Budget, Fiscal Policy and Taxation — UPSC Prelims PYQs

Q1. Which one of the following best describes the ‘Crowding Out Effect’ in the context of fiscal policy ? UPSC Prelims 2026

Question 1 optionsAA situation where private investment increases due to increased Government spendingBA situation where Government borrowing leads to higher interest rates, which reduces private investmentCA situation where an increase in taxes leads to increased private sector investmentDA situation where Government spending has no impact on aggregate demand
Q2. 5. Consider the following statements :
Statement I : In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.
Statement II : In India, rural agricultural land is not considered as capital asset under the provisions of the Income-tax Act, 1961.
Which one of the following is correct in respect of the above statements? UPSC Prelims 2025

Question 2 optionsABoth Statement I and Statement II are correct and Statement II explains Statement IBBoth Statement I and Statement II are correct but Statement II does not explain Statement ICStatement I is correct but Statement II is not correctDStatement I is not correct but Statement II is correct
Q3. 10. Consider the following statements :
I. Capital receipts create a liability or cause a reduction in the assets of the Government.
II. Borrowings and disinvestment are capital receipts.
III. Interest received on loans creates a liability of the Government.
Which of the statements given above are correct? UPSC Prelims 2025

Question 3 optionsAI and II onlyBII and III onlyCI and III onlyDI, II and III
Q4. Suppose the revenue expenditure is ₹ 80,000 crores and the revenue receipts of the Government are ₹ 60,000 crores. The Government budget also shows borrowings of ₹ 10,000 crores and interest payments of ₹ 6,000 crores. Which of the following statements are correct?
I. Revenue deficit is ₹ 20,000 crores.
II. Fiscal deficit is ₹ 10,000 crores.
III. Primary deficit is ₹ 4,000 crores.
Select the correct answer using the code given below. UPSC Prelims 2025

Question 4 optionsAI and II onlyBII and III onlyCI and III onlyDI, II and III
Q5. A country's fiscal deficit stands at ₹ 50,000 crores. It is receiving ₹ 10,000 crores through non-debt creating capital receipts. The country's interest liabilities are ₹ 1,500 crores. What is the gross primary deficit? UPSC Prelims 2025

Question 5 optionsA₹ 48,500 croresB₹ 51,500 croresC₹ 58,500 croresDNone of the above
Q6. Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct?
I. It has recommended grants of ₹ 4,800 crores from the year 2022–23 to the year 2025–26 for incentivizing States to enhance educational outcomes.
II. 45% of the net proceeds of Union taxes are to be shared with States.
III. ₹ 45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms.
IV. It reintroduced tax effort criteria to reward fiscal performance.
Select the correct answer using the code given below. UPSC Prelims 2025

Question 6 optionsAI, II and IIIBI, II and IVCI, III and IVDII, III and IV
Q7. Consider the following :
1. Demographic performance
2. Forest and ecology
3. Governance reforms
4. Stable government
5. Tax and fiscal efforts For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance? UPSC Prelims 2023

Question 7 optionsAOnly twoBOnly threeCOnly fourDAll five
Q8. Consider the following statements : The 'Stability and Growth Pact' of the European Union is a treaty that
1. limits the levels of the budgetary deficit of the countries of the European Union
2. makes the countries of the European Union to share their infrastructure facilities
3. enables the countries of the European Union to share their technologies
How many of the above statements are correct? UPSC Prelims 2023

Question 8 optionsAOnly oneBOnly twoCAll threeDNone
Q9. With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds (IIBs)" ?
1. Government can reduce the coupon rates on its borrowing by way of IIBs.
2. IIBs provide protection to the investors from uncertainty regarding inflation.
3. The interest received as well as capital gains on IIBs are not taxable.
Which of the statements given above are correct ? UPSC Prelims 2022

Question 9 optionsA1 and 2 onlyB2 and 3 onlyC1 and 3 onlyD1, 2 and 3
Q10. Which one of the following situations best reflects "Indirect Transfers" often talked about in media recently with reference to India ? UPSC Prelims 2022

Question 10 optionsAAn Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investmentBA foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investmentCAn Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to IndiaDA foreign company transfers shares and such shares derive their substantial value from assets located in India
Q11. With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct ?
1. Acquiring new technology is capital expenditure.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below : UPSC Prelims 2022

Question 11 optionsA1 onlyB2 onlyCBoth 1 and 2DNeither 1 nor 2
Q12. With reference to the Indian economy, consider the following statements :
1. A share of the household financial savings goes towards government borrowings.
2. Dated securities issued at market-related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct ? UPSC Prelims 2022

Question 12 optionsA1 onlyB2 onlyCBoth 1 and 2DNeither 1 nor 2
Q13. Which among the following steps is most likely to be taken at the time of an economic recession? UPSC Prelims 2021

Question 13 optionsACut in tax rates accompanied by increase in interest rateBIncrease in expenditure on public projectsCIncrease in tax rates accompanied by reduction of interest rateDReduction of expenditure on public projects
Q14. The money multiplier in an economy increases with which one of the following? UPSC Prelims 2021

Question 14 optionsAIncrease in the Cash Reserve Ratio in the banksBIncrease in the Statutory Liquidity Ratio in the banksCIncrease in the banking habit of the peopleDIncrease in the population of the country
Q15. Along with the Budget, the Finance Minister also places other documents before the Parliament which include 'The Macro Economic Framework Statement'. The aforesaid document is presented because this is mandated by UPSC Prelims 2020

Question 15 optionsALong standing parliamentary conventionBArticle 112 and Article 110(1) of the Constitution of IndiaCArticle 113 of the Constitution of IndiaDProvisions of the Fiscal Responsibility and Budget Management Act, 2003
Q16. In the context of the Indian economy, non-financial debt includes which of the following ?
1. Housing loans owed by households
2. Amounts outstanding on credit cards
3. Treasury bills
Select the correct answer using the code given below : UPSC Prelims 2020

Question 16 optionsA1 onlyB1 and 2 onlyC3 onlyD1, 2 and 3

0 of 16 answered

Budget, Fiscal Policy and Taxation — UPSC Prelims PYQs

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