Fiscal Federalism and Finance Commission: RAS Prelims MCQs
99 RAS Prelims MCQs on fiscal federalism and the Finance Commission cover the constitutional financial provisions, the sharing of taxes between the Union and States, and the GST framework. The Articles on the Consolidated Fund and Contingency Fund, the duties of the Finance Commission and the criteria it uses are asked as facts and statements.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
Showing 11–20 of 99 questions
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q11. Consider the following statements regarding the Constitutional provisions for financial relations: I. Article 268 deals with duties levied by the Union but collected and appropriated by the States. II. Article 269 deals with taxes levied and collected by the Union but assigned to the States. III. Article 270 provides for taxes levied and distributed between the Union and the States. IV. Article 271 allows the Union to levy a surcharge on taxes for the purpose of the States. Which of the following is the incorrect combination?
Explanation
Under the Constitution, Article 268 deals with duties collected by States, Article 269 involves taxes assigned to States, and Article 270 covers the shared divisible pool. However, Article 271 empowers the Union to levy surcharges on taxes and duties for Union purposes only, not for the benefit of the States, which is a common misconception.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q12. How is the "Public Account of India" defined under the Constitution?
Explanation
The Public Account of India holds moneys that do not belong to the government but are kept in trust. This includes provident funds, judicial deposits, and small savings. Since these are not government revenues, withdrawals from this account do not require parliamentary authorization. The government acts merely as a banker, and these funds must eventually be repaid.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q13. Which of the following correctly identifies a component of the Contingency Fund of India?
Explanation
The Contingency Fund of India is established under Article 267 to meet unforeseen expenditures. It is held by the Finance Secretary on behalf of the President, allowing the executive to respond quickly to emergencies. However, any money spent from this fund must be subsequently authorized by Parliament, and the fund must be replenished from the Consolidated Fund.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q14. Given below are two statements, one labeled as Assertion (A) and the other as Reason (R): Assertion (A): Provident fund deposits and judicial deposits do not form part of the Consolidated Fund of India. Reason (R): These funds do not belong to the Government, and the Government acts merely as a banker or trustee for them.
Explanation
Provident fund and judicial deposits are categorized under the Public Account because the government does not own these assets. Instead, it serves as a trustee or banker for the citizens or entities that deposited the money. Because these funds are held in trust, they are managed separately from the tax revenues found in the Consolidated Fund of India.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q15. Under which Article of the Constitution of India are the provisions relating to the Consolidated Funds and Public Accounts of India and of the States mentioned?
Explanation
Article 266 of the Constitution provides the legal basis for both the Consolidated Fund and the Public Account. It mandates that all revenues received and loans raised by the government are credited to the Consolidated Fund. Simultaneously, it defines the Public Account for other public moneys, ensuring a transparent and structured framework for managing the nation’s financial resources.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q16. Match the Constitutional Articles in List I with their respective provisions in List II:
Constitutional Articles
Provisions
A. Article 275
i. Borrowing by States
B. Article 282
ii. Discretionary grants by the Union or States
C. Article 292
iii. Borrowing by the Government of India
D. Article 293
iv. Statutory grants to certain States
Choose the correct answer:
Explanation
Specific articles govern different aspects of financial relations. Article 275 allows for statutory grants to states in need, while Article 282 provides for discretionary grants for public purposes. Articles 292 and 293 delineate the borrowing powers of the Union and the States respectively. These provisions ensure a balanced framework for both mandatory transfers and necessary debt management.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q17. Consider the following statements about the Divisible Pool of taxes: I. It includes all taxes and duties collected by the Union Government. II. Surcharges levied for purposes of the Union form a part of the divisible pool. III. Cesses levied for specific purposes are excluded from the divisible pool. IV. Corporation tax was included in the divisible pool following the 80th Constitutional Amendment Act. V. The cost of collection is deducted before distributing the net proceeds. Which of the combinations given above represents the correct statements?
Explanation
The divisible pool includes most central taxes, including corporation tax since the 80th Amendment. However, cesses and surcharges are excluded as they are reserved for the Union. To determine the actual amount shared, the cost of collection is deducted from the gross receipts. This net proceeds figure forms the basis for distribution as recommended by the commission.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q18. Arrange the following stages of devolution of Union taxes to States in the correct logical sequence: I. Deduction of cost of collection to determine net proceeds II. Exclusion of Cesses and Surcharges III. Collection of gross tax revenue by the Central Board of Direct Taxes and CBIC IV. Application of the horizontal distribution formula among States Select the correct sequence:
Explanation
The devolution process starts with the collection of gross tax revenue by central agencies. From this, cesses and surcharges are excluded as they are not shared. Then, the costs of collection are subtracted to arrive at the net proceeds. Finally, the horizontal distribution formula is applied to determine the individual share of each state in the pool.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q19. All of the following form part of the Divisible Pool under Article 270, EXCEPT:
Explanation
While major taxes like income tax, corporation tax, and CGST are shared between the Centre and States, cesses are collected for specific purposes and remain with the Union. The Health and Education Cess is a prime example of a levy that does not enter the divisible pool. This distinction significantly impacts the total resources available for state devolution.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q20. Identify the correct pair regarding Constitutional financial provisions:
Explanation
Article 268 covers specific duties, like stamp duties, which the Union levies but the States collect and retain. This mechanism allows for national uniformity in tax rates while providing states with a direct source of revenue. Other articles define different sharing arrangements, ensuring that the fiscal structure remains responsive to both central coordination and state-level financial requirements.
Answer key for these questions
Q
Correct answer
11
(c) IV only
12
(b) Public moneys received by the Government not forming part of the Consolidated Fund
13
(c) It is placed at the disposal of the President of India.
14
(a) Both A and R are true and R is the correct explanation of A.
15
(a) Article 266
16
(a) A-iv, B-ii, C-iii, D-i
17
(c) III, IV and V
18
(b) III, II, I, IV
19
(c) Health and Education Cess
20
(a) Article 268 -- Union-levied duties collected and kept by the States
Key facts from Fiscal Federalism and Finance Commission
The President appoints the Chairman and members of the Finance Commission; Article 280(3) lists its duties, including the distribution of net proceeds of taxes.
Article 266 provides for the Consolidated Funds; the Contingency Fund is at the disposal of the President.
Article 268 covers Union-levied duties that are collected and kept by the States.
Horizontal fiscal imbalance among States is addressed by the tax devolution formula recommended by the Finance Commission; revenue deficit grants help States that cannot meet basic needs.
The 15th Finance Commission dropped the criterion of the 1971 population for horizontal devolution.
The GST Council is an example of cooperative federalism; the GST Compensation Cess was extended to March 2026 to repay back-to-back loans of the Centre.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Fiscal Federalism and Finance Commission?
This page has 99 practice MCQs on Fiscal Federalism and Finance Commission (Indian Economy). Each has the correct answer, and most have an explanation.
Who appoints the Finance Commission?
The President of India, under Article 280, every five years or earlier. The Commission recommends how the net proceeds of taxes are shared between the Union and the States and among the States.
Which Article lists the duties of the Finance Commission?
Article 280(3). It sets out the duties, including recommending the distribution of the net proceeds of taxes between the Union and the States and the principles that govern grants-in-aid to States.
What kind of federalism does the GST Council show?
Cooperative federalism. The Council, with the Union Finance Minister as chairperson and State Finance Ministers as members, takes decisions on GST rates and rules jointly, and the votes of the Centre and States are weighted.
