2016 · Q57
Statement (I): The effects of an income tax on consumption, saving and investment are micro effects. Statement (II): Income tax is an example of direct tax.
Indian EconomyFiscal policy and budget
- ABoth statement (I) and Statement (II) are individually true and Statement (II) is the correct explanation of Statement (I)
- BBoth statement (I) and statement (II) are individually true but Statement (II) is not the correct explanation of Statement (I)
- CStatement (I) is true but Statement (II) is false
- DStatement (I) is false but Statement (II) is true
Explanation
Per the examination’s key, the effects of an income tax on aggregate consumption, saving, and investment operate through aggregate demand and national income and are classified as macroeconomic effects, so calling them “micro effects” makes statement I false. Statement II is true: income tax, levied directly on the taxpayer’s income under the Income-tax Act, 1961, is the classic direct tax. Hence (D).