(a)OR(b)

(i)

Distinguish between direct tax and indirect tax with the help of suitable examples.

(ii)

Explain the ‘redistribution of income’ objective of the Government Budget.

(a) (i) Direct taxes are those taxes whose impact and incidence lies on the same entity. In other words, the liability of paying direct taxes can’t be shifted. For example: income tax.Whereas;Indirect taxes are those taxes whose impact and incidence may lie on different entities. In other words, the liability of paying indirect taxes can be shifted. For example: GST.(a) (ii) The government budget objective of ‘Redistribution of Income’ aims to bring about equality in the distribution of income.Government can reduce inequalities of income through taxes and public expenditure. It may impose high taxes on the rich to reduce their disposable income. Furthermore, government may incur more public expenditure for the welfare of the poor, like providing free services etc. By adopting these measures, the government tries to bridge the gap between the rich and the poor.(b) (i) Revenue Deficit = (ii) – {(i) + (iii)}= $\displaystyle 3,700$ – $\displaystyle 1,200$ – $\displaystyle 2,000$= ₹ $\displaystyle 500$ croreFiscal Deficit = {(ii) + (v)} – {(i) + (iii) + (iv) + (vi)}= $\displaystyle 3,700$ + $\displaystyle 500$ – $\displaystyle 1,200$ – $\displaystyle 2,000$ – $\displaystyle 145$ – $\displaystyle 120$= ₹ $\displaystyle 735$ crore(b) (ii) Public provision refers to those goods that are financed through the government budget and can be used without any direct payment by public.Whereas;Public production relates to those goods which are directly produced by the government.