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 41–50 of 99 questions
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q41. Given below are two statements, one labeled as Assertion (A) and the other as Reason (R): Assertion (A): Article 275 of the Constitution provides for statutory grants-in-aid to States in need of assistance. Reason (R): These grants are charged on the Consolidated Fund of India and are determined based on the recommendations of the Finance Commission.
Explanation
Article 275 provides for statutory grants-in-aid to states that require financial assistance. These grants are charged directly on the Consolidated Fund of India, making them mandatory once approved. The Finance Commission determines the eligibility and amount for these grants, ensuring that the distribution is based on objective fiscal needs rather than the discretionary preferences of the central government.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q42. Which of the following statements correctly describes a feature of Grants-in-aid under Article 282?
Explanation
Article 282 provides a flexible mechanism for the Union or States to provide grants for any public purpose. These are discretionary and do not fall under the mandatory recommendations of the Finance Commission. While often used for Centrally Sponsored Schemes, they offer the government a way to address immediate policy goals and developmental priorities that might not be covered.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q43. Consider the following statements regarding the GST Council: I. It is a statutory body established by an Act of Parliament in 2017. II. It is chaired by the Union Finance Minister. III. The vote of the Central Government has a weightage of one-third of the total votes cast. IV. Every decision of the Council must be taken by a majority of not less than three-fourths of the weighted votes. Which combination represents the correct statements?
Explanation
The GST Council is a constitutional body, not just statutory, chaired by the Union Finance Minister. It ensures a collaborative approach to taxation. Decisions require a three-fourths majority, with the Centre holding one-third of the voting power and all States together holding two-thirds. This structure prevents either the Centre or a small group of States from making unilateral decisions.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q44. What is the intended effect of requiring a three-fourths majority for decisions in the GST Council with the Centre holding one-third weightage and States holding two-thirds?
Explanation
The weighted voting system in the GST Council is designed to promote consensus. Since the Centre holds one-third of the votes and decisions require a seventy-five percent majority, the Centre cannot pass resolutions without the support of many states. Similarly, the states cannot act without the Centre’s agreement. This creates a powerful incentive for negotiation and cooperative fiscal decision-making.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q45. The conceptual framework of the GST Council exemplifies which form of federalism?
Explanation
Cooperative federalism is best exemplified by the GST Council, where the Centre and States work together on a common platform. By sharing the power to decide tax rates and rules, both levels of government participate in economic management. This collaborative framework reduces conflicts, harmonizes the national market, and ensures that the interests of both the Union and the States.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q46. Under which Constitutional Amendment Act was the GST Council created?
Explanation
The 101st Constitutional Amendment Act of 2016 was a landmark piece of legislation that introduced the Goods and Services Tax. It also mandated the creation of the GST Council to manage the implementation of the new tax regime. This amendment significantly altered the fiscal powers of both the Centre and the States, creating a more unified and simplified national tax structure.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q47. Consider the following statements about the composition of the GST Council: I. The Union Finance Minister is the Chairperson. II. The Union Minister of State in charge of Revenue or Finance is a Member. III. The Minister in charge of Finance or Taxation of each State government is a Member. IV. The Chief Economic Advisor serves as a non-voting Member. V. The Governor of the Reserve Bank of India is a permanent special invitee. Which of the combinations given above represents correct statements?
Explanation
The GST Council consists of the Union Finance Minister as chairperson, the Union Minister of State for Finance, and the finance ministers from all State governments. This composition ensures that every state has a voice in the national tax policy. While experts may be consulted, the formal decision-making body remains restricted to these political representatives from both the Union and the States.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q48. Arrange the hierarchy of the GST dispute resolution and appellate mechanism in the correct upward order: I. GST Appellate Tribunal (GSTAT) II. Adjudicating Authority III. High Court IV. Appellate Authority Select the correct sequence:
Explanation
The GST dispute resolution process follows a clear hierarchy to ensure justice. It begins with the Adjudicating Authority, followed by an appeal to the Appellate Authority. If the dispute remains unresolved, it moves to the GST Appellate Tribunal. Finally, matters of law can be taken to the High Court and eventually the Supreme Court, providing a structured legal recourse for taxpayers.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q49. Consider Statement I and Statement II regarding GST implementation in India. Statement I: India adopted a dual GST model where both the Centre and the States simultaneously levy tax on a common base. Statement II: The dual model was necessary because the Indian Constitution empowers both the Union and the States to levy and collect taxes concurrently.
Explanation
India’s dual GST model reflects the country’s federal structure, where both the Centre and States have the power to tax goods and services. Since both levels of government rely on these revenues, the dual model allows them to levy tax concurrently on a common base. This system maintains fiscal autonomy for the States while achieving the goal of a unified national market.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q50. Match the GST components in List I with their respective levy or collection authorities in List II:
GST Component
Levy/Collection Authority
A. CGST
i. Levied by States on intra-state supplies
B. SGST
ii. Levied by the Centre on intra-state supplies
C. IGST
iii. Levied by Union Territories without a legislature
D. UTGST
iv. Levied by the Centre on inter-state supplies
Choose the correct answer:
Explanation
GST components are levied based on the nature of the transaction. CGST and SGST are collected by the Centre and States respectively on intra-state supplies. UTGST applies in Union Territories without a legislature. IGST is levied by the Centre on inter-state trade and imports, then apportioned between the Union and the destination State. This ensures a systematic and transparent tax distribution.
Answer key for these questions
Q
Correct answer
41
(a) Both A and R are true and R is the correct explanation of A.
42
(d) They are discretionary grants made by the Union or a State for any public purpose.
43
(b) II, III and IV only
44
(c) Ensuring neither Centre nor States can act alone, fostering cooperative federalism
45
(d) Cooperative Federalism
46
(b) 101st Amendment Act
47
(a) I, II, and III only
48
(a) II, IV, I, III
49
(a) Both Statement I and Statement II are correct
50
(a) A-ii, B-i, C-iv, D-iii
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.
