The Union levies and collects the tax and the proceeds are shared with the States.
(b) Wrong. The Union does not keep all the proceeds; a share goes to the States.
(c) Wrong. The proceeds are divided between the Union and the States, not given wholly to the States.
(d) Wrong. The tax itself is shared; it is the surcharge that stays with the Union.

Explanation: written by UPSC Grade, not by UPSC.

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Source: UPSC, Civil Services (Preliminary) Examination 1999, General Studies. UPSC's own paper isn't online; the words are from a published compilation. The paper on upsc.gov.in.