Mrunal Economy 2

MRUNAL
ECONOMY
2022
PART -2
Batch- PCB 5
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1D: ⚰Insurance, Pension & Financial Inclusion
Table of Contents
16 ⚰Insurance (बीमा): Meaning and Significance ............................................................................................ 186
16.11.1 Insurance Principles (�सद्धा�: hindi not required but understand gist for case studies) .......... 186
16.12 ⚰🏺🏺 History of insurance in India (भारत मे बीमा कं . का इ�तहास) ........................................................ 186
16.13 ⚰💀💀Life Insurance (जीवन बीमा) ....................................................................................................... 187
16.13.1 ⚰💀💀 🦁🦁 Life Insurance → notable entities in public sector (सावर्ज�नक �ेत्र के जीवन बीमा सं �ान)
187
16.13.2 ⚰💀💀💀💀 🦁🦁 Life Insurance Corporation of India (1956) ..................................................... 188
16.13.3 ⚰💀💀💀💀 🦁🦁 LIC’s Disinvestment (2020, �व�नवेश) ................................................................... 188
16.13.4 ⚰💀💀💀💀💀 LIC- Aam Admi Bima Yojana (AABY):............................................................. 188
16.13.5 🧔🧔⚰PM schemes for Life Insurance & Accidental (Gen) insurance .................................... 189
16.14 ⚰ 💊💊💊💊💊💊General Insurance (सामा� बीमा) ................................................................................ 189
16.14.1 ⚰🚕🚕🚕🚕 🦁🦁 Public Sector General Insurance Entities: Timeline (समय रेखा)........................ 189
16.14.2 ⚰🚕🚕🚕🚕 🦁🦁: (🤵🤵) General Insurance Business (Nationalisation) Amendment Bill, 2021190
16.14.3 🦁🦁(💉💉💉) Employees' State Insurance Corporation.............................................................. 191
16.14.4 👻👻👻👻⚰Gen Insurance → Corona Warrior ₹50 lakh cover (2020-March) ....................... 191
16.15 💊💊 Gen → Health Insurance Schemes (�ा� बीमा योजनाएं ) ............................................................ 192
16.15.1 💊💊 😵😵: 🧐🧐Arogya Sanjeevani Policy (2020) ............................................................................ 192
16.15.2 ⚰ 😵😵: 🧐🧐SARAL JEEVAN BIMA-Standardized term Life Insurance policy ..................... 193
16.15.3 💊💊💊💊Gen→ Health Insurance → Corona Kavach vs Rakshak ............................................ 193
16.15.4 💊💊♿ Niramya Health Insurance for PH. OLD SCHEME DONOT-LOOSE-SLEEP ......... 194
16.15.5 💊💊💊💊 Rashtriya Swasthya Bima Yojana (RSBY: 2008)............................................................ 194
16.15.6 💊💊💊💊: 🧔🧔Why public health insurance for poor people? (गरीबों को सरकारी �ा� बीमा �ों िदया
जाए) 194
16.15.7 💊💊💊💊5⃣L /👪👪/📆📆 Ayushman Bharat / PM Jan Aroyga Yojana (PMJAY) ............................ 194
16.15.8 PM-JAY Sub-schemes ................................................................................................................... 195
16.16 ⚰ 💊💊💊💊💊💊 General Insurance → other than Health Insurance............................................. 198
16.16.1 🧔🧔⚰🌽🌽 Pradhan Mantri Fasal Bima Yojana (2016).............................................................. 198
16.16.2 🧔🧔⚰🌽🌽 PM-FBY (2.0) revamped in 2020 .............................................................................. 198
16.16.3 🧔🧔⚰🌽🌽 Other Agriculture Insurance Schemes? (अ� कु छ फ़सल बीमा योजना) .......................... 199
16.16.4 ⛴🔪🔪(�🏦🏦) Insurance to Banks on Exporters’NPA → NIRVIC Scheme (2019) ............ 199
16.16.5 🚕🚕🚕🚕 Third Party Motor Insurance (थडर् पाट� मोटर इं �ोर�स) ........................................................ 199
16.16.6 🚕🚕🚕🚕 Own Damage Insurance (OD: मोटर सं बं�धत �यं के नुकसान का बीमा ) .................................... 200
16.16.7 🏗🏗⚖📜📜Title Insurance (जमीन / इमारत का टाइटल बीमा) ............................................................... 200
16.16.8 💉💉⚖📜📜Clinical Trial Liability Insurance............................................................................... 200
16.16.9 🔥🔥🔥🔥🔥🔥🔥🔥 Bharat Griha Raksha & other: Standardized home/factory insurance policies200
(Batch:PCB5) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 183
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16.16.10 🌬🌬🌬🌬(Proposed) Catastrophe Insurance (आपदा बीमा) .......................................................... 200
16.16.11 🌬🌬🌬🌬 Catastrophe Bonds, Surety Bonds: ............................................................................. 200
16.16.12 👿👿👿👿General Insurance → Cyber Insurance (साइबर बीमा) .................................................. 201
16.16.13 💻💻eIA: e-Insurance account ................................................................................................... 201
16.17 ⚰↗⚰Re-insurance (पुनब�मा) ....................................................................................................... 201
16.17.1 😷😷(🤵🤵🤵🤵🤵🤵)PANDEMIC RISK POOL proposal by IRDAI ................................................ 201
16.18 ⚰�IRDAI: the insurance sector regulator (बीमा �ेत्र �नयं त्रक) ....................................................... 201
16.18.1 ⚰�Domestic Systemically Important Insurers (D-SIIs, (घरेलु प्रणालीबद्ध मह�पूणर् बीमाकतार्) ..... 202
16.19 ⚰😿😿 Challenges to insurance industry (चुनौ�तयां) ......................................................................... 202
16.19.1 Insurance progress indicators (बीमा प्रग�त सं के तक) ......................................................................... 203
16.19.2 FDI limits in Insurance sector? (बीमा �ेत्र मे प्र�� वदेशी �नवेश क� सीमा)........................................... 203
16.19.3 Should we ⏫ FDI beyond 49% in insurance companies? (�ा सीमा बढ़ाए?) ............................. 203
17 � → � (💰💰💰💰) PENSION (प�शन) ............................................................................................................. 204
17.11 �🦁🦁 Employee Provident Fund Org. (कमर्चारी भ�व� �न�ध सं गठन)................................................... 204
17.11.2 🧔🧔🧔� (2016) Pradhan Mantri Rojgar Protsahan Yojana (Labour Min) .......................... 205
17.11.3 👻👻ATMANI Reforms in EPFO 🧔🧔🧔� (March to August) ............................................... 206
17.11.4 👻👻Atmanirbhar Bharat Rozgar Yojana= Subsidy from Central Govt in EPFO contribution
206
17.11.5 😤😤MORAL OUTRAGE Q: “why not merge EPFO with ESIC!!? ”........................................ 207
17.12 �→�Pension for Govt Employees & Middle Class? = NPS .................................................. 207
17.12.1 Old Pension Scheme (OPS) will not be re-introduced says Govt in Lok Sabha ...................... 207
17.13 �→�Pension for Senior Citizens WITH CAPACITY to Invest? ........................................... 208
17.13.1 Pradhan Mantri Vaya Vandana Yojana (2017-DFS, LIC) ......................................................... 208
17.14 �→�Pension for Poor People WITH capacity to INVEST? .................................................. 209
17.14.1 � → 👴👴👴👴👴👴: 🧔🧔 Pension: Three Maan Dhan Yojanas .................................................... 210
17.14.2 😤😤MORAL OUTRAGE Q.: “why not merge all these schemes into one!?? ......................... 210
17.15 �→� Pension for Poor People WITHOUT capacity to INVEST? ........................................ 210
17.16 �� PFRDA, the Pension Funds’ Regulator ............................................................................... 211
17.17 🛫🛫🛫Social Security for Overseas Indians (Pension / Insurance) .............................................. 211
17.17.1 🛫🛫🛫Mahatma Gandhi Pravasi Suraksha Yojana, 2012 to 2017............................................ 211
17.17.2 🛫🛫🛫Pravasi Bharatiya Bima Yojana, 2017 .............................................................................. 211
18 (��:💰💰)→💳💳Financial Inclusion (�व�ीय समोवेशन) ................................................................................. 212
18.11 (��:💰💰)→💳💳 Fin. inclusion: Bank accounts for Everyone ................................................... 212
18.11.1 🧔🧔(��:💰💰)→💳💳 Pradhan Mantri Jan Dhan Yojana (प्रधान मं त्री जन धन योजना)................... 213
18.11.2 � Jan Dhan Darshak App (2018) .............................................................................................. 214
18.12 (��:💰💰)→ 📮📮 Fin inclusion: Investments other than Bank .................................................. 214
18.12.1 📮📮 (Yearbook) Dept of Post: POSB vs IPPB............................................................................... 215
18.12.2 (�:💰💰)→(�:💳💳)Sukanya Samriddhi Yojana (2015) .......................................................... 215
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18.12.3 ⭐📫📫 📫📫
📫 📫 ��
� Five Star Village scheme by Dept of Post (2020) .......................................... 216
18.12.4 ⚰💀💀💀💀💀💀💀💀 ��
� Sampoorna Bima Gram Yojana (2017) .................................................... 216
18.12.5 ⚰💀💀💀💀💀💀💀💀 ��
� Model Insurance Villages (MIV) proposal by IRDAI (2021) ................ 216
18.12.6 ⚖Proposed Government Savings Promotion Act (in 2018)................................................... 216
18.12.7 (��:💰💰)→ 📦📦 Chit Funds and Prize Chits ........................................................................ 216
18.12.8 📦📦📦📦 Chit Fund Scams? धांधली/ गबन / का� ............................................................................... 217
18.13 �� ←(💰💰💰💰) Financial inclusion: Credit (Loans: ऋण) .......................................................... 218
18.13.1 ��: 🧔🧔 ←(💰💰💰💰) Credit Guarantee (ऋण अदायगी गारंटी) ..................................................... 218
18.13.2 (💰💰💰💰)↗🗃🗃=(💰💰💰💰) Refinance (पुन�व�) ............................................................................... 218
18.13.3 👻👻 �🏭🏭 MSME: Definition changed in ATMANIRBHAR (2020) ..................................... 218
18.13.4 👻👻👻👻 �🏭🏭 MSME Non-NPA borrower → ECLGS 1.0 ...................................................... 219
18.13.5 👻👻👻👻 �🏭🏭 MSME Non-NPA borrower → ECLGS 2.0 (Atma-Nirbhar 3.0) ................... 219
18.13.6 👻👻👻👻👻🏭🏭 MSME NPA borrower → Subordinate Debt (गौण ऋण) ..................................... 220
18.13.7 👻👻👻👻👻🏭🏭 MSME Loans: FM tells Bankers not to fear 3C.................................................. 220
18.13.8 👻👻👻👻👻🏭🏭 MSME → Equity infusion via Fund of Funds (�न�धयो क� �न�ध) .......................... 220
18.13.9 🚫🚫🚫🚫🚫🚫🚫🚫 NBFC → Mudra (2015, 100% SIDBI subsidiary) ...................................... 220
18.13.10 👻👻👻👻 �🏭🏭 Mudra Loans → Shishu Loans pe 2% Interest subvention......................... 221
18.13.11 ⏰🔪🔪 psbloansin59minutes.com (2018) .............................................................................. 221
18.13.12 🙋🙋Stand Up India Scheme, 2016 (उ�� भारत)......................................................................... 221
18.13.13 👭👭Self-help group (�-सहायता समूह) → Credit........................................................................ 221
18.13.14 🤑🤑🤑Street vendors’s AtmaNirbhar Nidhi Scheme (SVANidhi) ..................................... 222
18.13.15 🤑🤑🤑Street vendors’s AtmaNirbhar Nidhi Scheme (SVANidhi) → Main Bhi Digital
(2021) 222
18.13.16 �💳💳 Kisan Credit Card (1998) ............................................................................................ 222
18.13.17 ��: 🧔🧔 ←(💰💰💰💰) Interest Subvention (�ाज सहायता) .................................................... 223
18.13.18 �PaiSA Portal (2018) ............................................................................................................ 223
18.14 🌽🌽🌽🌽🌽🌽🌽🌽Farm Loan Waiver (कृ �ष ऋण माफ�) ............................................................................... 223
18.14.1 🌽🌽🌽🌽🌽🌽🌽🌽Agri-Finance → Loan waivers for the farmers .................................................... 223
18.14.2 🌽🌽🌽🌽🌽🌽🌽🌽=👌👌Agri-Finance → Farm loan waivers: arguments in favour .......................... 224
18.14.3 🌽🌽🌽🌽🌽🌽🌽🌽=👎👎Agri-Finance → Farm loan waivers: arguments against ............................ 224
18.14.4 🌽🌽🌽🌽🌽🌽🌽🌽=👎👎☠Anti-Argument: Loan waiver will not stop farmer suicide................... 225
18.14.5 🌽🌽🌽🌽🌽🌽🌽🌽 ✍ Farm Loan Waiver: Conclusion .................................................................... 225
18.14.6 👻👻👻👻👻👻 Atma-Nirbhar Farm Loan Reforms (2020) ............................................................. 225
18.15 ⚰� Financial inclusion: Insurance & Pension........................................................................... 225
18.15.1 ⚰🔬🔬 Micro Insurance (सू� बीमा) ............................................................................................... 225
18.15.2 🏍🏍🏍🏍🏍🏍 Gig Workers’ social security code (�गग कम� क� सामा�जक सुर�ा सं िहता)............................ 226
18.15.3 👻👻ATMANIRBHAR → 👷👷Workers’ Social security (2020) ................................................. 226
18.16 ��: �Financial Inclusion: Customer Protection (ग्राहक सुर�ा) ............................................... 226
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18.16.1 😾😾RBI’s 3 Ombudsman (ओमबड्समेन/ �शकायत �नवारण अ�धकारी/लोक प्रहरी) ....................................... 227
18.17 📈📈📈📈📈📈Financial Inclusion: India’s Performance (भारत का प्रदशर्न) ............................................. 227
18.17.1 📈📈📈📈 Global Microscope Report ............................................................................................... 227
18.17.2 📈📈📈📈 Global Findex Database 2017: (released in 2018, April) ............................................... 228
18.17.3 📈📈📈📈 Mercer CFA Institute Global Pension Index for 2021: ............................................. 228
18.17.4 📈📈📈📈 (India’s own) Financial Inclusion Index by DFS........................................................... 228
18.17.5 📈📈📈📈 (India’s own) RBI’s National Strategy for Financial Inclusion (NSFI) ....................... 228
18.17.6 📈📈📈📈 (India’s own) RBI’s Financial Inclusion Index (�व�ीय समावेशन सूचकांक) ......................... 228
18.18 �🎺🎺 Mock Questions for Mains (250 words Each) ................................................................... 228
16 ⚰INSURANCE (बीमा): MEANING AND SIGNIFICANCE

- Meaning: insurance policy is a Debt instrument / Legal contract against eventualities of death or damage.
(मृ�ु या ��त क� घटनाओं के �खलाफ कानूनी अनुबंध).
- 2 parties in this contract: 1) Insured / client 2) Insurer / Underwriter.
- Insurance provide stability to the households (against death, disability, damage) and entrepreneurs
(against fire, theft, natural disasters etc.) बीमा प�रवार और उद्योगप�तयों को जो�खमों के सामने ��रता मुहयै ा कराता है
- Insurance companies invest clients’ premium in various public and private sector projects, thereby
channelizing savings towards investment & economic growth. बीमा-िक� के द्वारा लोगों क� बचत �नवेश म� जाती है
16.11.1 Insurance Principles (�सद्धा�: hindi not required but understand gist for case studies)
⇒ Uberrima fides- Good faith, hide nothing. (HIV+ve in Health Insurance)
⇒ Indemnity- Only “REAL” loss, not imaginary. (couldn’t give CAT exam due to fire)
⇒ Subrogation- Insurer can recover from negligent 3rd party.
⇒ Causa Proxima - Direct loss link. Bollywood fan can’t buy policy for Bachchan.
⇒ Insurable interest- If “risk-x” not happen, client remains in same position, “risk-x” happens client in
bad position. (I didn’t win lottery, I lost in horse race betting)
16.12⚰🏺🏺 HISTORY OF INSURANCE IN INDIA (भारत मे बीमा कं . का इ�तहास)
- (1818): Europeans started insurance companies in India, but they charged higher premium on Indian
clients with racist bias that Indians belong to an inferior race = higher probability to die. अंग्रेज कं प�नयां
भारतीय लोगों पर �ादा बीमा िक� मांगते थे
- (1870): Bombay Mutual Life Insurance was the first Swadeshi life insurance company and they did not
charge extra premium on Indian clients.
- (1912): Life Insurance Companies Act to regulate them, but the norms were lax, so just like the banking
industry, the insurance industry too faced problems in the aftermath of Great Depression in USA. So,
1938: Insurance Act for tougher regulation. पहले कांड होते रहेते थी िफर क़ानून बनाया गया
- Just like the banking industry, the insurance industry had to be nationalized after independence due to
scams, financial inclusion and Five-Year Plans. धांधली, �व�ीय समावेशन और पं चवष�य योजना के �लए रा��ीयकरण
Chronology �Bank ⚰ Insurance
1948-49 RBI nationalized -----
1955 SBI nationalized -----
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Chronology �Bank ⚰ Insurance
1956 ---- LIC Act took over ~245 (private owned) Life insurance
companies.
1969 Nationalization of 14 ----
Private Banks
1972 ---- GIC Act: GIC and its 4 subsidiaries tookover ~107 (private
owned) General insurance companies.
1980 Nationalization of 6 ----
Private Banks
Reforms Narasimham ‘91 & ‘98 Malhotra Committee 1993→ Private insurance companies
सुधार स�म�त were allowed, FDI was liberalized
Safeguards CRR, SLR, BASEL Investment Pattern, Solvency Margin. E.g. They must invest
सुर�ा के �लए minimum “x%” of premium in G-Sec, they can’t invest more
कु छ मानदंड than “y%” of premium in pvt companies shares/debentures
etc. They must not invest in companies having less than “AA”
credit rating etc. Exact norms not imp.
Financial PSL norms Rural & Social Obligation Norms: every year “x” number of
Inclusion, 25% branches in policies must be sold in rural areas, PH/backward etc. Further
Welfarism unbanked rural areas Insurance companies required to invest minimum “x%” in
affordable housing projects, State Govt’s fire equipment etc.
Else IRDAI imposes penalty. ग्रामीण और सामा�जक दा�य� मानदंड
Delivery ⇒ Bank branch, Insurance Intermediaries: (म��/ �बचौ�लया)
Channel ⇒ Business - Agents/brokers.
Correspondence - Bankers selling insurance (Bancassurance)
Agent (BankMitra) - Surveyor/Loss Assessor (सव��क).
- Third Party Administrators (e.g. Hospital where treatment
is given for health insurance जहां आप का इलाज हो)
16.13⚰💀💀LIFE INSURANCE (जीवन बीमा)

Life Insurance Type → Money returned? 📆📆At maturity 💀💀At death
Whole life= Longer policy: (e.g. 35-40 yrs) Yes, savings returned YES
Endowment= Shorter policy: (e.g. 10-20) with interest
Term life= Short Policy, Low Premium e.g. PM Jeevan Jyoti ✋No Yes
Bima Yojana. मृ�ु नहीं �ई तो बीमा िक� वापस नहीं �मलेगी
ULIP: Unit Linked Insurance Plans: Part of money goes in Yes, savings returned YES
insurance, part in Mutual fund with some profit
16.13.1 ⚰💀💀 🦁🦁 Life Insurance → notable entities in public sector (सावर्ज�नक �ेत्र के जीवन बीमा सं �ान)
16.13.1.1 ⚰💀💀 📮📮 Post Office Life Insurance (डाक जीवन बीमा)
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- Initially started as postal life insurance for postal employees (1884), later extended to rural people as well.
- Presently, 6 schemes for govt employees and 6 schemes for rural areas (usually with prefix of “GRAM”
e.g. gram Suvidha / Suraksha / Santosh….)
16.13.2 ⚰💀💀💀💀 🦁🦁 Life Insurance Corporation of India (1956)
⇒ To take over/nationalize the private life insurance companies → LIC Act, 1956. So, LIC is a statutory
corporation/statutory company. (वैधा�नक �नगम)
⇒ Rigveda: “योग�ेम” (Yogakshema: well being) = name of LIC HQ@Mumbai & its corporate magazine.
⇒ Gita: “योग�ेमं वहा�हम्” (Yogakshemam Vahamyaham:- I ensure safety and well being (of my devotees) =
LIC motto.
⇒ 2018: LIC became majority shareholder in IDBI bank. (More in 📑📑Pillar#1B1- Classification)
⇒ 2021: 1) Govt ⏫retirement age of LIC chairman from 60 to 62 years. 2) LIC launched ‘Ananda’ App for
insurance agents.
16.13.3 ⚰💀💀💀💀 🦁🦁 LIC’s Disinvestment (2020, �व�नवेश)
⇒ Disinvestment (�व�नवेश): Reducing ⏬ govt shareholding in a Government company but govt keeps
atleast 51% shareholding with itself. (e.g. if govt selling its shares of ONGC from 100% to 75%, 51% etc)
⇒ Privatization / Divestment / Strategic Disinvestment (�नजीकरण/रणनी�तक �व�नवेश): Govt selling the majority
shareholding/ownership of a Govt company to a private entity (e.g. Adani/Ambani को पूरी क� पूरी सरकारी कं पनी
बेच दी जाए) (More in 📑📑Pillar# 2D)
- 💼💼Budget-2020: LIC Act will be amended → LIC will be converted from a statutory corporation into a
(listed) Public Limited Company → Initial Public Offering (IPO) → Government will sell part of its
shareholding. 💼💼Budget-2021: again repeated the same thing.
WHY is Govt doing disinvestment of LIC?
⇒ LIC’s insurance products come with a sovereign guarantee (सं प्रभु गारंटी) by the Govt. So people prefer to
buy it over private sector insurance policies. This hampers perfect competition (पूणर् प्र�तयो�गता).
⇒ If Govt shareholding ⬇ → LIC functioning becomes independent → less financial repression of
households e.g. how LIC bought loss making IDBI under Government’s pressure. Ref 📑📑Pillar#1B-1:
Banks’ classification. (सरकारी दबाव म�, एलआईसी घाटे वाले �ेत्रों म� �नवेश करता है, �जससे �नवेशकों का �व�ीय दमन)
⇒ So, earlier, International Monetary Fund (IMF) and Justice B.N.SriKrishna’s Financial Sector Legislative
Reforms Commission (FSLRC-2011) had also advised the same to Government of India. (आईएमएफ तथा
�व�ीय �ेत्र �वधायी सुधार आयोग ने भी कु छ ऐसी ही �सफा�रश� क� थी)
⇒ Disinvestment = Government will earn some ₹₹ by selling its shares → welfare schemes. (�व�नवेश से कमाई
रकम, गरीब क�ाण योजनाओं म� इ�ेमाल कर सकती है)
16.13.4 ⚰💀💀💀💀💀 LIC- Aam Admi Bima Yojana (AABY):
✋OLD SCHEME DONT LOOSE SLEEP

⇒ 18-59 aged Below Poverty Line (BPL: गरीबी रेखा के नीचे) and marginally above poverty line people.
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⇒ Premium? Rs.200 per year. (out of that Rs. 100 by Union Govt. remaining Rs.100 by either State Govt /
non-governmental organization (NGO). प्री�मयम क� कु छ रकम क� द्र सरकार देती बाक� िक रा� सरकार या समाजसेवी सं �ाएं
⇒ Payment? Children scholarship** and ₹30-75k depending on natural death accidental death / disability.
⇒ Previously Janshree Bima Yojana –Unorganized workers group insurance but merged with AABY (2012).
⇒ Administrative control of this AABY scheme? Labour Ministry (श्रम मं त्रालय इसक� प्रशास�नक �ज�ेदारी देखता है)
16.13.5 🧔🧔⚰PM schemes for Life Insurance & Accidental (Gen) insurance
Figure 1: शराब पी के मर गए देवदास बाबू तो PM-सुर�ा बीमा योजना मे कु छ नही �मलेगा!

Table 1: 2015: Finance Ministry → Dept of Financial Services launched these two schemes.
Features 🧔🧔⚰💀💀 🕯🕯✔♿✖ Pradhan Mantri 🧔🧔⚰💀💀♿✔🍾🍾✖ Pradhan
Jeevan Jyoti Bima Yojana (PMJJB) Mantri Suraksha Bima Yojana
(PMSBY)
Age 18-50 years with bank account in India. NRIs 18-70 years. Remaining same as
eligible but payment in rupee currency only. PMJJB
Purchase LIC or any empaneled pvt. life insurance 4 Public Sector, or any empaneled
from company. pvt. General Insurance company.
Premium Rs. 330 per person/ annum Rs.12/- per person/ annum
Type LIFE Insurance General Insurance
Nature of 1 year “term” LIFE insurance. 1-year “term” accident cum death
Plan Term LIFE insurance = no death, no money insurance.
returned.
Return? Any type of death: ₹ 2 lakhs Accidental Death: murder, natural
िकसी भी प्रकार क� मृ�ु पर प�रवार को मुआवजा �मलेगा disaster etc. ₹2 lakhs
- Loss 1 eye/hand/leg: 1 lakh
- Loss 2 organs/>: max. 2 lakhs
Suicide, alcohol-drugs related death:
not eligible
Neither scheme gives hospitalization cost. (अ�ताल म� �चिक�ा खचर् के �बल क� अलग से कोई रा�श नहीं �मलेगी)
16.14 ⚰ 💊💊💊💊💊💊GENERAL INSURANCE (सामा� बीमा)
An insurance policy other than ‘life insurance’, is called General Insurance. e.g. Accident Insurance, Health
Insurance, Crop Insurance, Fire-Theft-Marine & Vehicle Insurance. दुघर्टना बीमा, �ा� बीमा, फसल बीमा, आग-चोरी-
समुद्री और वाहन बीमा
16.14.1 ⚰🚕🚕🚕🚕 🦁🦁 Public Sector General Insurance Entities: Timeline (समय रेखा)
⇒ 1948: Employees' State Insurance Corporation (ESIC) under Labour Ministry – through an act of
Parliament to protect selected category of workers. मजदू रों का �ा� बीमा
⇒ 1957: Export Credit Guarantee Corporation of India (ECGC: �नयार्त ऋण गारंटी �नगम) under Commerce
Ministry. Gives insurance cover to exporters, and credit guarantee to Bank/NBFC who loan to exporters.
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⇒ 1961: DICGC Act: banks must buy deposit insurance from it. Although not considered a General
Insurance Company in textbook sense because doesn’t directly sell insurance policy to any individual
household/businessman. (पाठ्यपु�क क� प�रभाषा म� उसको बीमा कं पनी नहीं बोल सकते)
⇒ 1972: General Insurance Nationalization Act: 107 (private) general insurance companies were taken over
by GIC and its 4 subsidiaries (viz. National insurance, New India Assurance, United India, Oriental).
Later, Govt took direct shareholding-control over these 4 subsidiaries, and left GIC to take care of re-
insurance biz. (पुन:बीमा)
⇒ 2002: Agriculture Insurance Company ltd, (formed with funding of GIC, above 4 public sector Gen.
Insurance Cos and NABARD.) कृ �ष बीमा कं पनी
⇒ 2018-Feb: Budget announced to merge (�वलीनीकरण) National Insurance Company, United India Insurance
Company and Oriental India Insurance Company- but the plan has not materialized yet.
⇒ 2018-Oct: FinMin → Dept of Financial services organized ‘Insurance Manthan’ for Public Sector GI
@Delhi. Outcome? six-point agenda: fully insured society, customer orientation, digital -analytics for
future, sustainable-prudent business, reach for everyone and talent management. ✋How? NotIMP.
⇒ ⚾📻📻⚾🎓🎓✋2020: 1) IRDAI allows insurers to give three-month moratorium on loans. 2) Union
Cabinet has approved the capital infusion of Rs.12,450 crore in the three Public Sector General Insurance
Companies to improve their financial solvency. THIS TYPE OF Technical NEWS IS NOTIMP for the
scope of the exam. DONT WASTE TIME. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
16.14.2 ⚰🚕🚕🚕🚕 🦁🦁: (🤵🤵) General Insurance Business (Nationalisation) Amendment Bill, 2021
General Insurance Nationalisation Act 1972 General Insurance Business (Nationalisation)
(सामा� बीमा रा��ीयकरण कानून) Amendment Bill, 2021
Five General Insurance (GI) Companies brought To facilitate privatization of these public
under Govt control sector/Government owned GIs. सामा� बीमा �ेत्र क�
1) General Insurance Corporation of India (GIC) सरकारी कं प�नयों के �नजीकरण का रा�ा आसान बनाने के �लए �वधेयक
2) National Insurance, 3) New India Assurance,
4) Oriental Insurance 5) United India Insurance.
Majority shareholding (minimum 51%) must Removed this rule. So, in future, govt may sell its
remain under Government control (ब�मत शेयरहो��ंग majority shareholding to private party (e.g.
सरकार के हाथ म� अ�नवायर् �प से होनी चािहए) Adani/Ambani etc) [इन पांच कं प�नयों म� ब�मत शेयरहो��ंग
सरकार के पास होना अ�नवायर् नहीं यानी िक �नजी �ेत्र का आदमी भी
मा�लक बन सकता है]
These companies’ employees’ service conditions by the board of directors (and not by Government)-
(salary, tenure, promotion, transfer, discipline rules so in future if a particular government insurance
etc) will be decided Govt. [इन सरकारी बीमा कं प�नयों के company is privatised then the private companies
कमर्चारीओ क� तन�ाह/वेतन,पदो�ती/तर��, तबादला इ�ािद सेवा new bosses (e.g. Adani/Ambani etc) will decide.
और �श�/अनुशासन के �नयम सरकार तय करती थी] [कं पनी के बोडर् ऑफ डायरे�र यह �नयम तय कर�ग]े
- 🤩🤩Pro-Arguments? Privatization will help in Professionalism, Profitability, Customer responsiveness of
these Govt companies (�नजीकरण के प� म� तकर् : पेशेवर तरीके से सं चालन होगा, मुनाफा बढ़ेगा, ग्राहकों क� सु�वधा बढ़ेगी)
- 😰😰Anti-Arguments? 1] Similar to anti-arguments against Banking merger/consolidation (Ref:
📑📑Pillar#1B1) [2) Similar to anti-arguments against Insurance FDI
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16.14.3 🦁🦁(💉💉💉) Employees' State Insurance Corporation
- 1948: Employees' State Insurance Act → 1952: ESIC corporation (ESIC) setup under Labour Ministry.
(कमर्चारी रा� बीमा �नगम, श्रम मं त्रालय)
ESIC applicability? BEFORE 👻👻ATMANIRBHAR Reform (2020)
any establishment with 10/> employees Compulsory Compulsory (अ�नवायर्)
If establishment less than 10 workers → Voluntary Compulsory (खतरनाक उधोगों के मजदू रो का
but it’s a hazardous industry e.g. (�ै��क/वैक��क) क-रा-बी-�न मे पं जीकरण अ�नवायर्)
(firecrackers, toxic chemicals, acid)
If establishment less than 10 workers → Voluntary Voluntary
Non-hazardous industries (�ै��क/वैक��क) (�ै��क/वैक��क)
- 👷👷 Who are ESIC subscribers? Employee in above establishment, with monthly salary less than
₹21,000/-
- 👷👷 � Who pays ESIC premium? “x%” of employee’s wages+ “y%” from employer’s side.
- What is X and Y? notimp unless preparing for ESIC/Insurance Exams. Furthermore, Factoids like ESIC
vision-2022 to enrol 100 million workers. notIMP4UPSC
- 💼💼Budget-2021: we’ll expand this to cover more workers. But exact details yet to be disclosed.
🤩🤩An ESIC subscriber gets following benefits:
1) Medical insurance for the worker and his family from day#1 of joining (�ा� बीमा)
2) Maternity Benefit to women employees (मातृ� लाभ)
3) Monthly pension to family, if worker dies by employment related injuries. Corona-2020-21→ if worker
died of Corona, family member to be given pension. (originally such pension was to be given for workers’
death in factory employment related accident, and not for corona illness.) नौकरी करते व� ऑिफस/फै ��ी म� हादसे
के चलते मजदू र मर गया तो प�रवार को प�शन। नया सुधार: कोरोना क� बीमारी म� मर गया तो भी प�रवार को प�शन
4) Sickness benefit: partial wages during medical leave. (बीमारी प्रसु�वधा)
5) Monthly payment on disability (�वकलांगता मा�सक भुगतान)
6) Unemployment allowance if involuntary loss of employment- through the scheme ‘Atal Bimit Vyakti
Kalyan Yojna’. (अटल-बी�मत क�ाण = अनै��क �प से उसक� नौकरी चली गई तो बेरोजगारी भ�ा)
🪔🪔Project Panchdeep digitization and automation of ESIC processes by WIPRO (2017)
🏹🏹 📩📩Project Arrow Modernization of India Post (2008) डाक �वभाग का आधु�नक�करण
🔠🔠❓ Consider the following: [Asked in UPSC-Pre-2012]

1) Hotels and restaurants 2) Motor transport undertakings
3) Newspaper establishments 4) Private medical institutions
The employees of which of the above can have coverage under ESIC?
(a) 1, 2 and 3 only (b) 4 only (c) 1, 3 and 4 only (d) 1, 2, 3 and 4
16.14.4 👻👻🤧🤧⚰Gen Insurance → Corona Warrior ₹50 lakh cover (2020-March)
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⇒ 👻👻 ATMANIRBHAR → PM Garib Kalyan → ₹50 lakh accident insurance scheme cover for health
workers involved in managing the Coronavirus such as doctors, nurses, paramedical staff, ASHA workers
etc.
o If corona illness death / corona duty related accidental death (like mob lynching & stone pelting)
= family gets ₹50 lakhs.
o If corona led illness but recovered AND NOT DIED = no ₹₹ given to anyone. (bcoz presumed
that health worker will get free treatment in Government hospital)
⇒ Age limit? None. (आयु मयार्दा)
⇒ Company? New India Assurance, a public sector general insurance company.
⇒ Who pays premium? Ministry of Health and Family welfare
⇒ Duration? Upto 2020-September then Government extended it for another 6 months.(Although govt
may extend it longer, dynamically changing information. ✋Don’t loose sleep)
16.15 💊💊 GEN → HEALTH INSURANCE SCHEMES (�ा� बीमा योजनाएं )
Fixed Benefit (�न��त लाभ) Indemnity Based (��तपू�त आधा�रत)
Fixed payment given depending on illness. Upto to the “actual hospitalization cost” from the total
⇒ If the Policy agreement said “if you get insured sum.
cancer, we’ll give you ₹50 lakhs.” ⇒ "Indemnity" = upto actual cost in treatment, subject
⇒ So, even if a patient spends ₹10 lakh on to max limit. so, if ₹5 lakh ki policy=
hospitalization, still the company will pay ⇒ Actual treatment cost ₹2 lakh → company pays only
₹50l. ₹2 lakh
इससे कोई फकर् नहीं पड़ता िक हॉ��टल का �बल िकतना आया ⇒ Actual treatment cost ₹7 lakh→ company pays max
आपको एक �न��त रकम दी जाएगी ₹5 lakh
Further Subtypes
⇒ Cashless policy: patient simply goes to an empanelled
hospital = free treatment.
⇒ Non-Cashless policy: patient first pays hospital bill
from own pocket → submits bills to insurance
company → gets refund.
16.15.1 💊💊 😵😵: 🧐🧐Arogya Sanjeevani Policy (2020)
Figure 2: पोलीसी खरीदु तो कौन सी, Features क� तुलना करना है ब�त मु��ल! िदमाग चक्रम हो गया मेरा 😵😵
😰😰Too many types of health insurance policies with various features and premiums = a common man gets
confused which health policy is best for him. (आम आदमी भ्र�मत हो जाता है िक कौन सी �ा� �बमा पॉ�लसी उसके �लए सव��म)
So, IRDAI ordered health insurance companies to launch a Standard Health Insurance Product (SHIP: आदशर्
�ा� बीमा उ�ाद) to cover the basic health insurance requirements of every person. With following Features:
Name must be “Arogya Sanjeevani Policy -<name of the company>”. Any other name NOT
allowed.
Type Indemnity based Health insurance policy. (��तपू�त आधा�रत �ा� बीमा)
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Premium Decided by individual insurance company. (बीमा िक�)
Benefit?  Minimum ₹50k to maximum any amount in multiple of 50k e.g. e.g.1l,1.5l…
 However higher cover = higher premium/subscription fees
Validity minimum 1 year to lifetime (वैधता)
Entry age  Minimum 18 to Maximum 65. (प्रवेश आयु)
 Policy can for (A) self and/or (B) Family Floater policies (�यं / पुरे प�रवार के �लए)
 What costs will be covered? hospitalization cost, pre and post hospitalization cost, Ayush treatment
(=Ayurveda, homeopathy etc).
16.15.2 ⚰ 😵😵: 🧐🧐SARAL JEEVAN BIMA-Standardized term Life Insurance policy
For customer, presently it is difficult to compare the term life insurance products because
⇒ fancy names like "Reliance Digi-Term", "Tata maharakshak supreme lump-sum", "i-protect” etc.
⇒ Their internal eligibility conditions also differ greatly. For some of the policies' maximum entry age = 45
years, 55 years, 65 years. (वतर्मान समय म� अलग अलग बीमा कं प�नयों क� अलग अलग प्रोड� म� ग्राहक को समजने मे िद�त)
⇒ Some of them over extra benefits like free medical treatment, while some do not.
So, IRDAI ordered, "@Life insurance companies, you continue above products, but additionally, You also
have to launch a standardized term-life Insurance policy named ‘Saral Jeevan Bima’ from January, 2021.
Condition Minimum Maximum
Age limit 18 65
sum assured ₹5 lakh ₹25 lakhs
🤩🤩Benefit? It will help the customers compare policies of different companies more easily. for example:
Hypothetical number (का��नक आंकड़े) SBI-LIFE HDFC-Life
Annual Premium for 5 lakh cover → ₹500 ₹600
Annual Premium for 25 lakh ₹2500 per ₹2400 per year (If you buy bigger than more
insurance cover→ year discount like Unacademy!)
How many Insurance claims cleared 94% 99% (लगभग सभी बी�म�त मृतकों के प�रवारों को पैसा दे देते है, बीमे
upon the death of clients? का पैसा पास करते व� फालतू क� मगजमारी नहीं करते)
16.15.3 💊💊💊💊Gen→ Health Insurance → Corona Kavach vs Rakshak
Figure 3: है कोई �ा� बीमा पॉ�लसी जो कोरोना के भारी हॉ��टल �बल से 'र�ा' करवा दे मेरी?!
2020: IRDAI issued guidelines for the general insurance & health insurance companies to launch standard
health policies against Covid-19, with following standard names:
🤧🤧🛡🛡😵😵Corona Kavach 🤧🤧�🤑🤑 Corona Rakshak
Compulsion Gen. insurance & health insurance optional for company to launch this
companies have to compulsorily launch this policy (अ�नवायर् नहीं है वैक��क)
Type "Indemnity" = upto actual cost in treatment, ⇒ Fixed Benefit Plan
subject to max limit. so, if ₹5 lakh ki policy= ⇒ Fixed amount of money if
⇒ Actual treatment cost 2 lakh → subscribers gets Corona. Irrespective
company pays only 2 lakh of actual treatment cost.
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🤧🤧🛡🛡😵😵Corona Kavach 🤧🤧�🤑🤑 Corona Rakshak
⇒ Actual treatment cost 7 lakh→
company pays max 5 lakh
Coverage ₹50,000 to ₹5 lakh ₹50k to 2.5 lakh
Premium Decided by an individual company. but the same as left column
company will have to keep it uniform across
all States/UT.
Age minimum age 18 to maximum 65. same as left column
(dependent younger children are also
covered, but they can't 'subscribe' by
themselves.) Subscribers' min. age=18 years.
🎓🎓✋further the technical details / differences = poor cost:benefit for UPSC exam.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
16.15.4 💊💊♿ Niramya Health Insurance for PH. ✋OLD SCHEME DONOT-LOOSE-SLEEP
⇒ Boss? By Dept. of Empowerment of Person with disabilities (िद�ांगजन सश��करण �वभाग)→ Oriental
Insurance Company. 🤩🤩Benefit? upto ₹1 lakh health insurance for handicapped
⇒ Premium? Orphan Minor PH= ZERO; Other PH: ₹250-500, depending on poverty level
16.15.5 💊💊💊💊 Rashtriya Swasthya Bima Yojana (RSBY: 2008)
Fee? One time registration ₹ 30. No premium by beneficiary. Govt pays premium.🤩🤩Benefits?
⇒ ₹ 30k for medical treatment [smartcard, cashless: even existing ailment, even private hospital.]
⇒ ₹ 25k for accidental death. And if breadwinner dies: ₹ 50 x 15 days.
⇒ ++Senior Citizen Health Insurance Scheme (SCHIS) –if 60/> they get additional ₹ 30k for treatment.
(व�र� नाग�रक �ा� बीमा योजना)
⇒ Both RSBY and SCHIS are subsumed in PM-JAY (2018) आयु�ान भारत के साथ �वलीन
16.15.6 💊💊💊💊: 🧔🧔Why public health insurance for poor people? (गरीबों को सरकारी �ा� बीमा �ों �दया जाए)
⇒ Public goods = water, sanitation, transport, medical care, schools (सावर्ज�नक व�ुएं-पानी ��ता प�रवहन �ू ल
�चिक�ा). Rich people can seek private alternatives/Even migrate to better countries. But Poor cannot do it
→ Govt support necessary. अमीर लोग अ�� सेवाएं �बजी बाजार से खरीद सकते ह�, लेिकन गरीब को सरकारी मदद क� ज�रत
⇒ “Time Horizon Problem” in a democracy: Frequent election cycles = Govts focus more on short term
gain but Healthcare, nutrition, schools: Long gestation period so govts may neglect it. लोकतं त्र म� समय ��तज
सम�ा: चुनाव के च�र म� सरकार दीघर् अव�ध के सुधारों क� जगह लघु अव�ध के लोकलुभावन पर �ान देती है, �ा� पोषण �श�ा नजरअंदाज.
16.15.7 💊💊💊💊5⃣L /👪👪/📆📆 Ayushman Bharat / PM Jan Aroyga Yojana (PMJAY)
� (Introduction: DATA) In the last decade, in-patient hospitalization (अ�ताल म� भत� रोगी i.e. patient who
stays in hospital overnight) has increased nearly 300% in India. More than 80% of the hospital expenditure
met by out of pocket (खुद क� जेब से). So, rural households are forced to use household savings and borrowings =
vicious cycle of poverty (गरीबी का �वषचक्र). So, Ayushman Bharat launched in Budget 2018, with two
components:
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Figure 4: ब�े के इलाज के �लए कोई पैसा दे दो!
A) 1.5 lakh Primary Health Care Centers (PHC) to be transformed into Health & Wellness Centres with Free
drugs, checkup, mother-child care etc. (�ा� और क�ाण क� द्र)
B) National Health Protection Scheme (AB-NHPS) → Later renamed ‘PM Jan Arogya Yojana (PMJAY)’
and launched with Motto “Swasthya Aapka, Saath Hamara” from Ranchi, Jharkhand (2018, Sept). It has
subsumed Rashtriya Swasthya Bima Yojana (RSBY) & Senior Citizen Health Insurance Scheme (SCHIS).
16.15.7.1 🧔🧔🧔🧔🧔🧔5⃣L /👪👪/📆📆 PM Jan Arogya Yojana (PMJAY, 2018)?

⇒ What is given? A FREE insurance cover upto ₹ 5 lakh per family,
per year for secondary and tertiary hospitalization. All pre-existing disease covered from day 1. Pre and
post hospitalization & medicine expenses.
⇒ Cashless and paperless access [NITI partnered web portal, with privacy protection]
⇒ Beneficiaries? Socio-Economic Caste Census (SECC: सामा�जक आ�थक जा�त जनगणना) data → + 8 cr rural + 2
cr urban = 10 cr families= ~50 crore people.
⇒ No limit on family size. No limit on age of members. (प�रवार म� िकतने सद�, उनक� �ा उम्र है- कोई सीमा नहीं)
⇒ Where to get treatment? (इलाज कहां पर होगा)= All public hospitals and empaneled private hospitals (by the
respective States). [इलाज होगा सरकारी अ�ताल और रा� सरकार द्वारा अ�धकृ त �नजी अ�ताल म�]
⇒ Hospitals to have Pradhan Mantri Aarogya Mitras (PMAMs/hospital-receptionist-type-ke-log) to
help/guide patients in this scheme. These PMAMs are trained using National Skill Development
Corporation (NSDC) and Ministry of Skill Development. (कौश� �वकास मं त्रालय द्वारा आरो� �मत्र को तालीम)
16.15.8 PM-JAY Sub-schemes

1. PM SEHAT (Social Endeavour for Health and Telemedicine) 2020-Dec ज�ू क�ीर के सभी �नवा�सयों के �लए
a. BEFORE: 6 lakh families of the J&K getting Ayushman Bharat Scheme. (= poor family selected
through socio economic caste census 2011)
b. AFTER PM SEHAT: All residents of J&K (=21 families, rich-poor everyone) eligible for ₹5 lakh
health insurance of PM-JAY scheme. Even if they are traveling outside Jammu Kashmir, in other
parts of India, they can avail treatment at PM-JAY-walli hospitals.
2. Ayushman CAPF scheme (2021-Jan) क� द्रीय सश� पु�लस बल
a. Joint initiative of Home Ministry & National Health Authority
b. 7 central armed police forces (CAPF) namely, Assam Rifles, Border Security Force ( BSF),
Sashastra Seema Bal (SSB), Central Reserve Police Force (CRPF), Central Industrial Security
Force (CISF), National Security Guard (NSG), and Indo-Tibetan Border Police (ITBP)
c. Their Personnel & their family members to be covered in under PM-JAY health Insurance.
16.15.8.1 PMJAY → National Health Authority (रा��ीय �ा� प्रा�धकरण)
⇒ Originally it was an “Agency”, then restructured & renamed into “Authority” (2019).
⇒ NHA oversees the implementation of PM-JAY, operational guidelines, collaborate with insurance
companies & IRDAI, running web-platform etc. (योजना को िक्रया��त करेगा बीमा कं प�नयों के साथ तालमेल �बठाएगा)
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⇒ NHA is an ‘attached (adjunct) office (सं ल� कायार्लय)’ with health ministry (�ा� मं त्रालय). i.e. Health
Ministry only looks after parliamentary matters like replying in question hour, tabling annual reports etc.
thus giving NHA more freedom in day to day functioning. (रोजाना काय� म� मं त्रालय क� दखल कम)
⇒ NHA has a Chief Executive Officer (CEO) with status of Secretary to Govt of India (स�चव).
⇒ Above NHA → “Governing Board” (शासक-मं डल)
⇒ Chairman: Minister of Health & Family Welfare (�ा�-प�रवार क�ाण मं त्रालय)
⇒ Members: NITI Ayog CEO, NHA-CEO & other govt officials and experts (�वशेष�).
⇒ States will be represented in the Governing Board on rotational basis (चक्रानुक्रम).
⇒ NHA also implements “National Digital Health Mission” (Basically Sarkaari-google-drive mein x-ray
report store kro yojana!) More in 📑📑Pillar#6:health schemes
16.15.8.2 PMJAY → State Health Agency (SHA)
- Each State to form a State Health Agency (SHA: रा� �ा� एज�सी).
o SHA can directly implement the scheme by themselves OR.
o SHA can tie up with an insurance company to implement the scheme.
o Although these administrative nuances / modalities are not soIMP.
Category (श्रेणी) Cost sharing (खचर् क� साझेदारी)
"Special Category States" (�वशेष श्रेणी के रा�): Union contributes 90%: while
- North-Eastern States, and State contributes 10% of the cost
A
- TWO Himalayan Hilly States: Himachal Pradesh and
Uttarakhand#
- Other States: who are not in above category (UP, Bihar, etc.) 60:40
B - Union territory (UT) with legislature: Delhi, Puducherry,
Jammu & Kashmir. (�वधा�यका वाले क� द्र शा�सत प्रदेश)
- UT without legislature: Ladakh, Andaman Nicobar etc. (�बना 100%
C
�वधा�यका के क� द्र शा�सत प्रदेश)
- #
Before the removal of Article 370 (in 2019), the State of J&K was previously in Special category, so it got
90:10 funding.
- Afterwards: J&K is UT with legislature, so, J&K will get 60:40. So, 2019-Aug: Central Government
considering creating a new category ‘Hill Union Territory (पहाड़ी क� द्र शा�सत प्रदेश)’ so J&K may continue to
received 90:10 funding. But, no need for ⚾📻📻⚾🎓🎓✋#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
16.15.8.3 💼💼Budget-2020 on Ayushman Bharat PM-JAY
 We’ll setup hospitals in aspirational (=backward) districts for treatment of PM-JAY beneficiaries.
Hospital construction Funding: Public private partnership (PPP) → Public side’s funding will be
provided using ₹₹ from health cess on imported medical devices.(More about health cess in 📑📑Pillar#2-
Taxation) आयात होने वाले �चिक�क उपकरणों पर �ा� उपकर लगाकर उस पैसों से �पछड़े �जलों म� अ�ताल बनाएं गे
 We’ll use Artificial Intelligence and Machine Learning (AI-ML) to take preventive actions against the
spread of diseases. Total ₹6400 cr allotted for PM-JAY. (बीमा�रयों का प्रसार रोकने के �लए कृ �त्रम बु�द्धम�ा का उपयोग)
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16.15.8.4 � PMJAY → Challenges? (चुनौ�तयां)
- 😰😰⚔ Cooperative Federalism spirit is missing. (सहकारी सं घवाद क� भावना क� कमी)

o States have to sign agreement with Union to begin operations. But, W.Bengal already has state-
govt sponsored “Swasthyasathi” scheme in State with similar features so CM Mamta has left PM-
JAY (2019, Jan).
o 2021: Rajasthan Right To Health Bill 2021 (�ा� अ�धकार �वधेयक) ₹5lakh health insurance coverage
available at 1) free of cost for workers, small- marginal farmers. 2) others (e.g. Middle class) can
avail at ₹850/year.
o Similar issues in other Non-BJP states. गैर बीजेपी रा� इसे अपनाने म� उ�ुकता / सहयोग नहीं िदखा रहे
- 😰😰💵💵 Fiscal Challenges (राजकोषीय चुनौ�तयां): Budgetary allocations insufficient. If govt borrows more
money→ ⏫ in fiscal deficit. Private hospitals may perform unnecessary surgeries & prescribe excessive
amount of medicines to extract more money from govt. (अनाव�क �प से महंगी दवाई और श�िक्रया)
- 😰😰🗃🗃 Administrative Challenges (प्रशास�नक चुनौ�तयां):
o Beneficiary identification (लाभाथ� क� सही पहचान. अमीर लोग भी गरीब होने का नाटक करके मु� इलाज करवा ले)
o Doctor to patient ratio (मरीजो के अनुपात मे डोकटरों क� कमी)
o Physical and IT infrastructure, Transport, connectivity upto village level. (बु�नयादी सं रचना, प�रवहन,
सं चार िक गांव गांव तक प�ंचन नहीं है)
o Medical privacy of Patient- data may be leaked to pharma companies for their clinical trials and
commercial motives. (�चिक�ा डाटा क� गोपनीयता/�नजता.)
16.15.8.5 📔📔📔📔ES21 on PM-JAY (कु ल �मलाकर घी-दू ध क� न�दयां बह रही है-आ�थक सव��ण)
⇒ 📔📔📔📔ES21 analysed the health outcomes of West Bengal (Which did not implement PM-JAY scheme)
and its neighbouring States - Bihar, Assam and Sikkim (Who have implemented the PM-JAY scheme)
between 2015-2019. And found out W.Bengal has lagged behind them on various health indicators,
including Family planning and HIV/AIDS.. प��म बं गाल क� तृणमूल सरकार ने प्रधानमं त्री जन आरो� योजना नहीं लागू क�
इस�लए वह �ा� म� �पछड़ी रह गई और �बहार आसाम और �स��म आगे बढ़ गए �ोंिक उन पड़ोसी रा�ों म� इस योजना का अमल �आ है
⇒ PMJAY also helped increasing awareness regarding Family planning and HIV/AIDS. (अ�ताल यात्रा के चलते
प�रवार �नयोजन और एचआईवी क� जागृ�त भी बढ़ी है)
⇒ During the Corona lockdown → Many of the surgical procedures were postponed due to infection fear,
Transportation lockdown, Financial hardships= so PM-JAY claims ⏬reduced. हालांिक कोरोना के चलते ब�त
सारी सजर्री/श� िक्रया को ��गत िकया गया था
⇒ Still Poor people continued to avail dialysis in PM-JAY. = Proves success and reliance of the scheme. लेिकन
गरीब लोग िफर भी डाय�ल�सस करवाने आते ही रहे �जससे सा�बत होता है िक गरीब लोग इस योजना म� �व�ास रखते ह�
16.15.8.6 � Conclusion: PM-JAY (�न�षर्)
⇒ Sustainable Development Goal (SDG#3): ensure healthy lives and well-beings at all ages. PM-JAY is a
right step in this regard, provided that aforementioned challenges are addressed.(More about SDG in
📑📑Pillar#6) [सतत �वकास ल�#3- सभी के �लए �� जीवन सु�न��त करने म� योजना मदद करेगी] OR
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⇒ Disease burden robs a poor person of his wages and savings. If aforementioned challenges are addressed,
PM-JAY can greatly help in poverty removal and human development in India. OR (बीमारी म� गरीब आदमी के
वेतन और बचत के पैसे बबार्द नहीं होंग-े �जससे गरीबी �नवारण और मानव �वकास म� मदद)
⇒ If above challenges are addressed, PM-JAY can improve health outcomes, productivity and efficiency of
Indian population, thus leading to improvement GDP and in quality of life. (भारतीय जनसं �ा क� उ�ादकता और
द�ता म� बढ़ोतरी → सकल घरेलू उ�ाद और और जीवन के �र म� सुधार)
🔠🔠❓ Which one of the following is not a feature of the Ayushman Bharat Scheme? (UPSC-CDS-i-2020)
(a) There is no cap on family size and age. (प�रवार क� सद�ों क� सं �ा और आयु पर कोई सीमा नहीं)
(b) The scheme includes pre- and post-hospitalization expenses.
(c) A defined transport allowance per hospitalization will also be paid to the beneficiary.
(d) The scheme provides a benefit cover of Rs. 10 lakh per family.
🔠🔠❓ Ayushman Bharat is a national health insurance system for: (UPSC-Geologist-2020)
a) women b) every citizen c) old age people d) poor and vulnerable.
16.16 ⚰ 💊💊💊💊💊💊 GENERAL INSURANCE → OTHER THAN HEALTH INSURANCE

16.16.1 🧔🧔⚰🌽🌽 Pradhan Mantri Fasal Bima Yojana (2016)
- Against natural calamities, pests, diseases; (प्राकृ �तक आपदाएँ , क�ट, बीमा�रयाँ;)
- Protects before, during and after harvest (फसल क� कटाई).
- Premium (बीमा-िक�) paid by farmers against the total insured amount: Rabi winter crops (1.5%) – Kharif
summer monsoon crops (2%) –Horticulture & Commercial crops other than oilseed & pulses (5%).
Remainder premium is paid by Union: State Govt (50:50). It’s optional for States to join.
- Nodal Ministry: Agri Min → Public sector general insurance companies, and empanelled private sector
insurance companies. सरकारी सामा� बीमा कं प�नयां तथा �नजी �ेत्र क� ऐसी सामा� बीमा कं प�नयां �जनको कृ �ष मं त्रालय ने इस योजना
लागू करने के �लए सूचीबद्ध िकया है
- 😰😰Challenges? (इस योजना म� �ा चुनौ�तयां ह�)
o States not paying their portion- they feel premium amount very high, so, Pvt insurance
companies not settling claims quickly. रा� सरकार बीमा कं प�नयों क� िक� का िह�ा नहीं चुका पा रहे, बीमा कं पनी
वाले िकसानों को मुआवजा नहीं दे रहे, गुजरात, प��म बं गाल सिहत कई रा�ों ने इस योजना का अमल बं द कर िदया है.
o W.Bengal stopped it, & launched its own Bangla Fasal Bima Yojana (2019). Gujarat stopped it &
launched ‘Mukhya Mantri Kisan Sahay Yojana (2020)’ so cooperative federalism missing.
o Union upgraded technical guidelines to fix the delays, but response not good. (भुगतान म� देरी क�
सम�ा को दु�� करने के �लए क� द्र सरकार ने िदशा�नद�शों म� बदलाव तो िकए लेिकन कु छ ख़ास सुधार नहीं आया)
16.16.2 🧔🧔⚰🌽🌽 PM-FBY (2.0) revamped in 2020
Before-2020 From 2020-Kharif
Suppose a kharif crop insurance premium = ₹100. Suppose a kharif crop insurance premium = ₹100.
⇒ Farmer paid ₹2 of the premium ⇒ Farmer pays ₹2 of the premium
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⇒ Union paid ₹49 + State paid ₹49. In other words, ⇒ Union pays only ₹25 to 30 based on whether
Union and States shared their premium burden it’s irrigated or unirrigated respectively.
half-half (50:50). ⇒ State may have to pay ₹68-73. So, states’
burden increased.
⇒ However, the Union will bear 90:10 of the
burden in case of North Eastern States.
Compulsory for farmer to buy this insurance policy, Voluntary (�ै��क) for farmers.
IF he wanted crop loans from bank (ब�क लोन पास करवाने
के �लए िकसान को यह योजना यह बीमा �नकलवाना अ�नवायर् था)
Multiple Perils (एका�धक आपदाए) covered such as flood, ‘Single-peril’ (एकाक� आपदा) insurance can be taken
drought, hailstorm. But, farmers in Rajasthan had no e.g. “protection only against drought.” This will
fear of floods. help reduce ⏬premium amount.
-- Updated the methodology for assessment of crop
loss
16.16.3 🧔🧔⚰🌽🌽 Other Agriculture Insurance Schemes? (अ� कु छ फ़सल बीमा योजना)
- Apart from PM Fasal Bima, there is Restructured Weather Based Crop Insurance Scheme (RWBCIS,
2016)- protects against weather only. (so not pests/diseases).
- There was a National Agricultural Insurance Scheme and Modified (NAIS), but PM Fasal Bima subsumed
it. लेिकन वो सब याद रखने से परी�ा म� बहोत लाभ नहीं.
16.16.4 ⛴🔪🔪(�🏦🏦) Insurance to Banks on Exporters’NPA → NIRVIC Scheme (2019)
Figure 5: �नयार्तक ब�क का कजार् नहीं चुकाएगा तो नुकसान क� भरपाई कौन करेगा
Boss? Commerce Ministry → Export Credit Guarantee Corporation (ECGC)
⇒ NIRVIK (Niryat Rin Vikas Yojana) is an Export Credit Insurance Scheme (ECIS).
⇒ Exporter takes a loan from a bank. But if he defaults then ECGC will cover upto 90% of his principal +
interest losses to the bank. (Before NIRVIC scheme, it was only 60%)
⇒ Exporters pay ‘premium (बीमा-िक�)’ to the bank → bank pays it to ECGC. (Exporter need not goto ECGC
office himself. He can get the application form from the loan giving bank itself.)
⇒ Premium rates depend on sector e.g. diamond, chemical etc. exact figures=NOTIMP
16.16.5 🚕🚕🚕🚕 Third Party Motor Insurance (थडर् पाट� मोटर इं�ोर�स)
- Motor Vehicles Act (1988) requires all motor vehicle owners to purchase it. (कानूनी �प से अ�नवायर्)
- Third party (TP) insurance: When your vehicle hits another vehicle, person or property → that victim
(third party) registers a case, gets compensation. IRDAI regulates premium rates & other norms.
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- SC judgement (2019): TP insurance validity should be 3-5 years, so even if owner forgets to renew
annually, the third party is protected. (अवधी �ादा होनी चािहए)
16.16.6 🚕🚕🚕🚕 Own Damage Insurance (OD: मोटर सं बं �धत �यं के नुकसान का बीमा )
- It protects owner of vehicle against theft, vandalism, accident, fire.
16.16.7 🏗🏗⚖📜📜Title Insurance (जमीन / इमारत का टाइटल बीमा)
Figure 6: जमीन मकान �ववादों के कानूनी लफड़ो म� नुकसान से बचने का �बमा #गुलाबो-�सताबो
- 'Title' (अ�धकार-�वलेख) means a legal document showing ownership of a property. 'Title dispute': usually
happens when multiple persons are claiming ownership of the same land / building.
- 'Title Insurance' protects the new buyer in case of such legal disputes (by refunding the money he had
spent in buying land, construction, legal expenses etc).
- Real Estate Regulation and Development Act 2016 (RERA) requires the builders to buy this type of
insurance. More on RERA in 📑📑pillar#5: urban infrastructure.
16.16.8 💉💉⚖📜📜Clinical Trial Liability Insurance

⇒ Type: General Insurance Cover
⇒ Objective: Protect the pharmaceutical company From legal expenses/Lawsuits, if a volunteer patient
suffers damage/death in clinical trials. (यिद कोई �� नैदा�नक परी�णों म� ��त / मृ�ु तो फ़ामार् क�नी को मदद।)
16.16.9 🔥🔥🔥🔥🏡🏡🏭🏭 Bharat Griha Raksha & other: Standardized home/factory insurance policies
- IRDAI ordered @General Insurance companies to sell 1) Bharat Griha Raksha, 2) Bharat Sookshma
Udyam Suraksha 3) Bharat Laghu Udyam Suraksha from 1/4/2021 onwards.
- Type? Standard Fire and Special Perils (SFSP) Policy.
- Beneficiaries? protect homes and factories of micro, small and medium enterprises (MSMEs).
- What damages are covered? fire, natural catastrophes, riot, strike/hartal, malicious damages, terrorism,,
overflowing water tanks etc upto ₹50 crores.
16.16.10 🌬🌬🌬🌬(Proposed) Catastrophe Insurance (आपदा बीमा)
⇒ Protects the client from natural and manmade disasters.
⇒ Presently, farmers’ crops are protected from natural disasters through PM-Fasal Bima Yojana. But, if his
own home was destroyed in floods, it’s not covered → Union & State Governments forced to use
taxpayers' money for paying compensation to victims of floods, cyclones etc.
⇒ IRDAI doing some studies to launch catastrophe insurance (or CAT cover) for poor people.
16.16.11 🌬🌬🌬🌬 Catastrophe Bonds, Surety Bonds:
📑📑Refer Pillar#1C: SEBI-Sharemarket-यह हम पहले ही पढ़ चुके ह�
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16.16.12 👿👿👿👿General Insurance → Cyber Insurance (साइबर बीमा)
- It covers the losses related to malware attack, phishing and data, identity theft, ransom payment demand
made by the hackers, data restoration costs, business interruption losses due to cyberattacks. The loss of
reputation, damage to mental health etc.
- Corona lockdown → home-from-home through computer → demand for such policies ⏫.
- Bajaj Allianz and HDFC ERGO are notable general insurance companies offering such products.
🔠🔠❓In India, under cyber insurance for individuals, which of the following benefits are generally covered, in addition
to payment for the loss of funds and other benefits? (UPSC-Prelims-2020 SetB.Q90)
1. Cost of restoration of the computer system in case of malware disrupting access to one’s computer
2. Cost of a new computer if some miscreant wilfully damages it, if proved so
3. Cost of hiring a specialized consultant to minimize the loss in case of cyber extortion
4. Cost of defence in the Court of Law if any third party files a suit
Answer Codes: [a) 1, 2 and 4 only [b) 1, 3 and 4 only [c) 2 and 3 only [d) 1, 2, 3 and 4
16.16.13 💻💻eIA: e-Insurance account

⇒ Shares/Bonds are stored digitally in DEMAT accounts. (More in 📑📑Pillar#1C)
⇒ Similarly, Insurance policies can be stored digitally in e-Insurance accounts e.g. NSDL's National
Insurance Repository (NIR). (बीमा द�ावेजों को िड�जटल �प से सं ग्रिहत करना)
⇒ 🤩🤩Benefit? convenience to customers especially if he bought insurance policies from different
companies e.g. Vehicle insurance, fire insurance, Health Insurance, Life Insurance. He can easily track
their expiry date/ online renewal etc. in one portal. (सद�ता का ऑनलाइन नवीनीकरण आसान बनाता है)
16.17⚰↗⚰RE-INSURANCE (पुनब�मा)
- DICGCI Act (1961) requires banks to take deposit insurance from DICGCI.
- Similarly, Insurance Act (1938) requires insurance companies take ‘re-insurance’ on their biz. बीमा कं पनी ने
�यं का "धं धा चौपट बचाओ" बीमा लेना होगा
- Previously, only GIC was the sole-reinsurer, but then norms liberalized (2015). New re-insurance cos
allowed. e.g. India’s ITI Reinsurance Ltd. Even foreign re-insurers such as Swiss Re, Munich Re, General
Reinsurance (Warren Buffet) are permitted. (पहले के वल जीआईसी, लेिकन अब अनेक कं प�नयों को अनुम�त दी गई)
- 🤩🤩Benefits of multiple re-insurance cos? GIC’s monopoly in dictating re-insurance premium rates is
gone. So, insurance cos’ cost of operations to decline → biz. expansion, launch innovative products etc.
16.17.1 😷😷(🤵🤵🤵🤵🤵🤵)PANDEMIC RISK POOL proposal by IRDAI

⇒ Corona= many people died/sick = insurance companies required to pay large sum of compensation. This
is putting lot of Business stress/losses on insurance and reinsurance companies. (महामारी म� काफ� लोग बीमार
�ए/मर गए. बीमा कं प�नयों ने मुआवजा देना पड़ा, मुनाफ़े पर गहरा तनाव)
⇒ PANDEMIC RISK POOL = Insurance companies and government will contribute ₹₹ into this fund to
help in insurance companies in future pandemics. (बीमा कं प�नयां और सरकार �मलकर एक �न�ध/कोष/फं ड म� पैसा जमा कर�
तािक भ�व� म� महामारीज� तनावपूणर् ��तयों म� बीमा कं पनी क� मदद हो सके ।)
16.18 ⚰�IRDAI: THE INSURANCE SECTOR REGULATOR (बीमा �ेत्र �नयं त्रक)
Org - 1996: IRDA setup→ given statutory status in 1999 (वैधा�नक सं �ा बनी)
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सं गठन - 2014: Its name changed to Insurance Regulatory and Development
Authority of India (IRDAI: भारतीय बीमा �व�नयामक एवं �वकास प्रा�धकरण)
- HQ: @Hyderabad, Telangana. (Whereas RBI & SEBI HQs @Mumbai.)
Structure 1 Chairman: Dr. Subhashchandra Khuntia (IAS) (5/65),
सं रचना 9 members (5/62) = Total 10. They can be re-appointed. (पुन�नयु�� सं भव है)
⇒ IRDAI gives separate licenses for life, general & re-insurance companies.
⇒ Prescribes norms for insurance companies for accounting, solvency, audit, commission to
agents etc. It can penalize companies, suspend or cancel registration. Appeal → Securities
Functions
appellate Tribunal (SAT) (More in 📑📑Pillar#1C)
कायर्
⇒ Norms for agents & brokers, banks selling products (Bancassurance), Surveyor/ Loss
Assessor, and Third-Party Administrators (e.g. Hospital)
⇒ Consumer grievance redressal via Insurance Ombudsman (�शकायत �नवारण अ�धकारी).
⇒ IRDAI is member of Financial Stability and Development Council (FSDC). Ref: 📑📑1C
16.18.1 ⚰�Domestic Systemically Important Insurers (D-SIIs, (घरेलु प्रणालीबद्ध मह�पूणर् बीमाकतार्)
- IRDAI prepares a list of big insurance companies that are “too big to fail” i.e. they feel it will create very
great economic distress for India. (यिद ये बीमा कं प�नयां �गर गयी तो अथर्तंत्र म� भारी तबाही होगी)
- IRDAI labels them as D-SIIs & imposes additional rules/monitoring/supervision on them.
- Latest List: 1) Life Insurance Corporation of India (LIC), 2) General Insurance Corporation of India
(GIC), 3) The New India Assurance Co. Ltd. (NIACL) (उनपर �ादा स� �नयम/�नगरानी रख�ग)े
16.19⚰😿😿 CHALLENGES TO INSURANCE INDUSTRY (चुनौ�तयां)
1) Capital intensive industry (पूंजी प्रधान उद्योग): Private players not generating enough profits due to poor
returns in sharemarket. Heavy costs in paying agent commission rates and marketing advertisements.
2) Corona= many people died/sick = insurance companies required to pay large sum of compensation. This
is putting lot of Business stress/losses on insurance and reinsurance companies. (महामारी म� काफ� लोग बीमार
�ए/मर गए. बीमा कं प�नयों ने मुआवजा देना पड़ा, मुनाफ़े पर गहरा तनाव)
3) Products are not cheap. Premiums expensive. Will become more expensive to cover Corona losses.
4) Insurance agents need more skill, network than banker. For bankers- loan recovery easier (SARFAESI,
I&B) compared to an insurance company that invested into equities/shares of a weak company.
5) Rural people: either disinterested / un-served despite schemes & IRDAI norms. (ग्रामीण लोग नीरसता िदखाते ह�)
6) People hesitate in buying House / Factory / Fire / Theft insurance due to fear of discovery of ‘asset value’-
IT/GST raids & ransom demands. → India’s “insurance gap” is high i.e. all the assets are not insured.
(लोग अपनी सं प�� का पूणर् �प से �बमा नहीं करवाते, �ोंिक उ�� आयकर �वभाग के छापे और दबं गों क� िफरोती से डर लगता है)
7) Insurance: Highly regulated, but Healthcare: highly unregulated, so
o Supply demand mismatch: between (doctors-hospitals) vs. patients.
o Standardized medical treatment costs difficult to ascertain, unlike car damage.
8) Delays in claim settlement= fewer repeat customers for health insurance.
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16.19.1 Insurance progress indicators (बीमा प्रग�त सं के तक)
Table 2:✋ figures are not important
As per Insurance penetration (%: बीमा प्रवेश) Insurance Density ($:बीमा घन�) =Premium
📔📔📔📔ES21 =Premium divided by GDP divided by population
Life (2019) 2.82% ↗Improving but in zigzag fashion. $58 ↗Improving but in zigzag fashion.
(2014-2019) (2014-2019)
Non-Life 0.94% ↗Improving but zigzag $19 ↗Improving steadily(2014-2019)
(2019) fashion. (2014-2019)
For India, these indicators are low compared to Malaysia, China, Thailand & many other developing countries
due to aforementioned challenges. (उ� सूचकांकों म� भारत अ� देशों के मुक़ाबले/तुलना मे काफ़� पीछे है)
16.19.2 FDI limits in Insurance sector? (बीमा �ेत्र मे प्र�� वदेशी �नवेश क� सीमा)
⇒ Foreign Direct Investment (FDI) is the (more than 10% equity / share) investment made by a foreign
entity into an Indian company, with the objective to get involved in the management / production of that
Indian company. (िकसी �वदेशी इकाई द्वारा एक भारतीय कं पनी म� 10% से �ादा शेयर �नवेश करना उसे कहते ह� प्र�� वदेशी �नवेश)
⇒ e.g. 2018: Walmart-USA bought 77% shares in Flipkart-India @$16 billion. (More on FDI 📑📑Pillar#3A)
FDI limits in insurance sector→ Present Proposed 💼💼Budget-2021
Insurance company itself 49% 74%**
Insurance intermediaries e.g. agent/broker, 100% N/A. (because already max limit
surveyor/loss-assessor, third party administrators allowed)
(hospital who give treat to health insurance clients)
⇒ 💼💼Budget-2015: insurance FDI limit increased from 26% to 49% (FDI सीमा म� बढ़ोतरी क� गई )
⇒ ** 💼💼Budget-2021: announced to amend Insurance Act, 1938 to ⏫ FDI limit from 49% to 74% in
Insurance Companies. With following safeguards: हालांिक कु छ शत� के साथ
⇒ the Majority of Directors on the Board and key management persons must be Resident Indians. बोडर् ऑफ
डायरे�र तथा कं पनी प्रबं धन के व�र� पदा�धका�रयों म� ब�म�त भारतीय �नवासी होने चािहए
⇒ At least 50% of Directors must be Independent Directors. कम से कम आधे डायरे�र �तं त्र डायरे�र होनी चािहए
⇒ Certain % of profits must be retained as general reserve. मुनाफे का कु छ प्र�तशत सामा� आर��त �न�ध के �प म� अलग से
रखना होगा, ताक� अगर कोई कांड हो जाए तो इन पैसों से ��तपू�त हो सके .
16.19.3 Should we ⏫ FDI beyond 49% in insurance companies? (�ा सीमा बढ़ाए?)
🤗🤗 � yes we should raise FDI limits (हां बढ़ाई जाए) 😣😣 � No, we shouldn’t raise FDI
Indian insurance companies will get additional capital from Foreign investors will put pressure on
Foreign investors = this can help mitigating above Indian insurance companies to generate
challenges.(�वदेशी �नवेशकों से अ�त�र� पूंजी �मलेगी तो फ़ायदा है) more profit. So
- They can expand overseas, mobilize money from - investment in junk bonds that offer
Bangladesh/Kenya’s insurance clients etc. & invest it in higher return → Collapse. (तुरंत मुनाफा
Indian economy. (�वदेशो का पैसा भारतीय अथर्त� मे लाना) कमाने क� चाह म� �ादा जो�खम वाले बॉ� म� �नवेश)
- IRDAI prescribes “Investment pattern”, there is - Insurance company may reject
ombudsman for customer complaints. insurance claims for frivolous reasons
- Further, Companies Act has norms for independent to increase its profitability to keep
directors, auditing, whistleblower protection, CSR. So, foreign investors happy. (मुनाफाखोरी के
apprehension that foreign investors will cause mischief = �लए ग्राहकों के बीमादावों को अ�ीकार करना)
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🤗🤗 � yes we should raise FDI limits (हां बढ़ाई जाए) 😣😣 � No, we shouldn’t raise FDI
unlikely. (�नगरानी/�नयं त्रण के पयार्� प्रावधान है, कं प�नयो के �लए
बदमाशी करना मु��ल)
- 💼💼Budget-2021 too has mentioned safeguards.
- China, Thailand, Indonesia et al ⏫ FDI limits in
insurance sector. We should also follow their path.
17 � → � (💰💰💰💰) PENSION (प�शन)

- ⚰Insurance: person/his family eligible to receive ₹ ₹ if he suffers death / damage. e.g. PM Jeevan Jyoti: ₹
2 lakhs on death. जीवन बीमा का लाभ लेना है तो �� का मरना ज�री है
- �Pension: Person eligible to receive monthly ₹ ₹ when he retires. And when he dies, his wife (is usually)
eligible to receive monthly ₹ ₹. When she also dies, scheme stops. बुढ़ापे म� प�शन �मलता रहे. आपके मरने पर आपके प�त
या प�ी को भी प�शन �मलता रहे।
17.11�🦁🦁 EMPLOYEE PROVIDENT FUND ORG. (कमर्चारी भ�व� �न�ध सं गठन)
- 1951-52: EPFO was setup initially by ordinance & then Act.
- Nodal: Labour Ministry (श्रम मं त्रालय).
- EPFO governed by Tri-partite “Central Board of Trustees” �त्रदलीय के �ीय �ास बोडर् -
I. Government (Union + state) – 15 nominees (मनोनीत सद�)
II. Employers (industrialists) - 10 nominees
III. Employees (workers) – 10 nominees
- They make policy decision about where to invest money (usually G-sec>C-Bonds>Shares; with minimum
and maximum slabs) and they decide how much interest should be paid to subscribers.
Chronology Scheme (Tech. norms not written here as they’re not imp4IASexam)
1952 Employee Provident Fund (EPF)
⇒ Principal + interest returned upon retirement age/ death. (For 2020-21: Interest 8.5%)
⇒ Partial withdrawal upto “X%” allowed for education, marriage, illness and house
construction. (अव�ध से पहेले आं�शक �प से पैसा �नकालना)
⇒ 2020: 👻👻ATMANIRBHAR → PM Garib Kalyan Package→ labour ministry allowed
EPFO subscribers’ to withdraw upto “X%” of EPF fund to help the workers during
lockdown. (कोरोना के चलते ज़�रतमं द मज़दू र अपने खाते से आं�शक �प से पैसा �नकाल सके )
1976 Employees Deposit Linked Insurance Scheme (EDLI)
⇒ Boss pays Premium. If worker dies → family gets insurance.
⇒ 2020-Reform: if worker died of Corona family member will be given insurance (min 2.5
lakh to max 7 lakh). कोरोना मृतक श्र�मक के प�रजनो को बीमा रा�श
1995 Employee Pension Scheme (EPS)
⇒ Monthly pension on retirement (once they attain the age of 58 years old) / permanent
disability (�ायी �वकलांगता).
- EPFO subscriber worker has UAN (Universal Account Number) that remains unchanged even if he
changes job from one organization to another. (मजदू र का खाता नं बर- नौकरी बदलने पर भी वही रहता है)
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- Previously, employee himself couldn’t generate his UAN, he had to request his boss to send forms to
EPFO. But 2019: EPFO allowed employees to generate UAN online by simply giving Aadhar & Mobile
Number. (एक जमाने म� मजदू र ने मा�लक द्वारा फॉमर् �भजवाना होता, लेिकन अब मजदू र खुद अपना खाता खोल सकता है)
- Factory owner/Employer has LIN (Labour Identification Number)- which he uses while uploading EPFO
documents on Shramsuvidha webportal of Labour Ministry.
- EPFO & ESIC transactions can be done through:
o Through public and pvt sector banks (ब�क खाते द्वारा पैसा भेज सकते ह�)
o through Ministry of Electronics and Information Technology (MeitY)’s UMANG App (Unified
Mobile Application for New-age Governance).
17.11.1.1 EPF Commutation (2020)
⇒ EPFO: Employees’ Pension Scheme (EPS: कमर्चा�रयों क� प�शन योजना) = worker gets pension after retirement
age (58 years).
⇒ EPF Pension commutation= Worker can partially withdraw his pension in advance before reaching
retirement age. But, then EPFO will pay him less pension afterwards when he actually reaches retirement
age. (प�शन �पांतरण: वय�नवृ�� उम्र/प�रप�ता समय से पहले पैसा उठाना। हालाँिक ऐसा करने पर बाद के वष� म� प�शन कम �मलेगा)
⇒ 2020: some technical reforms made to help workers here. What/How?NOTIMP#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
17.11.2 🧔🧔🧔� (2016) Pradhan Mantri Rojgar Protsahan Yojana (Labour Min)
- Private sector employers hire workers informally, but don’t report them in official formal records lest
they’ve to contribute to EPFO-funds under statutory norms, face harassment of EPFO officials. (उधोगप�त
मजदू र को औपचा�रक �प से नोकरी देने का रेकडर् नही रखते, तािक EPFO क� वैधा�नक �ज�ेदा�रयो से �छप सके .)
- So, worker is hired informally, denied job-security & social security. Economic Survey 2015-16 diagnosed
it as “EPFO Regulatory Cholesterol preventing formal-job creation. (मजदू रों को नौकरी पर अनौपचा�रक �प से रखा
जाता था. औपचा�रक नौकरीओ का सृजन नही हो रहा था)
- So, to encourage pvt companies to hire new workers ‘formally’ → Govt pays employer (Factory owners)
portion (A%) for the first 3 years.**
- This scheme is called Labour Ministry’s Pradhan Mantri Rojgar Protsahan Yojana.
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- Later, Textiles ministry (कपड़ा मं त्रालय) announced, “if it’s a textile factory, then we’ll pay the X%-walla
component (to EPFO), while labour ministry pays the Y%-walla component = this is called “Pradhan
Mantri Paridhan Rojgar Protsahan Yojana” to encourage formal job creation in the textile sector.
17.11.3 👻👻ATMANI Reforms in EPFO 🧔🧔🧔� (March to August)
EPFO → 👷👷worker �Boss 👻👻ATMANIRBHAR Reform
Small firm 12% 12% ⇒ Total 24% goes to EPFO
(up to 100 ⇒ 🧔🧔PM Garib Kalyan → Government to deposit this 24% deposit
workers) from its own pocket upto certain months. (�सफर् कु छ महीनों के �लए)
Large firm 12% 12% ⇒ 🧔🧔Govt will not deposit ₹₹ from its own pocket for large firm
(more than 10% 10% (e.g. Reliance or Tata who’ve more than 100 workers.)
100 workers) ⇒ In such large firms workers and boss have to deposit ₹₹ from their
own pocket into EPFO.
⇒ But, government has ⏬ their % from 12+12=24% to
10+10=20% (so that worker and boss will be left with more
money to spend in their hands= shopping/demand ⏫=
economic revival). This is (10%) valid from May to July’2020.
(�सफर् कु छ महीनों के �लए)
✋ above thing is not important ANYMORE, for two reasons 1) Temporary measure 2) Government came up
with new scheme. So, only remember single line, "during lockdown, Government temporary provided relief to
the EPFO contributions for workers and their employers." (तालाबं दी के दौरान सरकार ने ईपीएफओ- अंशदान म� अ�ाई �प से
मजदू र और �मलमा�लकों को �रयायते दी थी)#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
17.11.4 👻👻Atmanirbhar Bharat Rozgar Yojana= Subsidy from Central Govt in EPFO contribution
It was launched during the Atmanirbhar Bharat 3.0 package(November 2020)
Beneficiary eligibility: Worker's Monthly wages upto ₹15,000 AND
A) Fresh EPFO-Worker got new job in an EPFO registered firm OR
B) Past EPFO-Worker had lost job between March1 to Sept30 of 2020, BUT got a job on/after
October1, 2020 in an EPFO registered firm
🤩🤩Entitlement: यह योजना म� फायदा �ा �मलेगा
EPF scheme 👷👷worker (मजदू र) �Boss (मा�लक)
if the firm has up to 12% of wages → 🧔🧔 Govt 12% → 🧔🧔 Govt to contribute to EPFO (सरकार
1000 employees to contribute to EPFO देगी)
if the firm has >1000 12% of wages → 🧔🧔 Govt ✋12%: Boss has to contribute from his pocket.
employees to contribute to EPFO Govt will not contribute. (सरकार नहीं देगी)
🤩🤩Benefit? Formal Job creation, more money in the hands of workers → demand⏫ → Post corona
economy Revival. (औपचा�रक रोजगार सृजन, तथा मजदू र के हाथ म� �ादा पैसा आएगा �जससे बाजार म� मांग म� बढ़ोतरी)
🗓🗓Scheme validity? (यह योजना िकतने �दनों तक वैद्य/जारी रहेगी)
⇒ Scheme registration open till June 2021.
⇒ Registered worker will continue to receive benefit for two years. e.g. if registered in January 2021 → then
₹₹ upto January 2023.
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✋Note: for faster revision I have used the term worker and boss (मजदू र और मा�लक) But, in real
mains exam, you should write employee and employer/Entrepreneur (कमर्चारी और नोकरीदाता / उद्यमी)
17.11.5 😤😤MORAL OUTRAGE Q: “why not merge EPFO with ESIC!!? ”

Their laws are different. To merge them you’ve to merge two laws. But this is not some election priority for
govt like ‘Triple Talaq bill’ or Article 370. So, you may send suggestion to Prime Minister. But until your
suggestion is implemented, prepare the facts as given in the handout. #थोड़ा-पढ़ो-आगे-बढ़ो
17.12 �→�PENSION FOR GOVT EMPLOYEES & MIDDLE CLASS? = NPS
Govt Employees (from 2004) Middle Class (from 2009)
- 2004: New Pension Scheme (नवीन प�शन योजना) - In 2009, the Government employee-walla
→(2009) renamed into National Pension National Pension System was made open for all
System. (रा��ीय प�शन प्रणाली) citizens (and NRIs) aged 18-55 on voluntary
- Subscriber? Those who joined govt. service on basis. You contribute money till age of 60, as
or after 01/01/2004** per your capacity →invested →pension.
- Mechanism? Employees (10 % of basic pay) + - 2010: NPS-Lite (Swavlamban): If poor person
Govt. contribution (14% of basic pay: since from unorganized sector (असं गिठत �ेत्र) joined
Interim-Budget-2019) → goes to PFRDA NPS, then govt to co-contribute (समान योगदान)
→NPS Trust → empaneled NPS-Fund- money for five years**.
manager → Invested G-sec, Corporate Bonds
and Shares depending on your preference in
Tier1/Tier2**.
- ** subject to some technical norms which are not imp for exam. (कु छ शत� के अधीन)
- NPS subscribers have PRAN: Permanent Retirement Account Number, Just like EPFO subscriber has
UAN Number.
- 📔📔📔📔ES20: in NPS: number of of State Govt employees >> union govt employees. And within State govt
employees: UP > Madhya Pradesh >Raj > Maharashtra.
- Corona: Subscribers allowed to withdraw funds partially from NPS for treatment of Corona.
17.12.1 ✋Old Pension Scheme (OPS) will not be re-introduced says Govt in Lok Sabha
- Before-2004: Government was entirely responsible for arranging the pension money for its Government
employees. (सरकारी कमर्चारी का प�शन सरकार स्�म क� जेब से देती)
- But after 2004’s NPS: Govt Employee’s salary is partially deducted and invested in financial securities, his
pension is thus “NOT FIXED nor fully paid by Government” but it’s dynamically linked with dividend &
interest generated by those financial securities. (प�शन क� रकम �न��त नहीं है. शेयर/बोंड बाज़ार पर �नभर्र करती है)
- Thus, in NPS, Govt employee himself is ‘contributing money’ towards his pension.
- So, some government employee organizations oppose NPS because it does not provide a fixed pension
amount but depends on uncertainty in financial market. They keep demanding re-introduction of the old
pension scheme (OPS: पुरानी प�शन योजना वापस लाने क� माँग कु छ सरकारी क�मयों के सं गठन करते ह�, लेिकन सरकार मानती निह).
- 2019-July: Govt clarified in Lok Sabha, “We have no plans of reverting to OPS. Because in OPS,
Government has to arrange entire pension money = less funds available for poor people’s welfare
schemes. So, we’re going to keep NPS for Government employees.”
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17.12.1.1 �📜📜 → � Jeevan Pramaan (2014)
- Previously, a pensioner (in any Govt / public sector org.) had to submit a physical life certificate in
November each year to prove that he’s alive = hardship, bribery.
- "Jeevan Pramaan" – an "Aadhar-based Digital Life Certificate“ by Ministry of Electronics & Information
Technology (MEITY) (आधार काडर् और अंगठू ा लगा के �ज़दं ा होने का प्रमाण पत्र तािक प�शन �मलता रहे)
- Pensioner's Aadhar number + biometric reading device→ PC, Mobile→ “Digital Life Certificate”→
submit to the authority → pension released.
- 2020: Jeevan Pramaan system also expanded to EPFO subscribers.
17.13 �→�PENSION FOR SENIOR CITIZENS WITH CAPACITY TO INVEST?
17.13.1 Pradhan Mantri Vaya Vandana Yojana (2017-DFS, LIC)
⇒ Post-demonetisation, banks were flush with deposits, so deposit interest rates were likely to fall → so to
protect the senior citizens’ income government launched this.
⇒ A 60 years/> senior citizen can join. (व�र� / बुजुगर् नाग�रक के �लए ह�)
⇒ He can invest minimum ₹ (approx.) 1.5 lakhs to maximum ₹ 15 lakhs.
⇒ Money remains invested in the scheme for 10 years.
⇒ LIC guaranteed x% annual interest on investment. Then original amount returned. In between, if senior
citizen dies then nominee (spouse, children) gets original amount back.
⇒ If LIC can’t generate guaranteed return, then Govt (Dept of Financial Services) to pay subsidy for shortfall
to LIC. (यिद जीवन बीमा �नगम इतना मुनाफ़ा नहीं दे पाएगा तो सरकार द्वारा स��डी)
Before After 2020-May- scheme updated
Last date to join was 31/3/2020 Last date to join extended till 31/3/2023
8% annual interest rate for a period of 10 years. This 7.40% interest for 2020-21. Then every year it’ll be
resulted into ₹1,000 to ₹10,000 monthly pension. reviewed and updated
⇒ If u want to get ₹1000 monthly pension then ⇒ Since interest ⏬ from 8% to 7.40% so, if u
min. ₹1.5 lakh investment req. (@8% interest) want ₹1,000 per year pension, you’ve to invest
₹1,62,162/-*
⇒ *figures not imp. but only for illustration. (अगर आप पैसा योजना से बाहर नहीं �नकाल�गे तो �ाज के ऊपर �ाज �मलते रहेगा)
⇒ Other similar schemes: Senior Citizen Savings Scheme, LIC Varistha Pension Bima Yojana but they are old
schemes so poor cost: benefit in preparing for UPSC.
🔠🔠❓ [Asked in UPSC-CDS-2019-1] Consider the following passage about a scheme : It was launched to
provide social security during old age and to protect elderly persons aged 60 years and above against a future
fall in their interest income due to uncertain market conditions. The scheme enables old age income security
for senior citizens through provision of assured pension / return linked to the subscription amount based on
government guarantee to Life Insurance Corporation of India (LIC). Identify the scheme.
Answer Choices:
a) Pradhan Mantri Swasthya Suraksha Yojana b) Pradhan Mantri Vaya Vandana Yojana
c) Liveability Index Programme d) Rashtriya Vayoshri Yojana
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17.14 �→�PENSION FOR POOR PEOPLE WITH CAPACITY TO INVEST?
ग़रीब आदमी जो ख़ुद क� जेब से थोड़ा पैसा �नवेश कर सके - उनके �लए प�शन योजना
👴👴Atal Pension Yojana (APY) 🧔🧔Pradhan Mantri Shram-Yogi Maandhan

By Dept of Financial Services, 2015 Interim Budget-2019→Labour Ministry
Only 18-40 age Indian citizen residing in India Income Tax-payer, NPS,EPFO,ESIC-walla not
eligible. अ� िकसी सरकारी प�शन योजना म� नहीं होना चािहए
No minimum or maximum income limits. Mukesh unorganized sector workers with monthly income
Ambani can also join, but given that fact that upto ₹15k. E.g. street vendors, rickshaw pullers,
maximum pension is ₹5,000 a month so target- construction workers, rag pickers, agricultural
audience is poor people, unorganized workers outside workers, beedi workers etc. in the age of 18-40
EPFO security.
Monthly pay ₹42-210 rupees till the age of 60 Monthly invest ₹55-200 (depending on age). Govt
to co-contribute equal amount. Till the age of 60
₹1k-5k monthly pension- depends on @which age Fixed ₹3k pension per month.
joined, how much contributed?
One person-1-subscription account only. (एक �� का Same. Bcoz Aadhar, BankPassbook, Mobile to
�सफ़र् एक ही खाता खुल सकता है) find duplicate account
- If husband dies after 60, then wife continues to If (spouse) husband dies after 60, wife gets ₹1500pm as
receive same amt. pension. family pension. Once Wife dies, scheme stops. If
husband dies/disabled before 60, wife can continue
- If husband dies before 60 age, wife gets premium
paying OR withdraw with interest. Premature exit
OR if she continues to pay then she gets pension
before 60: his contribution returned with interest.
when she reaches 60. �नवेशक-प�त के देहांत पर प�ी को आधा ही प�शन �मले, प�ी मरी तो ब�े
- Both die, then beneficiary (child) receives the को कु छ नहीं �मलेगा। (उसी तरह �नवेशक-प�ी मरी तो प�त को प�शन, िफर
entire principal (premium). ब�े को मूलधन वापस पती मर गया तो ब�ों को कु छ निह �मलेगा)
Note: 1) Atal Pension Yojana 2) PM Jivan Jyoti Yojana and 3) PM Suraksha Bima Yojana are collectively
known as Pradhan Mantri Jansuraksha Schemes.
🔠🔠❓ [Asked in Prelim 2016] Find correct statement(s) regarding ‘Atal Pension Yojana’:
1. It is a minimum guaranteed pension scheme mainly targeted at unorganized sector workers.
2. Only one member of a family can join the scheme.
3. Same amount of pension is guaranteed for the spouse for life after subscriber's death.
Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
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17.14.1 � → 👴👴👴👴👴👴: 🧔🧔 Pension: Three Maan Dhan Yojanas
18-40 Age; ₹ 55-200 fees; Pension LIC Fund manager + Who?
@60=3000 → family pension ₹ This Ministry co-
1500 contributes
1) Pradhan Mantri Shram-Yogi Labour unorganized sector workers with monthly
Maan-dhan (Feb’19) income upto ₹15k
2) Pradhan Mantri Laghu Vyapari Labour Small trader / shopkeepers whose annual
Maan-dhan Yojana (Jul’19)# turnover does not exceed Rs 1.5 crore, based
on self-declaration.
3) Pradhan Mantri KISAN Maan- Agri small / marginal farmers with upto 2ht land.
dhan Yojana (Aug’19)
- 1 person can join only 1 type of above scheme. (एक �� का �सफर् एक बार ही पं जीकरण होता)
- Income Taxpayers & those who joined EPFO/ESIC are not eligible for any of these schemes.
- 💼💼 Budget-2019: announced to launch “Pradhan Mantri Karam Yogi Maandhan Yojana” for Small
traders / shopkeepers. But, when they actually notified it, the title was changed to “Pradhan Mantri Laghu
Vyapari Maan dhan Yojana” technically called, “National Pension Scheme for Traders and Self
Employed Persons Yojana” or in shorter form “NPS-traders”.
- 💼💼Budget-2020: we’ll launch a Universal Pension coverage with auto enrolment for workers. It’ll cover
workers even when they change jobs. <update when actually done>
17.14.2 😤😤MORAL OUTRAGE Q.: “why not merge all these schemes into one!??
- More schemes = more speech points during election-rally for the minister. िफर चुनाव म� बोल�गे �ा?
- So, you may send merger-suggestion to Prime Minister. But until your suggestion is implemented,
prepare the facts as given in the handout. #थोड़ा-पढ़ो-आगे-बढ़ो
17.15 �→� PENSION FOR POOR PEOPLE WITHOUT CAPACITY TO INVEST?
- For Below Poverty Line (BPL) people, Rural Development Ministry’s National Social Assistance
Programme (NSoAP: रा�ी� य सामा�जक सहायता कायर्क्रम) in 1995, where direct money is given without asking for
any premium from the beneficiary (लाभाथ�).
- It’s a core of the core scheme (अ�त-मह�पूणर् योजना) with 100% cost is paid by Union. It’s optional for state
govt. to contribute money- They may contribute, if they want to enhance the scheme’s features. For
example: (इस योजना म� रा� सरकार ने पैसा देना वैक��क है)
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NSoAP Components 🧔🧔Union �State (Optional to give extra)
Old age pension @60 ₹200-500* State Govt may give extra ₹₹ & rename it
(depending on how old) e.g. Samajwadi Pension in UP
Widow pension ₹200 State Govt may give extra ₹₹ and rename it
Aged 40-59 e.g. UP Vidhva Pension @1k
Disability pension: Same as widow State Govt may give extra ₹₹ and rename it
Aged 18-59 e.g. Guj: Sant Surdas Scheme
National Family Benefit Death of bread winner: ₹10k e.g. Guj: Sankat Mochan (Total 20k)
INSURANCE
Annapurna (2001) If senior citizen uncovered in May give additional
any other scheme 10kg grain /
pm for FREE.
⇒ 2020: 👻👻🤧🤧ATMANIRBHAR→ PM GaribKalyan → single time ₹1,000 to poor senior citizen, poor
widows & poor disabled (total 3cr person covered)
17.16�� PFRDA, THE PENSION FUNDS’ REGULATOR
2003: Executive order to setup PFRDA- Pension Fund Regulatory and Development Authority
Org (प�शन �न�ध �व�नयामक एवं �वकास प्रा�धकरण)
2013: given statutory status. HQ: New Delhi, just like IBBI.
Structure 1 Chairman: (5years / 65age), 5 members (5/62) = 6 people. Re-appointment is possible.
⇒ Implement National pension system (NPS), select its fund-managers.
⇒ Regulate all public and private pension funds except EPFO, Seaman, Coal miners, Assam
tea plantations related pension schemes as they’ve their separate acts / mechanisms.
⇒ Protect Clients, Pensioners
Functions
⇒ Prescribe liquidity, auditing, investment norms for Pension funds.
⇒ Powers of civil court. (दीवानी अदालत क� स�ा/अ�धकार िदए गये है)
⇒ financial awareness generation through pensionsanchay.org.in
⇒ Pension FDI is linked with insurance FDI (49%) so not decided by PFRDA.
17.17🛫🛫🛫SOCIAL SECURITY FOR OVERSEAS INDIANS (PENSION / INSURANCE)
Following schemes’ boss? Ministry of External Affairs (�वदेश मं त्रालय)

17.17.1 🛫🛫🛫Mahatma Gandhi Pravasi Suraksha Yojana, 2012 to 2017
 It was a voluntary “insurance+pension” policy for Indian workers in foreign countries, but very few
people subscribed so ultimately closed in 2017. ((प्रवासी भारतीय मज़दू र को �वदेश म� गए)
17.17.2 🛫🛫🛫Pravasi Bharatiya Bima Yojana, 2017
Some nations do not have strict laws regulating the entry, employment or safety of foreign workers. So, the
Indian Government classifies them under Emigration Check Required (ECR: उ�वास जांच क� आव�कता)
countries. e.g. Saudi, Qatar, UAE, Libya, Malaysia, etc.
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 It’s compulsory for Indian workers going ECR nations to join Pravasi Bharatiya Bima Yojana from the
empanelled insurance companies. (ईसीआर देशों म� जाने वाली प्रवासी भारतीय मज़दू रों के �लए ये ख़रीदना अ�नवायर् है)
 Insurance cover of Rs. 10 lakhs if accidental death/permanent disability while abroad,
 Maternity expenses (प्रसू�त खचर्) cover for women worker, Family Hospitalization etc.
 Premium: ₹275-375 depending on tenure of policy (पॉ�लसी क� अव�ध के िहसाब से).
18 (��:💰💰)→💳💳FINANCIAL INCLUSION (�व�ीय समोवेशन)

⇒ Financial Inclusion: providing access to banking, investment, pension, insurance and credit (loan)
facilities to each citizen. This ensures social, economic and transaction security (लेनदेन म� सुर�ा) (S-E-T),
improves social harmony, women empowerment, helps reaping the benefit of “LESS CASH Economy”
(📑📑Ref: Handout#1A1) सभी नाग�रकों को ब�िकंग, �नवेश, प�शन, बीमा और ऋण क� सेवा प्रदान करना= उसे �व�ीय समोवेशन कहेते है
⇒ Social Security (सामा�जक सुर�ा): a system of payments / assistance by the government to citizens who are ill,
handicapped, poor, aged or unemployed. (बीमार, �वकलांग, गरीब, वृद्ध या बेरोजगार को आ�थक मदद करना)
o The foundation of SS in our constitution @DPSP Article 41- State to provide public assistance to
its citizens in case of unemployment, old age, sickness and disablement; and
o DPSP Article 42- The State shall make provision for securing just and humane conditions of
work and for maternity relief. (राजनी�तक पथदशर्क �सद्धांतों म� �जक्र)
⇒ Social Justice (सामा�जक �ाय): distribution of wealth, opportunities, and privileges within a society-
through reservation in jobs, admissions and election and through legal safeguards for protection of civil
rights, prevention of atrocity and personnel laws. (समाज के �व�भ� जाती/वग� म� आर�ण चुनाव तथा कानूनन अ�धकारों द्वारा
सं प��, अवसरों और �वशेषा�धकारों का �वतरण= उसे समा�जक �ाय कहेते है)
⇒ Collectively, these three (FI,SS,SJ) help in human development, inclusive economic growth and
Sustainable Development Goals (SDG). (More in 📑📑Pillar#6) [कु ल �मलाकर �व�ीय समावेशन, सामा�जक सुर�ा और
सामा�जक �ाय इन तीनों क� मदद से मानव-�वकास,समावेशी आ�थक वृ�द्ध, और सतत् �वकास ल�ों को हां�सल करने मे हम� मदद होगी]
18.11 (��:💰💰)→💳💳 FIN. INCLUSION: BANK ACCOUNTS FOR EVERYONE
⇒ Nationalization of Banks (1955, ‘69, ’80)  1961: DICGC Act 1966 Cooperative Banks under RBI’s
Ambit  1969 Lead Bank Scheme (SCB:Pvt or Public) given lead role in district. They prepared credit
plan with ‘Service Area Approach’, and coordinate with the efforts of Government, banks and NBFCs.
⇒ 1971: State level Bankers’ Committee to moniter progress of financial inclusion
⇒ 1976: Regional Rural Bank (RRB) setup through Act. (�ेत्रीय ग्रामीण ब�कों क� �ापना)
⇒ Further, RBI requires commercial banks to setup atleast 25% of their branches in unbanked rural areas.
Similar norms for White label ATM Companies. (एक चौथाई शाखाएं गाँव म� खोली होगी, अ�नवायर् �प से)
⇒ 2005: RBI permitted no-frills savings account with no penalties on zero balance
⇒ 2006: RBI permitted Banking Business Correspondent Agents (BCA)
⇒ 2011: Government’s Swabhiman to increase banking presence in rural area.
⇒ 2013: e-KYC permitted.e.g. write Aadhar number, put fingerprint in biometric reading device, no
photocopies/xerox required. (काग़ज़ी नक़ल जमा करने क� ज़�रत नहीं, ऑनलाइन प्रमाणीकरण)
⇒ 2014: JanDhan Yojana, new Private Commercial Banks (Bandhan, IDFC First)
⇒ 2015: Small Finance Banks and Payment Banks.(लघु �वत् ब�क और भुगतान ब�क क� �ापना)
⇒ 2017-18: India Post Payment Bank(More in 📑📑Pillar#1B1)
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🔠🔠❓ MCQ. Service Area Approach was implemented under the purview of (UPSC Prelims-2019)
(a) Integrated Rural Development Programme (b) Lead Bank Scheme
(c) Mahatma Gandhi National Rural Employment Guarantee Scheme
(d) National Skill Development Mission
18.11.1 🧔🧔(��:💰💰)→💳💳 Pradhan Mantri Jan Dhan Yojana (प्रधान मं त्री जन धन योजना)
⇒ 2014: launched by FinMin → Dept of Financial Services with

⇒ Motto “Meraa Khaataa, Bhagya Vidhaataa”. Scheme in two phases, 6 objectives:
PM JDY – phase I (2014-15) प्रथम चरण म� यह काम PM JDY – phase II (2015-18) िद्वतीय चरण
1. Financial literacy (�व�ीय सा�रता) 1. Credit Guarantee Fund (For Overdraft
2. Banking within 5 kms defaults) उधर से ब�क के नुक़सान क� भरपाई
3. Account for every family with overdraft, with 2. Direct Benefit Transfer (DBT)
Rupay ATM-cum-DEBIT Card 3. Sell Micro insurance & pension products
through bank.
⇒ PM-JDY bank account can be opened in any Commercial or Cooperative Bank provided that (1) bank has
CBS (2) bank is tied with Rupay Payment Gateway. अब िकसी वा�ण��क या सहकारी ब�क म� खाता खोल सकते ह�
⇒ Basic Savings Bank Deposit Account - Age 10/>; Zero balance- no penalty. But, Chequebook only with
“balance”; (नाबा�लगों के भी खाते खोले जा सकते ह�। �बना एक �पया बचत जमा िकए भी खाता खोला जा सकते ह�।)
⇒ There are restrictions on max. number of money withdrawals per month. (पैसे �नकालने पर कु छ सीमाएं )
⇒ Overdraft upto ₹ 10k (originally ₹5k) depending on balance history of min. 6 months. Overdraft given on
only one account holder in household (preferably woman). (प�रवार क� मिहला को 10,000 �पये तक क� ओवरड�ा�)
⇒ Money has to be returned with interest within 3 years. Banks to decide the loan interest rate. (ओवरड�ाफ़्ट म�
िदया पैसा �ाज के साथ वापस करना होगा। ओवरड�ा� कोई दान-ख़ैरात निह है, वो एक िक़� का क़ज़र्/ऋण है।)
⇒ EVERY Jan Dhan account comes with FREE Accident Insurance; Premium paid by NPCi, it’s therefore
necessary to regularly use card- atleast for checking balance. Union Government employees, and income
tax payers not eligible for this free insurance. (दुघर्टना/अक�ात् सुर�ा बीमा भी मु� म� �मलता है)
⇒ 🤩🤩Significance? JAM trinity (JanDhan, Adhar, Mobile) for targeted and direct transfer of subsidies,
scholarship and payments to beneficiaries. (लाभाथ� के खाते म� सीधा /प्र�� लाभ ह�ांतरण)
⇒ 😰😰Criticism? PM-JDY accounts were used as money mules during demonetization.
⇒ 2020: 👻👻ATMANIRBHAR→ PM GaribKalyan → ₹500 per month to 20 crore women Jan Dhan
accounts for three months. (कोरोना म� मिहलाओं के जन धन ब�क खातों म� 3 महीनों के �लए थोड़ी-थोड़ी रकम जमा क� गई)
⇒ 📔📔📔📔ES21: average balance in PMJDY ⏫⏫ increased during the April-June 2020– indicative of the
[1) Money transfer by govt [2) precautionary savings by the accountholders. However, as the economy
revived, the balances have ⏬ decreased, pointing towards ⏫increased expenditures on consumption.
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Figure 7: Source Economic Survey 2020-21 Vol1 Page35
🔠🔠❓ [Asked in Pre-2015] Pradhan Mantri Jan-Dhan Yojana’ has been launched for:
(a) providing housing loan to poor people at cheaper interest rates
(b) promoting women’s Self-Help Groups in backward areas
(c) promoting financial inclusion in the country
(d) providing financial help to the marginalized communities
18.11.2 � Jan Dhan Darshak App (2018)
Jointly developed by Department of Financial Services (DFS) & National Informatics Centre (NIC). It helps
people find the nearby financial touch points such as Bank branches, ATMs, Post Offices etc.
18.12 (��:💰💰)→ 📮📮 FIN INCLUSION: INVESTMENTS OTHER THAN BANK

What if poor / lower middle-class person wants better returns than bank deposit rates? He may opt for…
Act Small Savings Schemes: लघु बचत योजनाएं
Govt Savings Bank Act 1873 📮📮 Post Office schemes: monthly, 5 year, savings, time
deposit
Govt Savings Bank Act 1873 Senior Citizen Savings (2004)
Government Savings Certi Act ’59 National Savings Scheme (NSC)’59
Government Savings Certi Act ’59 Kisan Vikas Patra 1988-11, 2014
PPF Act 1968 Public Provident Fund (PPF)
No Act → Sukanya Samriddhi Yojana ‘2015
- Individual eligibility, upper-lower limits etc. poor cost: benefit…except Sukanya Samriddhi.
- Money (usually) goes into National Small Savings Fund (NSSF)→ loans to Union and (selected States),
with technical norms which not imp for us.
- Here, interest rates are decided by FinMin’s Dept of Economic Affairs on quarterly basis. (�व� मं त्रालय का
आ�थक मामलों का �वभाग इन योजनाओं क� �ाज दर तय करता है हर 3-3 महीने पर)
- 2021 March:- Corona = Govt’s Tax collection⏬ while Govt’s Expenditure ⏫ So, Finance Ministry
⏬⏬ decreased interest rates on various small saving schemes. But just after a day of announcement,
fearing public outcry (& Bengal election populism), Govt withdrew the decision. [महामारी के दौरान सरकार क�
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आमदनी कम और खचर् �ादा �ए तो सरकार ने लघु बचत योजनाओं के �ाज दर म� कटौती क� घोषणा क�, लेिकन िफर जनता के �वरोध (और
प��म बं गाल चुनाव लोकलुभावन) के चलते एक ही िदन म� �नणर्य को वापस �लया!]
18.12.1 📮📮 (Yearbook) Dept of Post: POSB vs IPPB
Ministry of Communications has two dept: 1) Depart of Telecommunications 2) Department of Posts →
 Setup by Clive (1766), expanded by Warren Hastings (1774)
 1854: Dalhousie- Post Office Act; 1st postal stamp, rates by weight & not by distance.
 2008: Project Arrow for modernization.
 2013: Telegram stopped by India Post, due to onset of SMS & email.
 Dept of Post sells
o Gangajal sourced from Rishikesh and Gangotri.
o UTI-Mutual funds and Sovereign Gold bonds.
 Post Shoppe = special outlet in big post offices for philately (stamp collection hobby)
 RTI fees can be submitted by buying Indian Postal Orders (IPO). E-IPO = overseas Indians can pay RTI
fees online using this mechanism.
 Deen Dayal SPARSH Yojana: Students in class 6-9 given scholarship for philately.
 Dhai Akhar Letter Writing Competition-students asked to write letters to Mother Teresa, Tagore etc.
 Officers’ training conducted at Rafi Ahmed Kidwai National Postal Academy at Ghaziabad, UP. Kidwai
was India's first Minister for Communications.
Dept of Post → Post Office Savings Bank India Post Payments Bank (IPPB)
(PoSB)
foundation Govt Savings Bank Act Companies act 2013 → Public ltd
1873 company registered in 2016
Accept demand Savings account only 1. Current account
deposits? 2. Savings account
Accept time deposits? YES No, bcoz payment bank
Can keep more than ₹1 YES No, bcoz payment bank. But u can link IPPB
lakh balance? account with PoSB account to auto-transfer
(=SWEEP) excess balance to PoSB.
E-Banking and online Not directly but you can do yes , UPI, BHIM, NEFT, IMPS and BBPS (Bharat
bill payment it by linking PoSB account Bill pay) available.
with IPPB account
Sukanya Smriddhi Can be opened Not possible. Because time deposits are not
(daughter’s fixed allowed.
deposit account)
loans to individual? No. ₹₹ goes to NSSF Not until it becomes Small Finance Bank
Objective? Promote savings habits Remittance & digital payments
among poor
18.12.2 (�:💰💰)→(�:💳💳)Sukanya Samriddhi Yojana (2015)
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- Parents open a (fixed deposit type) bank account in the name of a 0-10 years girl child, and deposit
annually ₹ 250 to ₹ 1.5 lakhs till she reaches age of 14.
- FinMin’s Dept of Economic Affairs announces interest rate (originally 9.1%, presently ~8.5%)
- Money (principal and interest) can be withdrawn @ the age of 18-21 depending on whether married or
not. So, it indirectly prevents child marriages & empowers the grown-up daughter with money to pursue
higher education, small business etc.
- One daughter = ONLY one account can be opened in this scheme. (एक बेटी के नाम पर �सफर् एक खाता खुल सकता)
- Maximum two daughters can be enrolled by parents/legal guardians.
18.12.3 ⭐📫📫 �� Five Star Village scheme by Dept of Post (2020)
गाँव वालों को �व�वध लघु बचत योजना और बीमा योजनाओं से जोड़ने क� डाक �वभाग क� को�शश
⇒ by Ministry of Communications Department of Post (सं चार मं त्रालय → डाक �वभाग)

⇒ Post offices will spread more awareness, enrol more villagers in the following schemes:
⇒ Small saving schemes such as Post office Savings Bank accounts, National small savings certificate Kisan
Vikas Patra, Sukanya Samridhi Accounts, public provident fund (PPF) Accounts
⇒ Insurance schemes such as Rural Postal Life Insurance Policy, Pradhan Mantri Suraksha Bima Yojana
Account, Pradhan Mantri Jeevan Jyoti Bima Yojana Account.
18.12.4 ⚰💀💀📫📫 ��

� Sampoorna Bima Gram Yojana (2017)
⇒ by Ministry of Communications Department of Post (सं चार मं त्रालय → डाक �वभाग)
⇒ In every district, atleast 1 village identified → In that village, cover all households with a minimum of one
RPLI (Rural Postal Life Insurance) policy. (गांव के हर प�रवार को कम से कम एक ग्रामीण डाक बीमा पॉ�लसी बेची जाए)
18.12.5 ⚰💀💀🌽🌽 �� Model Insurance Villages (MIV) proposal by IRDAI (2021)
- Insurance Regulatory and Development Authority of India (IRDAI) proposed this
- To give complete insurance coverage to a village for its people’s life insurance, health insurance,
farm/crop insurance, animal (livestock) insurance, tractor/vehicle insurance etc.
- Funding/Subsidy by Union, State, Companies CSR Funds, NABARD & other AIFIs.
- (गाँववालों के �लए म� सभी प्रकार के जीवन बीमा, सामा� बीमा पॉ�लसी उपल� हो, तािक वह एक आदशर् बीमा ग्राम बन जाए। ऐसी बीमा पॉ�लसी
खरीदने के �लए सरकार तथा अ� सं �ानों द्वारा गांव वालों को स��डी/�रयायत दी जाए)
18.12.6 ⚖Proposed Government Savings Promotion Act (in 2018)
It aims to merge (outdated) laws related to small saving schemes (ref: previous table)
🤩🤩Benefits? (फ़ायदे)
- Easier withdrawal during medical emergency, college fees etc,
- Clarification on Minor account, PH people- guardian rights; Grievances redressal.
18.12.7 (��:💰💰)→ 📦📦 Chit Funds and Prize Chits
Chit Funds (�चट् फं ड/कोष)- गैरकानूनी नहीं है Prize Chits (इनामी �चट्स)- गैर कानूनी
Scheme runs for a definite period of e.g. 12 months from Jan Scheme is illegal and vaguely designed. It
to Dec-2020. (�न��त समय तक चलती) runs until idiot investors keep coming, then
it collapses.
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Chit Funds (�चट् फं ड/कोष)- गैरकानूनी नहीं है Prize Chits (इनामी �चट्स)- गैर कानूनी
⇒ Every month each subscriber deposits equal ₹₹, as ⇒ There are no official documents or
stipulated in the scheme document account books.
⇒ Every month Foreman draws ‘chit’ → whichever ⇒ Scamster will accept whatever small /
subscribers’ name comes he may get loan / prize. (in large amount is offered by the poor
next month, previous winners’ names may not be person who falls prey.
added to the lottery pool). This way, everyone has an ⇒ Investor doesn't know with surety how
equal chance of winning. much is contributed by other investors?
Even if you won in Feb-2020, still you'll have to Not compulsory to pay the monthly
compulsorily pay monthly deposits until Dec-2020 when deposits after you’ve won the prize.
the scheme is officially over. (Therefore the scheme will collapse
eventually, when new subscribers stop
coming).
This is legal, under Chit Funds Act (गैरकानूनी नहीं है) This is illegal under Prize Chits and Money
Circulation Schemes Banning Act, 1978
Beyond that, - How does that work? How’s that different from NIDHI companies (regulated by Ministry of
Corporate Affairs) = B.com thing not. Imp. For UPSC.
18.12.7.1 (��:💰💰)→ 📦📦 Chit Funds (Amendment) Act, 2019
⇒ To amend 1982’s Chit Funds Act.
⇒ Will regulate: ‘Chit Funds’, ‘Kuri’, ‘fraternity fund’, ‘rotating savings and credit institution (ROSCA)’.
(they’re basically synonyms)
⇒ Chit must be drawn in the presence of at least two subscribers. Video-conferencing is allowed.
⇒ Chit Fund’s fund manager is called ‘Foreman’. New act increases his commission%
⇒ New Act also ⏫ the maximum amount of investment the foreman can accept from subscribers.
⇒ Further powers with State Governments. (�चटफं ड पर �नयं त्रण के बारे म� रा� सरकारों क� श��यों को बढ़ाया गया)
18.12.8 📦📦📦📦 Chit Fund Scams? धांधली/ गबन / का�
- Chit fund is a type of “contract” = subject to Concurrent list. So, UNION has Prize Chits and Money
Circulation Schemes 1978, Chit Funds Act 1982 (2019); Further state have their own acts / rules / State
regulator of Chit Funds. (समवत� सूची म� होने के कारण क� द्र और रा� दोनों के कानून)
- Saradha Chit Fund scam, Rose Valley Chit Fund Scam: The scamsters ran multiple schemes in W.Bengal
and neighbouring states, invested money in sharemarket, real-estate, shopping malls etc. thus violating
the chit-fund laws.
- Further, any collective investment scheme of ₹100 cr/> requires SEBI permission. Yet they didn’t obtain
permission. (100 करोड़ �पए से बड़ी िकसी भी सामूिहक �नवेश योजना म� सेबी क� अनुम�त अ�नवायर्)
- They also engaged in Multi-level marketing (MLM) / Pyramid /Ponzy Selling = they’d use new investors’
money to pay-off old investors. But once new investors stop coming, it’ll collapse. Further Modus
Operandi / Timeline not IMP. (इसक� टोपी उसके सर पर)
- ⚖Action? CBI & other agencies investigating. Union Govt proposed “Banning of Unregulated Deposit
Schemes Bill 2018”→ later Act 2019.
18.12.8.1 ⚖ 📦📦📦📦 Banning of Unregulated Deposit Schemes Act, 2019
- अ�नय�मत जमा योजनाओं पर प्र�तबं ध कानून
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- If an entity is soliciting public to deposit /invest money, then it could be regulated by RBI (Bank, NBFC-
D, Home loan NBFCs etc), SEBI (MF, ReITs, InvITs etc), IRDAI & PFRDA, Corporate Affairs ministry
(NIDHI), State Governments (chit fund), EPFO, etc.
- A deposit-taking scheme is defined as ‘unregulated’ if person is asking people to deposit/invest money
but he has not registered with any of the above organizations. E.g. builders, jewellers, etc. Act prohibits
advertisement & money collection in it. (ऐसी कोई भी बचत योजना जो िकसी भी �व�ीय �नयं त्रक के दायरे म� नहीं आती उसे
गैरकानूनी माना जाएगा)
- Penalty upto ₹50 crores and jailtime upto 10 years + attaching the assets to refund depositors within
prescribed timelines. (जुमार्ना, कारावास, सं प�� क� ज�ी)
- Union to setup an online central database of deposit-taking activities in the country.
18.13�� ←(💰💰💰💰) FINANCIAL INCLUSION: CREDIT (LOANS: ऋण)
Self Study? Pillar#1A2: Monetary Policy → PSL. Pillar#1B1: Classification → microfinance
18.13.1 ��: 🧔🧔 ←(💰💰💰💰) Credit Guarantee (ऋण अदायगी गारंटी)
- Meaning? if borrower defaults, then losses of banks/NBFCs will be covered by credit guarantor. So,
Bank/NBFC can lend confidently without requiring borrower to pledge collaterals.
- Earlier DICGCI used to give credit guarantee for PSL borrowers, but now this work is done by
organizations such as:
Organization Credit Guarantee Fund Loans covered
SIDBI + Govt Credit Guarantee fund trust for Micro & Loans to Micro & Small Enterprise
Small Enterprise (CGTMSE)
Dept. of Financial National Credit Guarantee Trustee Mudra, ECLGS, Stand up India,
Services Company (NCGTC) Skill & Education loans
Commerce Ministry Export Credit Guarantee Corporation of Exporters
India fund (ECGC)
18.13.2 (💰💰💰💰)↗🗃🗃=(💰💰💰💰) Refinance (पुन�व�)
- When an AIFI (or MUDRA) gives new finance to Banks/NBFCs based on the quantum of finance they
(Bank/NBFC) have already given to end-borrowers.
- Usually works via the process of securitization of the previous loan papers. How it happens in real life?
Ans. NOT IMP.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
18.13.3 👻👻 �🏭🏭 MSME: Definition changed in ATMANIRBHAR (2020)
- 2006: Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 gave definition of micro,
small and medium enterprises
- 2020: ATMANIRBHAR → MSME ministry changed the definition as following: �नवेश और कु ल �बक्र� के िहसाब
से उधयोगों को वग�कृ त िकया जाएगा. �व�नमार्ण (mfg) और सेवा (services) �ेत्र के उधोगों के �लए एकसमान �ा�ा।
💡💡 Note: This handout only deals with ‘loan’ component of MSME. For other MSME
issues/challenges, refer (More in 📑📑Pillar#4B → MSME)
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✋in above image, read "<" sign as "NOT MORE THAN (से अ�धक नहीं)
Investment: �नवेश annual turnover: वा�षक कारोबार
18.13.4 👻👻🔪🔪 �🏭🏭 MSME Non-NPA borrower → ECLGS 1.0
ऋण अदायगी गारंटी -उन उधोगों के �लए �जनके लोन-खाते अभी एनपीए/अनजर्क प�रसं प�त क� श्रेणी मे नही है
⇒ Corona Lockdown → MSME business hurt → need loans to restart business → Emergency Credit Line
Guarantee Scheme (ECLGS: आपातकालीन क्रेिडट लाइन गारंटी योजना). This scheme will expire in 31/3/2021
(originally deadline was shorter, but later extended under Atma-Nirbhar 3.0 but ⚾📻📻⚾🎓🎓✋)
⇒ �Eligibility?
o MSME with a turnover upto ₹100 crore. Mudra borrowers are also covered.
o Previous outstanding loan account can’t be more than ₹25 crores, and can’t be not an NPA. (It
may be a regular, SMA0 or SMA1 account, as on 29/2/2020].
⇒ Loan Amount? 20% of the outstanding loan.
⇒ Loan Tenure? 4 Years (�मयादी/समयकाल)
⇒ Loan Interest? 9.25% (Bank), 14% (NBFC).
⇒ Collateral? Not required. (�गरवी कु छ भी नही रखना होगा)
⇒ If the borrower doesn’t repay loan principal or interest→ Credit guarantee covered by NCGTC (National
Credit Guarantee Trustee Company Limited), a company under the Dept of financial services in FinMin.
18.13.5 👻👻👻👻 �🏭🏭 MSME Non-NPA borrower → ECLGS 2.0 (Atma-Nirbhar 3.0)
It was launched during the Atmanirbhar Bharat 3.0 package(November 2020)
�Eligibility? (Two conditions must be fulfilled simultaneously)
1) MSME as well as Non-MSME(large) firms operating in
(a) Healthcare sector (�ा� �ेत्र) OR
(b) 26 stressed sectors Identified by RBI is KV Kamath committee (e.g automobiles, tourism,
cement, gems and jewellery etc तनावग्र� �ेत्र) AND
2) Its outstanding loans are > ₹50 crore - upto ₹ 500 Crore (as on 29.2.2020)
🤩🤩Benefit?
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 Extra 20% loans against outstanding loans. (�जतना कजार् बकाया है उसके सामने 20% अ�त�र� कजर् िदया जाएगा)
 Interest Rate not explicitly mentioned in Press-Statement. (योजना क� प्रेस �व�� म� �� प से खुलकर नहीं बताया,
तो हमने खुद से गूगल सचर् मारने क� कोई ज�रत नहीं है#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो )
 Repayment tenure of above loan: 5 years including 1 year moratorium on principal repayment. (5 साल
म� कजर् चुकाना होगा और उसम� भी 1 साल तक मूलधन चुकाने पर रोक)
18.13.6 👻👻🔪🔪🔪🏭🏭 MSME NPA borrower → Subordinate Debt (गौण ऋण)
ऋण अदायगी गारंटी- उन आ�थक तनावग्र� उधोगों के �लए �जनके लोन-खाते पहेले से एनपीए श्रेणी मे आ चुके है।
⇒ Beneficiary? MSME whose loan account is in NPA/ stressed category. लघु/
⇒ Such stressed MSME to be given subordinate loan Upto ₹75 lakhs to revive business.
⇒ Tenure/Interest? Not clearly mentioned.
⇒ If the borrower doesn’t repay loan principal or interest→ Credit guarantee by CGTMSE (Credit
Guarantee Trust for Micro and Small enterprises, an org funded by SIDBI + Govt).
18.13.7 👻👻🔪🔪🔪🏭🏭 MSME Loans: FM tells Bankers not to fear 3C
⇒ Public Sector Banks’ officers are worried that if loans given to MSME turn NPA then 3Cs will harass
them unnecessarily: (बेवजह परेशान िकया/सताया जाता ह�)
o Central Bureau of Investigation (CBI: क� द्रीय जांच/अ�ेषण �ूरो),
o Central Vigilance Commission (CVC: क� द्रीय सतकर् ता आयोग)
o Comptroller and Audit General (CAG: �नयं त्रक एवं महालेखा परी�क)
⇒ So, FM Nirmala.S has assured PSBs- don’t worry and give loans to eligible borrowers.
18.13.8 👻👻🗃🗃🗃🏭🏭 MSME → Equity infusion via Fund of Funds (�न�धयो क� �न�ध)
⇒ Govt will set up a Fund of Funds with ₹10,000 crore.
⇒ This FoF will invest in daughter funds (who’ll supply ₹40k cr from their funds). So, total 10k+40k=50k
equity funding/infusion to MSME. (इ��टी के �प म� कं पनी म� जान फूं कना)
18.13.9 🚫🚫🚫🚫🚫🚫🚫🚫 NBFC → Mudra (2015, 100% SIDBI subsidiary)
- Micro Units Development & Refinance Agency. (सू� इकाई �वकास एवं पून: �व�पोषण एज�सी)
- Objective? provides indirect lending via SCB, RRB, Cooperative Banks, MicroFinance Inst & other
NBFCs. (अनुसू�चत वा�ण� ब�क �ेत्रीय ग्रामीण ब�क सहकारी ब�क गैर ब�क �व�ीय कं प�नयों द्वारा परो� �प से कजर् देता है)
- Ownership? It’s wholly owned by SIDBI, and also receives the funding from PSL-shortfalls via RBI, and
budgetary support via Department of Financial Services.
- Beneficiary? Micro Enterprises from Agri-allied sectors, mfg & service sector who are not registered
under the companies act = Non-corporate type. (�ज�ोंने कं पनी कानून म� पं जीकरण नहीं करवाया)
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Table 3: Mudra-Products:
Pradhan Mantri MUDRA Yojana MUDRA Rupay Card
1) Shishu : loans upto 50,000/- - ATM cum Debit Card issued against MUDRA loan account.
2) Kishor : >50,000/- upto 5 lakh - For working capital component.
3) Tarun : > 5 lakh and upto 10 lakhs - Can be accessed in all modes like a routine debit card (ATM,
MicroATM, PoS, Online)
- Mudra loans are collateral-free (जमानत से मु�). If borrower defaults on loan, then lender’s losses are
covered through Credit Guarantee Fund for Micro Units [CGFMU] which is operated by National Credit
Guarantee Trustee Company Ltd. [NCGTC, 2016]- which is a private ltd company by Dept of Financial
Services in Finance Ministry.
- 😰😰MUDRA Challenges? (1) Loan Interests are high (2) Rising NPA/Bad loans.
18.13.10 👻👻👻👻 �🏭🏭 Mudra Loans → Shishu Loans pe 2% Interest subvention
⇒ 👻👻ATMANIRBHAR-2020: Shishu loan borrowers = 2% Interest subvention (�ाज-अदायगी मे सरकारी-मदद)
IF they’re prompt payees (=repaying the loans regularly).
⇒ This offer is valid for 12 months.
🔠🔠❓ Pradhan Mantri MUDRA Yojana is aimed at (Asked in UPSC-Pre-2016)
a) bringing the small entrepreneurs into formal financial system
b) providing loans to poor farmers for cultivating particular crops.
c) providing pensions to old and destitute persons.
d) funding the voluntary orgs involved in the promotion of skill development and employment generation.
18.13.11 ⏰🔪🔪 psbloansin59minutes.com (2018)
portal by SIDBI & 5 PSBs. GST-registered MSME get loans 10L to 1 cr. Without collaterals. if loan approved
then ₹1000 fees need to be paid
18.13.12 🙋🙋Stand Up India Scheme, 2016 (उ�� भारत)
- Boss? FinMin’s Dept of Financial Services (�व�ीय सेवा �वभाग)
- Objective? Each SCB bank branch to give Greenfield Loans between ₹10 lakh and ₹1 Crore to at least 1
SC/ST and atleast 1 Woman entrepreneur with tenure upto 7 years.
- Collateral? Bank can ask collaterals. If loan without collaterals, then Credit Guarantee Fund for Standup
India (CGFSI) operated by NCGTC.
- Budget-2019: this scheme extended till 31/3/2025.
- Margin money =is the amount of money that a bizman has to arrange by himself from his own
pocket/savings for the given biz-project. Remaining amount is given as a loan by the bank.
- 💼💼Budget-2021: 1) ⏬ margin money requirement from 25% to 15%. 2) Agri-biz projects also eligible
18.13.13 👭👭Self-help group (�-सहायता समूह) → Credit
- is an informal group of 10-20 local people to combine their savings/ resources, engage in biz activity like
weaving, agarbatti etc अपनी बचत और सं साधनों क� मदद से कु छ छोटा उ�ादन करने वाला गरीब लोगों का एक अनौपचा�रक समूह
- and not registered in as a firm / company under partnership act or companies act etc.
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- Self-Help Groups are formed under the government schemes like National rural livelihood mission
(NRLM). More in 📑📑Pillar#6]
- Budget-2019:
o 1 woman in each self-help group (SHG) will be made eligible for ₹ 1 lakh loan under Mudra
scheme.
o Every verified woman SHG member with a PM Jan Dhan account eligible for overdraft of ₹
5,000.
- 👻👻ATMANI→ PM GaribKalyan → Women Self Help Groups (SHGs) to be given ₹20 lakh collateral
free loans. Further,
o Government will procure masks and sanitizers prepared by SHG = ₹₹ income for poor
families. (सरकार इनसे मा� और से�नटाइज़र ख़रीदेगी)
o These SHG are given additional 10-15k rupees as Revolving funds (RF: प�रक्रमण �न�ध), if
they’re holding – regular meetings, regular savings, and maintenance of proper books of
accounts etc. ATMANI= RF fund disbursal will be done through PAISA webportal.
18.13.14 🤑🤑🤑Street vendors’s AtmaNirbhar Nidhi Scheme (SVANidhi)
⇒ Boss? Ministry of Housing and Urban Affairs (MoHUA)- आवास और शहरी मामलों का मं त्रालय
⇒ Pradhan Mantri Street Vendor’s AtmaNirbhar Nidhi Scheme (PM SVANidhi)
⇒ Street Vendors will be given ₹10,000 loan via banks, NBFCs, Micro Finance institutions. (सड़क
�वक्रेता/फे रीवाला को ब�क, गैर-ब�क �व�ीय सं �ान, सू� �व� सं �ान से कजार् �मलेगा)
⇒ Loan Tenure: 1 year. Repayment to be done on a monthly basis.
⇒ Loan Interest? approx @7.25% & if vendor repays in timely fashion → govt will give 7% interest subsidy
in his bank account. (फे रीवाला ने �ण अदायगी �नय�मत �प से क� तो �ाज म� सरकार राहत/स��डी देगी)
⇒ Scheme Valid till: 2022-March.
18.13.15 🤑🤑🤑Street vendors’s AtmaNirbhar Nidhi Scheme (SVANidhi) → Main Bhi Digital (2021)
⇒ MoHUA to give ₹₹ to Urban Local Bodies (ULBs: शहरी �ानीय इकाइयों नगरपा�लका को शहरी मं त्रालय पैसा देगा)
⇒ To spread digital literacy among street vendors who took SVANidhi Loans e.g. How to use UPI, BHIM,
Netbanking, Connect food-street vendors with online e-commerce players like Swiggy-Zomato etc to
expand street-vendors’ sales etc. (सड़क �वक्रेताओं को िड�जटल भुगतान और िड�जटल �बक्र� मा�मों क� जानकारी देना)
⇒ 🤩🤩Benefit? Digital Economy-walle benefits (Ref: in 📑📑Pillar#1A1)
18.13.16 �💳💳 Kisan Credit Card (1998)
1998: Launched by RBI +NABARD. Farmer gets credit card from PSB, RRB, State Cooperative Banks for:
- Can swipe it to buy farm inputs (seeds, fertilizers, pesticides etc.)
- Investment credit requirement for agriculture
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- Working capital for maintenance of farm assets
- Post-harvest expenses, (फसल काटने के बाद होने वाले खचर्)
- Consumption requirements of farmer household; (घर म� उपभोग हेतु खच�)
- Can withdraw cash (as loan).
- Money to be repaid with interest. Accidental insurance also given.
- Budget-2018: Kisan Credit Card (KCC) extended to Animal Husbandry and Fisheries farmers. Interim-
Budget-2019: they (animal/fisheries-walla) too will get the interest subvention
- Interim-Budget-2019: comprehensive drive with a simplified application form to get all farmers under
KCC cards.
🔠🔠🔠 MCQ. Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the
following purposes ? (UPSC-Prelims-2020)
1. Working capital for maintenance of farm assets
2. Purchase of combine harvesters, tractors and mini trucks
3. Consumption requirements of farm households
4. Post-harvest expenses
5. Construction of family house and setting up of village cold storage facility
Codes: [a) 1, 2 and 5 only [b) 1, 3 and 4 only [c) 2, 3, 4 and 5 only [d) 1, 2, 3, 4 and 5
18.13.17 ��: 🧔🧔 ←(💰💰💰💰) Interest Subvention (�ाज सहायता)
Government pays part of the interest rate for borrower. (farmer, MSME, affordable housing etc) such as:
- Farm loans upto 3 lakhs→ 9% MINUS 2% (to all farmers) MINUS 3% (regular paying farmers)= only 4%
loan interest farmer has to pay.
- Interim-Budget-2019:
o KCC-card-walla Animal Husbandry and Fisheries farmers also eligible.
o If natural disaster- then crop loans are rescheduled, we’ll streamline the subvention norms there.
o MSME: incremental loans upto ₹1 crore to GST registered MSME industry= 2% subvention. (As
such already announced by Modi in 2018)
18.13.18 �PaiSA Portal (2018)
- Ministry of Housing and Urban Affairs (MOHUA) → Deendayal Antyodaya Yojana-National Urban
Livelihoods Mission (NULM) → urban poor are given skill training, bank loans to setup business →
interest subvention. (more in Pill#6).
- 2018: MoHUA launched PaiSA (Portal for Affordable Credit and Interest Subvention Access) with the
help of Allahabad Bank as the nodal / coordinator. [2020: Allahabad Bank merged with Indian Bank. So,
tick accordingly, depending on what options are given in MCQ.]
- PaiSA portal aims to connect with all scheduled commercial banks, RRBs and Cooperative Banks.
- 😰😰Before this portal: Interest subvention was released manually on a quarterly basis, sometimes delays.
- 🤩🤩After this portal: released on a monthly basis, and can be tracked through this portal, beneficiary gets
SMS information.
18.14🌽🌽🌽🌽🌽🌽🌽🌽FARM LOAN WAIVER (कृ �ष ऋण माफ�)
18.14.1 🌽🌽🌽🌽🌽🌽🌽🌽Agri-Finance → Loan waivers for the farmers
− 2008: 💼💼Budget → Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS). On their
outstanding crop-loans upto 29/Feb/2008→
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o Small and marginal farmers given 100% debt waiver : कजर् माफ�;
o Other farmers were given 25% debt relief : ऋण राहत.
− FinMin → Department of Financial Services → paid the dues to the banks in a phased manner on behalf
of farmers → 2009: 15th Lok Sabha Election won by UPA/Congress.
− 2016-18: The state governments of Tamilnadu, Maharashtra, Karnataka, Uttar Pradesh, Jammu Kashmir,
Punjab, Chhattisgarh, Andhra,Telangana et al. also launched in similar debt waiver and debt relief.
− 2017: 💼💼Budget gave 60 days interest waivers to farmers on account of the problems farmers suffered
during demonetization in 2016. (नोटबं दी के बाद कु छ िदनों के �लए �ाज माफ िकया था)
18.14.2 🌽🌽🌽🌽🌽🌽🌽🌽=👌👌Agri-Finance → Farm loan waivers: arguments in favour

1. 2008: Post-subprime crisis and global financial crisis, the demand for textile declined in the international
market → cotton prices fell in India → farmers suffered. वै��क आ�थक सं कट के बाद कपास/�ई �नयार्त म� कमी
2. 2014: drought, 2015: again drought. अकाल 😰😰
3. 2016-17: Demonetization → cash shortage → price of agricultural commodities fell.
4. Thus, farmers are suffering for a decade (2008-18), as evident from the violent agrarian agitations in
Madhya Pradesh, Uttar Pradesh and Maharashtra in 2017 and 2018.
5. While corporate borrowers are eligible for loan restructuring, farmers are not given such benefits. So
farmers should be given loan waiver. उद्योगप�तयों के कजर् का तो पुनगर्ठन हो जाता है
6. “Debt overhang” (ऋण क� अ�धकता): a situation where all current income gets used up in repaying the
accumulated debt. Farmer feels no motivation to invest in his ‘business’. Debt waiver cleans up his
liability. It’ll spare his income /savings for investing in better seeds/fertilizers and machines. (Counter:
📔📔📔📔ES20 found no such evidence.)
18.14.3 🌽🌽🌽🌽🌽🌽🌽🌽=👎👎Agri-Finance → Farm loan waivers: arguments against
1. 🚭🚭Moral Hazard (नै�तक जो�खम): Lack of incentive to be "disciplined", when risky behavior is insured by
someone. If the government continue to give loan waivers, farmers will have no discipline to be efficient,
cost-savvy and hard working. (ज�री नहीं िक कजर् माफ� के बाद वह �ज�ेदार बनके श्रम करे)
2. “Loan waivers undermine honest credit culture. NPA problem will get aggravated.”, said ex-RBI
Governor Urjit Patel.
3. 🗳🗳Whenever elections are near, agri-loan defaults are increasing. It hints farmers are strategically
defaulting on loans, in anticipation of waiver. ( चुनाव के कारण कजर् माफ कर िदया जाएगा, ऐसी रणनी�त के साथ, जानबूझकर
िकसान लोन वापस नहीं कर रहे)
4. Loan waiver did not ⏫ our crop production or GDP growth, said 📔📔📔📔ES17 (कजर् माफ़� के बाद फसल उ�ादन
तथा सकल घरेलू उ�ाद म� बढ़ोतरी होने के कोई सबूत नहीं �मले)
5. Thus, Government Intervention has hurt more than it has helped., says 📔📔📔📔ES20 (सरकारी दखल से यहाँ पर
मदद कम और तकलीफ �ादा �ई है-ऐसा आ�थक सव��ण का मानना है)
6. Loan waivers → ⏫fiscal deficit → households and business firms will be hurt. (More in 📑📑Pillar#2)
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7. Total farm loans: ~5.5 lakh cr (2013). Out of that ~60% by formal lenders (banks, Microfinance etc.) Rest
by informal money lenders (Village Baniya, Shroff etc.) So even if loan waivers are announced, all farmers
will not benefit from it. �ज�ोंने अनौपचा�रक स्रोतों से कजार् �लया उन िकसानों को कोई लाभ नहीं �मलेगा
8. Govt’s expenditure on healthcare is LESS than 2% of GDP. WHO recommends 5%. If all the farm loans
are waived it will cost 1.5% of GDP. So, if government has so much spare money to spend, it’ll be better
to spend in public healthcare which will benefit both farming and non-farming families. Similar argument
for education expenditure. बेहतर होगा हम �ा� तथा �श�ा पर पैसा खचर् कर� ना िक िकसानों का कजर् माफ करने म�
18.14.4 🌽🌽🌽🌽🌽🌽🌽🌽=👎👎☠Anti-Argument: Loan waiver will not stop farmer suicide
Farmer suicide is a result of: (िकसान क� आ�ह�ा के �व�भ� कारण)
1. Lack of marketable surplus produce because they’ve small landholding, lack of irrigation, high yielding
seeds and fertilizers. (खेत छोटे ह�, उ�ादन इतने �ादा ज�े म� नहीं कर पा रहे िक �जसे बेचकर मोटी रकम कमा सके )
2. Lack of remunerative prices because of challenges in APMC, MSP and transport-storage infrastructure.
(उ�ादन क� िकसान को अ�� क�मती नहीं �मल रही)
3. Lack of financial inclusion and financial planning. Even after good monsoon and good harvest, they
waste money on social events and pilgrimage. (अ�� फसल-िकसान सामा�जक प्रसं गों, तीथर् यात्राओ म� पैसा बबार्द करते ह�)
So, loan waiver is a short-term remedy that can’t prevent farmer suicide until above three issues are addressed.
18.14.5 🌽🌽🌽🌽🌽🌽🌽🌽 ✍ Farm Loan Waiver: Conclusion
 From the aforementioned analysis, it’s evident that farm debt waiver will have negative consequences for
Indian economy. (कजर् माफ� से भारतीय अथर्तंत्र पर नकारा�क असर होगी. यह िकसानों क� सम�ाओं को �ाई �प से हल नहीं करेगा)
 Debt waiver is not a sustainable solution against agrarian distress, we should work on more efficient and
targeted ways to help farmers. (ल��त �प से िकसानों क� मदद क� जाए) (More in 📑📑Pillar#4A-Agri Schemes)
18.14.6 👻👻👻👻👻👻 Atma-Nirbhar Farm Loan Reforms (2020)
⇒ Suspension/Moratorium on the farm loans for “X” months from March 2020. Originally X=3 months,
then 6 months…… (कृ �ष ऋण-अदायगी ��गत क� गई)
⇒ Cheap loans via Kisan Credit Card will be given to PM KISAN beneficiaries, Fishermen and Animal
Husbandry farmers. (�रयायती �ाज दर पे कृ �ष-ऋण द�गे)
⇒ NABARD to give additional refinance to Regional Rural Banks and Cooperative banks and. (�ेत्रीय ग्रामीण
ब�क और सहकारी ब�कों को पहले से अ�धक पुनर�व� िदया जाएगा)
(More AGRO SCHEMES in in �Pillar#4A-Agri Schemes)
18.15⚰� FINANCIAL INCLUSION: INSURANCE & PENSION

- Various schemes are given in previous sections: But just to quickly recall the notable terms: Insurance:
Postal Life, ESIC, PM Jeevan Jyoti & Surkasha Bima (₹2 lakh), PM-JAY (₹5 lakh annual health insurance
per family), PM-Fasal Bima (1.5-5% premium);
- Pension: EPFO, NPS, Atal Pension (1-5k), PM Shram Yogi Mandhan (3k), PM Vay-Vandana (8%@LIC),
Maan-Dhan Yojanas (3k/pm)
18.15.1 ⚰🔬🔬 Micro Insurance (सू� बीमा)
⇒ Insurance policy may be Life / General Insurance with a very low premium.
⇒ When small sum insured (upto ₹50k) & target audience is poor / villagers / farmers.
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⇒ It may be an individual / group based insurance. Intermediaries such as NGO, SHG, MFI help in selling
such policy. Policy/ Contracts are given in local language. e.g. LIC’s Jeevan Madhur and Jeevan Mangal
18.15.2 🏍🏍🏍🏍🏍🏍 Gig Workers’ social security code (�गग कम� क� सामा�जक सुर�ा सं िहता)
⇒ Informal workers (अयथा�व�ध कम�)= doesn’t have formal job contracts with employers. E.g. Domestic
Maids, Brick Kiln Workers, Construction Labourers, Gurkha Chowkidar, Dhaabaa cooks/waiters etc.
⇒ Gig workers (�गग कम�)= Uber Taxi Drivers, Amazon/Zomato Delivery boys, Urbanclap’s beauticians/
plumbers/ AC repairman, Unacademy Educators etc. They are freelancers / independent contractors
(�तं त्र ठे केदारों) hired by startup or digital companies for short-term engagements. While they may have
some written contract to deliver services to the company, but the contract is worded in such manner they
are not “regular employees” of a company = not eligible for EPFO, ESIC etc.
⇒ 2019-Sept: Labour Ministry drafting a “social security code for all informal & gig workers”. It aims to
provide ‘insurance on death/disability/sickness’, maternity benefit, pension, scholarship for their children
etc. (मृ�ु / �वकलांगता / बीमारी पर बीमा, मातृ� लाभ, प�शन, �गग कम� के ब�ों को छात्रवृ��)
18.15.3 👻👻ATMANIRBHAR → 👷👷Workers’ Social security (2020)
⇒ Annual health check-up for all employees. (�ा� जांच)
⇒ Govt’s Social security schemes will be extended to Gig workers and platform workers (e.g. Zomato
delivery boys, Urbanclap beautician, uber taxi drivers etc.) (गीग प्रणाली के श्र�मक को भी सरकारी सामा�जक सुर�ा
योजनाओं का लाभ)
⇒ Central Government’s Building and Other Construction Workers Act, 1996: → workers contribute ₹₹ to
a fund held by the State Government → they get pension after retirement/accident compensation etc.
👻👻ATMANI→ PM GaribKalyan → State Governments ordered to use this ₹₹ for helping construction
workers during Corona.
⇒ Portability of social security benefits to migrant workers. E.g. If a construction worker deposits a
premium in Gujarat building workers welfare fund → Afterwards he returns back to home state Odisha,
he will get pension from there. (सामा�जक सुर�ा लाभ क� सुवाह्यता- अपने वतन वापस जाए तो भी लाभ �मलते रहे)
✋Sidenote: Lot of controversy because govt has relaxed/suspended labour laws during Corona, but we will study it under pillar 4.
18.16��: �FINANCIAL INCLUSION: CUSTOMER PROTECTION (ग्राहक सुर�ा)

😾😾Bank/NBFC 📈📈Finances ⚰Insurance (IRDAI) �Pension
(under RBI) (SEBI)
Ombudsman: Bank, SCORES Insurance Ombudsman via IRDAI - NPS: NSDL→
NBFC, Digital Portal→ Act ‘1999, hears matters upto ₹30 PFRDA.
Transaction (given SEBI→SAT lakhs. If higher claim then - If EPFO- then its
below) consumer courts / other courts. internal
machinery
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18.16.1 😾😾RBI’s 3 Ombudsman (ओमबड्समेन/ �शकायत �नवारण अ�धकारी/लोक प्रहरी)
Banking NBFC Digital Transactions
Ombudsman Ombudsman Ombudsman�
When 1995 2018 2019
RBI designates a Banking powers to regulate NBFCs
senior RBI Regulation Act, under RBI Act, 1934
official under 1949 Payment and Settlement Systems
Act, 2007
Where does he 21 offices across 4@ Chennai, Kolkata, New Same as BO
sit? India Delhi and Mumbai, looking
after respective zones.
Customer can Any type of bank - Any NBFC-Deposit- Prepaid payment instruments,
file free taking (e.g Mahindra, Mobile wallets, Apps,
complaint Jindal, Sriram), OR NEFT/RTGS and other digital
against -
Any NBFC with assets transactions
size of ₹1 billion
For amounts* upto ₹20 lakhs upto ₹10 lakhs upto ₹20 lakhs
Penalty Ombudsman can order penalty upto ₹1 lakh for customer’s mental agony, waste of
time and money
Higher Appeal? Dy. Gov
- *subject to changes, don’t lose sleep over it.
- ** gradually RBI keeps adding more category of NBFCs here.
- 2019: RBI launched online Complaint Management System (CMS): Customers can lodge complaints
against any RBI regulated Bank or NBFC → Complaint would be directed to the appropriate
Ombudsman
- 2021-Feb: 😰😰BEFORE: RBI appointed 3 types of ombudsman for consumer complaints: (i) Banking
Ombudsman Scheme (ii) NBFC Ombudsman (iii) Digital Transaction Ombudsman. 🤩🤩After: Integrate
these 3 into a One Nation One Ombudsman / Integrated Ombudsman Scheme (एक�कृ त �शकायत �नवारण
अ�धकारी योजना)
18.17📈📈🌐🌐🦁🦁FINANCIAL INCLUSION: INDIA’S PERFORMANCE (भारत का प्रदशर्न)
18.17.1 📈📈🌐🌐 Global Microscope Report
- Annual report started in 2007, to measure financial inclusion levels, this report is prepared by The
Economist Magazine’s Economist Intelligence Unit, Accion global NGO &partners like Bill & Melinda
Gates Foundation, Metlife foundation etc.
- 2019’s report measured gender gap in financial inclusion for the first time.
- 2020’s report measures role of financial inclusion in the COVID-19 response:
 E-banking can help in cash transfers to beneficiaries
 ⏫Digital financial frauds in Corona lockdown etc.
- Over the years, this report identified following challenges in India:
 full interoperability across payment systems. Lack of financial literacy, no trust in financial
system or buying insurance.
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 Digital divide, grievances redressal. extreme poverty, no surplus to save / invest.
 No land / property records→ access to loans is difficult.
- 2020’s Ranking? #1 pe tie-Columbia and Peru, ….. #6:India (last year India was #5) …total 55 nations.
18.17.2 📈📈🌐🌐 Global Findex Database 2017: (released in 2018, April)
- By World Bank with help of Bill & Melinda Gates Foundation
- It’s published every 3 years. It doesn’t give ranking but measures how many % of people have access to
banking, credit etc. in a given nation.
- 2017’s report appreciated PM-Jan Dhan, now we are parallel to China in % of population with bank
account. Financial inclusion helps bringing rich poor divide through targeted delivery of subsidies via J-
A-M (Jandhan, Aadhar, Mobile)
- <update when released> Report 2020: NOT released YET.
18.17.3 📈📈📈📈 Mercer CFA Institute Global Pension Index for 2021:
Rank#1- Iceland. India #40 among 47 nations. (�� low profile report not greatly important. )
18.17.4 📈📈🦁🦁 (India’s own) Financial Inclusion Index by DFS

- 2018-Sept: Proposed by Department of Financial Services (DFS).
- This annual index will have three measurement dimensions; (i) Access to financial services (ii) Usage of
financial services and (3) Quality. It complies with the format prescribed by the G20.
- No ranking released yet. So DONOT LOSE SLEEP.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
18.17.5 📈📈🐯🐯 (India’s own) RBI’s National Strategy for Financial Inclusion (NSFI)
⇒ 2020-Jan: RBI released this report covering the timeframe “2019-2024.”
⇒ Exact points / salient features = poor cost benefit for UPSC. We already have sufficient points for a 250
words answer. (अपने पास पयार्� मुद्दे है, इसको असल म� पढ़ने क� ज�रत नहीं)
18.17.6 📈📈🐯🐯 (India’s own) RBI’s Financial Inclusion Index (�व�ीय समावेशन सूचकांक)
⇒ 2021: RBI Governor announced to publish Financial Inclusion Index to capture the extent of financial
inclusion across the country in Banking, Investments, Insurance, Pension Sector.
⇒ Index has 3 broad parameters (weights indicated in brackets) viz., Ease of Access (35%), Usage of services
& their availability (45%), and Quality of services (20%)
⇒ Score of 0% = complete financial exclusion and 100% = full financial inclusion of every eligible person.
For 2021 the All India score is 54%. (यिद जवाब १००% आये तो सभी लोगो का अ�े ढंग से �व�ीय समोवशन हो गया है, लेिकन
अभी अपना �ोर ५४% ही है)
⇒ FI-Index has been constructed without any ‘base year’ (e.g. unlike Consumer price index where we use
base year 2012. REF: Pillar4C for more.) कोई आधार वषर् के सामने तुलना नहीं हो रही, जैसा क� महगांई सूचकांक म� होता है.
18.18�🎺🎺 MOCK QUESTIONS FOR MAINS (250 WORDS EACH)

1. Explain the significance of financial inclusion & social security for achievement of Sustainable
Development Goals (SDG) for India. भारत के �लए सतत �वकास ल�ों क� प्रा�� के �लए �व�ीय समावेशन और सामा�जक सुर�ा
के मह� को समझाएं । Note: SDG-topic is unfinished until we learn Pillar6.
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2. Discuss the significance of crop insurance and health insurance in eradication of rural poverty.
Enumerate the notable initiatives of the Government in this regard. ग्रामीण गरीबी उ�ूलन म� फसल बीमा और �ा�
बीमा के मह� पर चचार् कर�। इस सं बं ध म� सरकार क� उ�ेखनीय कदमो क� सू�च दी�जए.
3. How is Ayushman Bharat-PM-JAY is different from the previous centrally sponsored schemes on health
insurance? Identify the fiscal and administrative challenges in its implementation. रा��ीय �ा� सं र�ण �मशन
इससे पूवर् क� क� द्र सरकार द्वारा प्रायो�जत योजानाओसे अलग कै से है? �व�ीय व् प्रशास�नक चुनौ�तयो को �च��त क��जए.
4. Discuss in the need for enhancing participation of domestic and foreign players in insurance sector of
India. Enumerate steps taken by Government in this regard. (भारतीय बीमा �ेत्र म� घरेलू और �वदेशी �खलािड़ओ क�
भागीदारी बढ़ाने क� आव�कता पर चचार् कर�। इस सं बं ध म� सरकार द्वारा उठाए गए कदमों क� सू�च दी�जए)
5. (Asked in Mains-2016) Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked
to the institutional finance fold. Do you agree with this for financial inclusion of the poorer section of the
Indian society? Give arguments to justify your opinion. प्रधान मं त्री जन-धन योजना (पीएमजेडीवाई) ब�िकंग से वं �चत लोगो
को सं �ागत �व� /ऋण के दायरे म� लाने के �लए आव�क है। �ा आप भारतीय समाज के गरीब वगर् के �व�ीय समावेशन के �लए इससे सहमत
ह�? अपनी राय को सही ठहराने के �लए तकर् द�।
6. Discuss in the brief, the reforms ushered by 👻👻ATMANIRBHAR package in providing ‘ease of credit’.
(आ� �नभर्र पैकेज द्वारा 'ऋण म� आसानी' के हेतु से िकए गए सुधारो के मह� क� चचार् करे।)
7. Critically examine the need and feasibility of providing agriculture-debt waiver to small and marginal
farmers of India. कजार् माफ� देने क� ज�रत और �वहा�रकता पर गं भीर समी�ा क��जए
8. (Asked in Mains-2020) “Micro-Finance as an anti-poverty vaccine, is aimed at asset creation and income
security of the rural poor in India”. Evaluate the role of Self Help Groups in achieving the twin objectives
along with empowering women in rural India. ("सू�-�व� एक गरीबी-रोधी िटका है जो भारत म� ग्रामीण द�रद्र क� प�रसं प��
�नमार्ण और आयसुर�ा के �लए ल��त है". �यं सहायता समूहों क� भू�मका का मू�ांकन ग्रामीण भारत म� मिहलाओं के सश��करण के साथ साथ
उपरो� दोहरे उद्दे�ों के �लए क��जए )
NEXT Handout: Pillar2: Budget, Taxation
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PILLAR #2: BUDGET, TAXATION, Subsidies, Disinvestment, Deficit, Public Finance
Table of Contents
20 💼💼💼💼 Pillar #2: Budget: Relevance in UPSC?......................................................................................... 231
20.1 💼💼 Fiscal Policy (राजकोषीय नी�त): Meaning & significance ................................................................... 231
A well planned Fiscal Policy can help in following arenas: .......................................................................... 232
20.2 💼💼 Budget (बजट): Meaning ................................................................................................................... 232
20.2.1 🔐🔐Three Funds related to Budget (Self-Study= Laxmikanth chapter on Parliament) ......... 232
20.2.2 🤧🤧🤧🤧Donation Funds: PMNRF vs PM CARES (दान) .............................................................. 233
20.2.3 💼💼💼💼 Three Documents related to Budget (बजट के साथ प्र�ुत तीन द�ावेज) ................................ 234
20.3 💼💼💼SIX Stages of Passing the Budget in Parliament (6 चरण) ......................................................... 235
20.3.1 📆📆Financial Year (FY: �व�ीय वषर्) .................................................................................................. 235
20.4 📃📃📃📃📃📃📃📃⏳Vote on Account- (लेखा अनुदान).................................................................................. 236
20.5 (🤴🤴🤴🤴🤴🤴)=🥛🥛🥛🥛 Interim Budget (अंत�रम बजट) ................................................................................ 237
20.5.1 THEME of budget (�वषयव�ु) ......................................................................................................... 237
20.6 📘📘📘📘 Economic Survey (आ�थक सव��ण)................................................................................................. 238
20.6.1 �Chief Economic Advisor (CEA: मु� आ�थक सलाहकार) ............................................................. 238
20.7 �Finance ministry and its departments: (�व� मं त्रालय और उसके �वभाग) ................................................ 239
20.7.1 �💼💼Department of Economic Affairs (DEA: आ�थक कायर्/ आ�थक मामलो का �वभाग) ................... 239
20.7.2 �🛒🛒FinMin#2: Department of Expenditure (�य �वभाग) ........................................................ 239
20.7.3 �🍋🍋FinMin#3: Department of Revenue (राज� �वभाग)............................................................ 240
20.7.4 �💳💳💳💳FinMin#4: Department of Financial Services (DFS: �व�ीय सेवाएँ �वभाग) .................... 240
20.7.5 �🏭🏭FinMin#5: DIPAM (�नवेश एवं लोक प�रसं प�� प्रबं धन �वभाग) ..................................................... 240
20.7.6 �🏭🏭FinMin#6: Department of Public Enterprises (DPE: सावर्ज�नक उपक्रम �वभाग) .................. 241
20.7.7 �Sidenote: Indian Audit and Accounts Department .............................................................. 241
20.8 💼💼Budget→ ⏳Revenue Part→ 📥📥Receipts→ 🍋🍋Tax Receipts ................................................... 242
20.8.1 🍋🍋 Types of taxes: direct / indirect: प्र�� कर/ अप्र�� कर ............................................................ 242
20.8.2 Types of taxes: Progressive vs Regressive vs Proportional......................................................... 242
20.8.3 💣💣 Adam Smith’s 4 canons of taxation (कराधान के चार �सद्धांत) ..................................................... 243
21 🍋🍋🍋🍋 Direct Taxes: Types (प्र�� करों के प्रकार) ........................................................................................... 243
21.1 🍋🍋🍋🍋Direct taxes: merits and demerits (प्र�� करों के लाभ व् नुकसान) ................................................... 244
21.2 Union Tax, Cess and Surcharge (क� द्रीय कर, उपकर और अ�धभार) ............................................................... 245
21.2.1 🍋🍋🍋🍋: 🏦🏦 Direct Tax → Cess: 🍋🍋Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN) .. 245
21.3 🍋🍋🍋🍋: 🏦🏦 Direct Tax → Corporation Tax (�नगम कर) ....................................................................... 246
21.3.1 🍋🍋🍋🍋: 🏦🏦 Corporation Tax Cut in 2019-Sep .......................................................................... 246
21.3.2 🍋🍋🍋🍋: 🏦🏦🏦🏦 Corporation Tax: announcements in 2019 and 2020 budgets....................... 247
21.3.3 🍋🍋🍋🍋: 🏦🏦🏦🏦: 🤓🤓 Corporation Tax: Exemption from audit for small companies............. 247
21.3.4 🍋🍋🍋🍋: 🏦🏦🏦🏦 Corporation Tax on Startups ............................................................................ 247
21.4 🍋🍋🍋🍋: 🏦🏦 Equalisation Levy / Google Tax (समकारी लेवी/ गूगल टै�)................................................... 248
(Batch:PCB5) Mrunal’s Economy Pillar#2A: Budget → Revenue Part → Direct Tax-Receipts → Page 230
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21.5 🍋🍋🍋🍋: 🏦🏦🏦🏦 Minimum Alternate Tax (MAT: �ूनतम वैक��क कर) .................................................. 249
21.5.1 🍋🍋🍋🍋: 🏦🏦🏦🏦 AMT (Alternative Minimum Tax) ................................................................... 249
21.6 🍋🍋🍋🍋: 🗃🗃 Dividend Distribution Tax (DDT: लाभांश �वतरण कर) ........................................................ 249
21.7 🍋🍋🍋🍋: 🗃🗃🗃🗃 Buyback Tax (शेयर क� वापसी-खरीद पर कर) ....................................................................... 250
21.8 🍋🍋🍋🍋 : 🏠🏠🏠🏠🏠🏠Capital Gains Tax (CGT: पूंजीगत लाभ कर)................................................................ 250
21.9 🍋🍋🍋🍋: 👪👪 Income Tax on Individuals (��क आयकर)..................................................................... 251
21.9.1 ��Income Tax Slabs before Budget-2020 ............................................................................ 252
21.9.2 (Optional) New slabs for Income Tax in Budget-2020 .............................................................. 253
21.9.3 🍋🍋🍋🌱🌱Income Tax Slabs in Budget-2021, Compliance relief to Senior Citizen👴👴.......... 253
21.10 🍋🍋🍋🌱🌱Direct Tax Code (DTC) Task Force (2017-2019) ......................................................... 254
21.11 🍋🍋🍋🍋Direct Taxes: Misc. Concepts (इधर उधर के �छटपुट मुददे) .......................................................... 254
21.11.1 🍋🍋🍋🍋Hindu Undivided Family (HUF) (िहंदू अ�वभा�जत प�रवार): ............................................. 254
21.11.2 🍋🍋🍋Presumptive Taxation (प्रक��त कराधान) ......................................................................... 254
21.11.3 🍋🍋⏰Advance Tax ? (अ�ग्रम कर).............................................................................................. 255
21.11.4 👻👻 ATMA NIRBHAR BHARAT → Tax Ordinance 2020 [कर अ�ादेश] ............................ 255
21.12 🍋🍋🍋✂TDS & TCS ....................................................................................................................... 255
21.13 🍋🍋🍋✂Tax Deducted at Source (TDS): (स्रोत पर कर कटौती) .......................................................... 256
21.13.1 👻👻 (🍋🍋🍋✂) TDS → ATMA NIRBHAR BHARAT REFORMS .................................. 257
21.13.2 🍋🍋🍋🍋✂Tax Collected at Source (TCS): (�ोत पर सं गृहीत कर) ............................................... 257
21.13.3 🍋🍋🍋🍋Tax refund? (कर वापसी) .................................................................................................. 257
21.14 🍋🍋Misc. Direct Taxes - Financial Transaction Taxes (�व�ीय लेनदेन कर).......................................... 258
21.14.1 🍋🍋🍋🍋 (Concept) Tobin Tax / Robinhood Tax ..................................................................... 258
21.14.2 🍋🍋🍋🍋STT & CTT (प्र�तभू�त लेनदेन कर और व�ु लेनदेन कर) ............................................................ 258
20 💼💼🍋🍋 PILLAR #2: BUDGET: RELEVANCE IN UPSC?

Prelims P1 (GS 100 🔠🔠❓MCQs) Mains GSM-1-2-3 (750 Marks)
Economy: 6 PillarsTM
2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020
💼💼 🍋🍋2_Budget, FC, GST, Disinvestment,
3 3 4 1 1 1 12.5 30 25 25 15
FRBM etc
20.1 💼💼 FISCAL POLICY (राजकोषीय नी�त): MEANING & SIGNIFICANCE

- ‘Fiscal’ is a word derived from Greek. Means ‘basket’ and symbolizes the public purse.
- Fiscal Policy is the set of Govt. decisions regarding taxation, expenditure, subsidies and other
financial operations. (कराधान, �य, स��डी और अ� �व�ीय सं चालन हेतु सरकार द्वारा �लए गए �नणर्य)
- Using fiscal policy, Govt influences the savings, investment and consumption in an economy, to
accomplish certain national goals such as income redistribution, socio-economic welfare,
economic development and inclusive growth. (बचत, �नवेश और खपत को सरकार को प्रभा�वत करती→ आय का
पुन�वतरण, सामा�जक-आ�थक क�ाण, समावेशी �वकास हो सकता है)
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A well planned Fiscal Policy can help in following arenas:
 Full Employment: through welfare schemes/ rural employment programmes like MGNREGA
(📑📑More in pillar6) (लोक क�ाणकारी योजनाओं द्वारा पूणर् रोजगार)
 🍊🍊To Fight Inflation (मुद्रा��त): Higher Income tax → ⏬disposable income (�य यो� आय) →
demand curbed, To fight deflation= ⏬direct and indirect taxes to boost demand. (📑📑More in
pillar4: Inflation) (अप��त से लड़ने के �लए करों म� कटौती करे माँग को बढ़ाएँ )
 📈📈 To Boost Economic Growth: Provide income tax benefits on household savings in
LIC/Mutual Fund etc. → industries get new capital investment → factory expansion, jobs, GDP
growth. (📑📑More in pillar4: GDP) (करों म� �रयायत� दे कर �नवेश को बढ़ोतरी, आ�थक वृ�द्ध को बढ़ोतरी देना)
 �To Boost Inclusive Growth (समावेशी �वकास): Higher taxes on rich → use money for health,
education, women, poverty removal programs. (📑📑More in pillar6: Human Dev)
 🧭🧭 To Boost Regionally Balanced Growth: Give tax benefits to industrialists for setting up
factories in North East, Naxal/Left-wing Extremism (LWE) & other backward areas. (उद्योगप�तयों को
उ�र पूव� रा� तथा न�ल प्रभा�वत रा�ों म� फै �री लगाने पर करो म� �रयायते देकर सभी प्रदेशो का सं तु�लत �वकास)
 💱💱Exchange Rate Stability (�व�नमय दर ��रता): Give tax benefits to exporters to boost exports;
while impose higher taxes on imported items to reduce imports → Current Account Deficit
(CAD: चालू खाता घाटा) controlled → ₹ :$ Exchange rate volatility controlled. (📑📑 pillar3:BoP)
🔠🔠❓ MCQ. “Fiscal policy” means (UPSC-Indian-Engg-Service-2018)

a) Balancing the revenue collection and expenditure
b) Establishing equilibrium between demand and supply of goods and services
c) Use of taxation, public borrowing and public expenditure by Government for purposes of
stabilisation or development.
d) Deficiency as an instrument of growth
20.2 💼💼 BUDGET (बजट): MEANING
Budget is an annual financial statement containing estimated revenues and expenditures for the next
financial year. Budget is the primary tool used by Govt to implement its fiscal policy. (अनुमा�नत राज�
और �य का वा�षक �व�ीय �ववरण, �जसक� मदद से सरकार राजकोषीय नी�त को लागू िक्रया��त है).
20.2.1 🔐🔐Three Funds related to Budget (Self-Study= Laxmikanth chapter on Parliament)
Art. 🔐🔐Consolidated Fund Incoming taxes, loans raised, loans recovered. Withdrawal
266 Of India (CFI) (सं �चत �न�ध) need Parliament Permission (- except for Charged
Expenditure like Judges’ salaries).
Art. 🔐🔐Public Account Incoming ₹ ₹ from provident fund, small savings, postal
266 of India (लोक लेखा) deposit etc. Govt acts similar to a banker transferring fund
�सफर् पहली बार बनाते व� सरकार from here to there so parliament permission ✋not necessary.
ने सं सद क� अनुम�त लेनी है. िफर हर IF separate fund is to be created for the first time, for a specific
बार इसम� से पैसा खचर् करते व� expenditure, then needs parliament permission to “create” it
सं सद क� अनुम�त नहीं लेनी है. e.g. Central Road Fund Act 2000, where Road Cess on Petrol,
Diesel would be deposited.
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Art. 🔐🔐Contingency Fund Unforeseen events ₹ 500 cr by Finance Secretary on behalf of
267 of India (आक��कता �न�ध) President. Parliament approval is “subsequently” obtained,
after expenditure. Money refilled from CFI.
🔠🔠❓ Authorization for the withdrawal of funds from the Consolidated Fund of India must come from: (Pre-2011)
(a) President of India (b) Parliament of India (c) The Prime Minister of India(d) The Union Finance Minister
20.2.2 🤧🤧🤧🤧Donation Funds: PMNRF vs PM CARES (दान)
👴👴PMNRF by Nehru 1948 🧔🧔PM CARES Fund by Modi 2020

⇒ Prime Minister’s National Relief Fund Prime Minister’s Citizen Assistance and
(PMNRF) रा��ीय राहत कोष Relief in Emergency Situations Fund
⇒ Originally for helping Pak-refugees. For dealing with any kind of emergency or
Nowadays for floods, cyclones, earthquakes, distress situation, e.g. COVID-19 pandemic
accidents, heart/kidney transplant, cancer, िकसी भी िक� क� आपातकालीन प�र��तयों से लड़ने के �लए
acid attack, riots etc.
⇒ Not setup by Parliament. ⇒ Same। इसे सं सद द्वारा नहीं बनाया गया, बजट म� से इसे
⇒ No support given from the budget. पैसा नहीं िदया जाता, सामा� लोगों के और �व�वध
⇒ Only runs from donations of ordinary people सं �ानों के दान से ये चलता है,
and institutions & foreigners donations.
⇒ Donors get Income tax exemption. ⇒ Same. दान देने पर आयकर म� छू ट मीलती है .यिद
⇒ If company donates ₹₹=counted in Corporate कं पनी दान देगी तो उसे कॉप�रेट सामा�जक दा�य� म�
Social Responsibility (CSR, Ref#1C ). �गना जाएगा
⇒ Prime Minister’s Office (PMO) operates ⇒ same.प्रधानमं त्री कायार्लय सं चा�लत करता है
⇒ PM is the ex-officio chairman. He’s assisted ⇒ Prime Minister is the ex-officio
by officers. Chairman. (पदेन अ��)
⇒ Ex-officio Trustees (पदेन ट��ी): Ministers of
Defence, Home Affairs, Finance
⇒ 3 Nominated Trustees (मनोनीत): experts
from health, science, social work, law etc.
PM selects �ा�, �व�ान, सामा�जक कायर्, कानून
Sidenotes:
⇒ 1962: A separate ‘National Defence Fund’ under PM to help military & paramilitary forces’
families. Other features mostly similar to above funds. (ऊपर के टेबल म� हमने पढ़े वो दो फ� के अलावा एक
तीसरा रा�ी� य र�ा कोष/ �न�ध भी है)
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⇒ Usually, such Govt donation funds are registered under Indian Trust Act, 1882. But, some legal
experts / critics suggest these donations should be brought under Public Account / Consolidated
Fund to bring accountability & transparency. (पारद�शता और जवाबदेही क� कमी)
⇒ 😰😰Controversy? PM CARES Fund officials refused to give information to a person under Right
to information Act (RTI), so now court case about applicability of RTI on this. (सरकार इस फं ड का
िहसाब िकताब “सूचना अ�धकार कानून म�” देने से इं कार कर रही थी तो कोटर् म� के स चला)
20.2.3 💼💼📃📃 Three Documents related to Budget (बजट के साथ प्र�ुत तीन द�ावेज)
- Budget comes from a French word 'bougette' meaning a leather bag / suitcase.
- Finance Minister (FM: �व� मं त्री) would keep documents in it → present in parliament.
- 2019: FM Nirmala Sitharaman ended this colonial practice by presenting the budget in a
traditional four-fold red cloth ledger. CEA K.Subramanian said the ‘budget documents’ inside
this red-cloth should be called “Bahi-Khata”.
- While the term ‘budget’ not given in our constitution, but for each financial year, the Govt is
required to present following: सं �वधान म� इस श� का �जक्र नहीं हालाँिक हर साल तीन द�ावेज सं सद म� रखे जाते ह�।
📃📃Art. 112 📊📊Annual Financial Statement (AFS: वा�षक �व�ीय �ववरण) containing receipt and
expenditure of last year (and projections for the next year).
1) The revenue expenditure must be shown separately from other expenditures.
2) No compulsion to show railway budget separately from general budget.
3) No compulsion to show plan expenditure separately from non-plan.
📃📃Art. 265 Taxes can’t be imposed without law so Finance Bill to obtain Parliament's
📃📃Art.117 permission to collect taxes. (�व� �वधेयक कराधान के �लए।)
Further, Parliament can reduce or abolish a tax proposed by the Govt. but
�Read
Parliament cannot increase tax beyond what Govt has proposed in the Finance
more about
them in bill. E.g. If Modi Govt’s Finance bill proposes “we want to ⏫tax on imported
Laxmikanth shoes from 25% → 35%”. Then
⇒ Members of parliament can vote to allow tax@35%/reduce/remove it.
⇒ ✋Members of parliament CANNOT vote “let’s ⏫tax to 45%”.
📃📃Art. 114 🛒🛒Appropriation Bill (�व�नयोग �वधेयक) to obtain Parliament's permission to spend
money from Consolidated Fund of India(CFI: Art 266). Such expenditure can be
�Read of two types :
more about 1) The expenditures ‘charged’ upon the Consolidated Fund of India e.g. Judges
them in salaries. They can be discussed but they are non-votable & automatically
Laxmikanth approved. (भारत क� सं �चत �न�ध पर भा�रत �य. सं सद म� उसक� चचार् हो सकती है, िक�ु मतदान नहीं।
वरना यिद सांसद मतदान से, जज क� तन�ाह ⏬कर द�गे तो जज �न�� प से काम नहीं कर पाएं गे)
2) The expenditure ‘made’ from CFI. E.g. ₹ ₹ for a scheme. They’re discussed
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and voted. (भारत क� सं �चत �न�ध से िकये गए �य. सं सद म� इसपर चचार् भी होगी और वोिटंग भी)
⇒ The finance bill and appropriation bill are considered money bills (धन �वधेयक) under article 110.
Therefore Rajya Sabha (RS) approval is not necessary. (रा� सभा क� अनुम�त अ�नवायर् नहीं)
⇒ At maximum Rajya Sabha can discuss it for 14 days and give suggestions to Lok Sabha for
amendments, but it’s not binding on the Lok Sabha to accept Rajya Sabha’s suggestions. (धन
�वधेयक के मामले म� रा�सभा द्वारा िदए गए सुजाव मानना लोकसभा के �लए बा�कारी नहीं है)
⇒ Sometimes, the ruling party does not have majority in Rajya Sabha to pass other type of ordinary
bills (e.g. a bill to transfer National Housing Bank (NHB)’s ownership from RBI to Govt. or
abolishing some low-profile statutory body or enacting a law to make Aadhar card compulsory)…
⇒ Then, ruling party packs those ordinary bills’ proposals inside Finance Bill to get it approved
without Rajya Sabha’s obstruction. (कु छ बार सामा� �वधेयक के मामले भी �व� �वधेयक म� डालकर, �बना रा� सभा
क� अनुम�त के पास करवाने क� हरकते स�ाप� द्वारा क� जाती है, जो नै�तक नहीं)
⇒ In such scenarios, whether a given bill is money bill or not?= Ans: Lok Sabha Speaker’s decision
is final [Art.110(3)]. Speaker’s decision cannot be enquired by any Court [Art.122].
🔠🔠❓ MCQ. What will follow if a Money Bill is substantially amended by Rajya Sabha? (Pre’13)
a. Lok Sabha may still proceed with the Bill, accepting or not accepting the recommendations of the Rajya Sabha.
b. The Lok Sabha cannot consider the Bill further.
c. The Lok Sabha may send the Bill to the Rajya Sabha for reconsideration.
d. The President may call a joint sitting for passing the Bill.
🔠🔠❓ MCQ. Find correct statement(s): (UPSC Pre’15)
1. The Rajya Sabha has no power either to reject or to amend a Money Bill.
2. The Rajya Sabha cannot vote on the Demands for Grants.
3. The Rajya Sabha cannot discuss the Annual Financial Statement.
20.3 💼💼�SIX STAGES OF PASSING THE BUDGET IN PARLIAMENT (6 चरण)

1. 🎙🎙Presentation of budget (बजट का प्र�ु�तकरण)
2. 🤬🤬General Discussion (आम बहस)
3. 🗳🗳Scrutiny by departmental committees (�वभागीय स�म�तयों द्वारा जांच)
4. 🗳🗳✂Voting on demands for grants, cut motions, guillotine. (अनुदान क� मांग पर मतदान )
5. �🛒🛒Passing of Appropriation Bill (�व�नयोग �वधेयक का पा�रत होना)
6. �🍋🍋Passing of Finance Bill (�व� �वधेयक का पा�रत होना )
📗📗 Self-Study from Indian Polity by M.Laxmikanth’s ch. 22 on Parliament.
20.3.1 📆📆Financial Year (FY: �व�ीय वषर्)

⇒ 1867: British Indian Govt started financial year 1st April to 31st March to align with their home
country’s financial year. �ोंिक इं ��ड म� ऐसा �व�ीय वषर् था, इस�लए भारत म� �व�ीय वषर् ऐसा िकया
⇒ Constitution has not specified any months for FY but we continued the British legacy.
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⇒ 2016-17: Finmin setup Shankar Acharya Committee: Whether we shd change FY (like Jan-Dec
or Rabi-Kharif Cropping seasons) for better estimation of tax collection and expenditure?
⇒ ✋2017: All states not in favor because accounting practices /softwares need to be changed. Its
challenges outweighed the benefits. So, Modi Govt not implementing. इसको लागू नहीं कर रहे
⇒ 🤧🤧2020: some fake news that FY changed due to Corona, but it was FAKE-NEWs (झूठा समाचार)
20.4 📃📃🛒🛒🛒🛒📆📆⏳VOTE ON ACCOUNT- (लेखा अनुदान)
The Constitution does not mandate any specific date for presentation of the Budget, but it is
presented to the Lok Sabha on such day as the President directs.
⇒ Before 2017: Presented in the last working day of February. Then it’ll pass through
aforementioned six stages- consuming all the time upto May month.
⇒ But while those six stages were going on, the financial year will be over (on 31st March) so
previous year’s Appropriation Act’s validity will be over.
⇒ Then govt cannot withdraw money from the Consolidated Fund of India even for the routine
expenditure like staff salary, electricity bills.
⇒ So, to avoid such crisis, government will put a motion for vote on account.
⇒ Here, parliament (= practically Lok Sabha) will allow the govt to spend some money from the
CFI, till the (next) Appropriation Act for next financial year is passed.
⇒ Vote on Account is generally granted for two months for an amount equivalent to one-sixth of
the total budget estimation.
✋Vote on Account is no longer necessary because (अब इसक� ज�रत नहीं)
⇒ Constitution has no compulsion to put budget on a specific date. So, 2017 onwards, Modi Govt.
began tabling the budget on the first working day of February.
⇒ All the six stages are completed by the last week of March.
⇒ Appropriation bill gets passed and signed by President before completion of 31st March. So they
did not require vote on account in 2017, 2018.
⇒ However, in 2019’s Interim Budget, Modi Govt demanded “vote on account” because they
planned to place full-budget after general elections and perhaps they wanted to keep the ‘option’
open for tabling a big-sized appropriation bill after winning the election. (2019 के अंत�रम बजट म�
हालांिक मोदी सरकार ने लेखानुदान क� मांग क� थी �ोंिक चुनाव के बाद बड़ा सामा� बजट प्र�ुत कर उसम� मोटी रकम का
“�व�नयोग �वधेयक” डालने का �वक�/ऐसी �खड़क�/रा�ा वे खुला रखना चाहते थे)
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20.5 (🤴🤴🤴🤴🤴🤴)=🥛🥛💼💼 INTERIM BUDGET (अंत�रम बजट)
⇒ Our constitution does not define or require interim budget. (अंत�रम बजट का सं �वधान म� �जक्र नहीं है)
⇒ But, during election year or extreme situation (E.g. when coalition government may collapse
before its term) then it’s considered unethical for such Govt. to make drastic/populist changes in
budget like “2gm gold for the marriage of every BPL-girl.”
⇒ So, while they’ll present a budget in the regular fashion i.e. 3 documents (AFS, FinBill,
Appro.Bill) & 6 Stages of Passing. But it (should) not have grand populist announcements. (ऐसी
प�र��तमे लोक-लुभावन क� योजनाओ के साथ बजट प्र�ुत करना नै�तक नहीं होगा, वरना �वप�ी नेता जीत नहीं पाएं गे चुनाव)
⇒ Such budgets are called Interim Budgets, and were presented in 2004 (Yashwant S.), 2009
(Pranab M.), 2014 (Chidambaram P.) and 2019 (Piyush G.)
⇒ Just like a Regular General Budget, an Interim budget is valid for the whole financial year,
however in between if new government is formed, they may present another budget to change
the provisions. (वैसे तो पूरे वषर् के �लए वैध होता है)
⇒ E.g. 2014-Feb: FM Chidambaram presented (interim) budget in 15th Lok Sabha, but then
UPA/Congress defeated in general election→ 2014-July: BJP’s FM Arun Jaitley presented (Full)
General Budget in 16th Lok Sabha.
⇒ 2019-Feb: FM Piyush G. presented Interim budget in 16th Lok Sabha → 2019-May: Modi won
General Election → 2019-July: FM Nirmala S. presented (Full) Gen Budget in 17th Lok Sabha.
✋Note: throughout the handout, I’ve used the term “Full” budget to
differentiate it from “Interim” Budget for easier revision & visualization. But in
Mains, you should use the word ‘General Budget’(सामा� बजट)
20.5.1 THEME of budget (�वषयव�ु)
Constitution doesn’t require, but sometimes FM will do it to create media-hype:
Budget Year Did FM Speech mention a specific theme (�वषयव�ु)?
2018 and 2019 No specific theme mentioned in speech
Had three themes: (1) Aspirational India: मह�ाकांशी भारत (2)Economic
2020 (Full)
Development for all: सबके �लए आ�थक �वकास(3) Caring India: दयभावना
• No specific theme mentioned in speech but focus on AtmaNirbhar Bharat
2021 (Full) • Paperless/Digital Budget in a Samsung tablet made in India, covered in
Red-colored cover.
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20.6 📘📘📘📘 ECONOMIC SURVEY (आ�थक सव��ण)
- A (two volume) doc prepared by the Chief Economic Adviser (CEA) in the finance ministry.
- Vol2 shows annual data of past year. Vol1 shows prospects & suggestions for the future years.
- ✋No constitutional obligation to prepare or present it but usually it’s tabled in the parliament a
day before the Union Budget. (सं �वधा�नक �प से ऐसा करना अ�नवायर् नहीं)
- 2019-Feb: No economic survey was presented before the interim budget.
- 2019-July: Economic Survey presented before the (Full) General Budget.
- While Budget is labelled after next financial year (e.g. 2019-20), the Economic survey is labelled
after previous Financial Year. e.g. The survey tabled on Feb-2018 is labelled as “Economic
Survey 2017-18”, the Survey tabled in July-2019 is labelled “Economic Survey 2018-19”.
Table 1: Theme / Format of Economic Survey?
till‘13-14 ⇒ Single Volume survey.
⇒ Adopted Two Volume Systems like “IMF’s World Economic Outlook”.
⇒ Vol1= future suggestions | Vol2= Past data.
2014-15
⇒ Explicitly mentioned Theme in preface (प्रा�थन): “Creating opportunity and
reducing vulnerability” (through JanDhan-Aadhar-Mobile = JAM trinity)
⇒ No theme in preface. PINK Cover for -Ending Gender Violence.
2017-18
⇒ (गुलाबी: ल��गक िहसं ा को समा� करना)
No theme. But Sky Blue Cover for -Blueprint for making India a $5 trillion
2018-19
economy” (नीले गगन का रंग: भारतीय अथर्�व�ा को $5 िट��लयन तक ले जाना )
No theme but Lavender Purple color cover to show the synthesis of old and new ideas
for wealth creation & economic freedom (to do business). Just like ₹100 currency note
2019-20
which comes in both “old” series as well as “new” Mahatma Gandhi series with
lavender/purple color- जामुनी: धनसृजन और आ�थक �तं त्रता के �लए नये तथा पुराने �वचारो का स��लन
Paperless / Digital Survey. Green&Red/Brownish cover with photo of healthworkers &
Corona Virus. No theme explicitly mentioned in preface. but focus areas / major talking
2020-21
points were 1) #SavingLives&Livelihoods 2) V-shaped Recovery 3) Countercyclical
fiscal policy 4) Bare Necessities Index
2021-22 To be released probably in 2022-January. Stay tuned for Mrunal’s Win22 Series update
20.6.1 �Chief Economic Advisor (CEA: मु� आ�थक सलाहकार)
- Falls under Finance ministry’s Department of Economic Affairs
- Usual tenure 3 years, reappointment possible, but not a constitutional or statutory body. Has
control over Indian Economic Service (IES) officers.
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- Notable CEAs in Past: Manmohan Singh, Raghuram Rajan, Arvind Subramanian (2014-18).
- 2018-Dec: Krishnamurthy Subramanian became the new CEA. 2021-Dec: he resigned.
- <Update when new CEA appointed>
20.7 �FINANCE MINISTRY AND ITS DEPARTMENTS: (�व� मं त्रालय और उसके �वभाग)
20.7.1 �💼💼Department of Economic Affairs (DEA: आ�थक कायर्/ आ�थक मामलो का �वभाग)
Functions of DEA:
⇒ Fiscal policy, Preparation and presentation of Union budget including the Railway component of
budget. Budget for union territories without legislature, budget for States under president rule.
⇒ DEA announces the Interest rates of small saving schemes. (Ref:1D, लघु बचत योजनाओं क� �ाज दर)
⇒ DEA maintains a website www.pppinindia.gov.in, to provide information related to Public Pvt
Partnership (PPP). (📑📑Ref-Pill5: Infrastructure for more)
Organizations under/related to DEA

1) Constitutional Body: Art. 280: Finance Commission. DEA liaisons with it.
2) Chief Economic Advisor (CEA) that we learned in previous section.
3) Financial Stability and Development Council (FSDC): is neither Constitutional nor statutory
body. FM is chairman. Members include the chiefs of all financial regulatory bodies- such as RBI,
SEBI, IRDAI, PFRDA and the chief of IBBI (📑📑Ref: 1C)
4) Govt Company: Security Printing and Minting Corporation of India Ltd. (SPMCIL). Registered
under the Companies Act responsible for printing currency notes, coins, commemorative coins,
cheques, postage stamps, non-judicial stamps, passports/visa and other travel documents etc.
20.7.2 �🛒🛒FinMin#2: Department of Expenditure (�य �वभाग)

⇒ Here the Controller General of Account (CGA: महालेखा �नयं त्रक from ICAS service) prepares
estimate of how much money to be spent from consolidated fund of India.
⇒ It also deals with Pay Commission reports, Pension Accounting office.
⇒ Web Portals of Expenditure Department:
 Public Financial Management System (PFMS): for disbursing money to various
Ministries and departments at Union and State level
 Bharatkosh- Non Tax Receipts Portal (NTRP): For selling India yearbook Yojana
Kurukshetra mags etc products and services by the government of India
🔠🔠❓ MCQ. Public Financial Management System (PFMS) is a web-based online software application designed,
developed , owned and implemented by the (UPSC-CDS2019-II)
A. Department of Financial Services
B. Institute of Government Accounts and Finance
C. Controller General of Accounts
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D. National Institute of Financial Management
20.7.3 �🍋🍋FinMin#3: Department of Revenue (राज� �वभाग)

Looks after the taxation matters using bodies: <Hindi terms not given because it’ll take too much
printout space, but they’re given in indirect tax section of this handout>
 Central Boards of Revenue Act 1963
Statutory
oCentral Board of Direct Taxes (CBDT)→ Department of Income Tax
Bodies
o Central Board of Indirect Taxes and Customs (CBIC). Before-2018-
& Quasi-
March, it was known as Central Board of Excise and Customs (CBEC).
judicial bodies
It implements GST from 1st July 2017, under the 101st Constitutional
Amendment Act, 2016.
वैधा�नक सं �ाएं
 Authorities for Advance rulings in Acts for IT, Customs & Central Excise, GST
अधर् �ा�यक
 Various Tribunals and appellate bodies related to taxation.
 Enforcement Directorate (for enforcing PMLA and FEMA Act)
Attached /
 Central Economic Intelligence Bureau
Subordinate
 Central Bureau of Narcotics Financial Intelligence Unit
Goods and Service Tax Network (GSTN) is a non-profit company. Originally its
Associated
51% shareholding was with HDFC, ICICI etc. but 2018- Govt decided to make it
Companies
100% owned by Union & State Governments.
20.7.4 �💳💳💳💳FinMin#4: Department of Financial Services (DFS: �व�ीय सेवाएँ �वभाग)
Functions of DFS:
Schemes for Financial Inclusion (📑📑Ref-1D), PSB supervision and recapitalization, Public Sector
Financial Intermediaries, including their regulators (Except EPFO, ESIC etc.)
Organizations under/related to DFS:
 Bank Board Bureau: Neither Constitutional / statutory. Setup through gazette notification for
selection of top officials (MD, CEO, Chairman and full-time Directors) for PSBs, LIC and other
public sector financial institutions. (📑📑Ref:1B-2)
 Govt Company: National Credit Guarantee Trustee Company (NCGTC): For providing credit
guarantee for loans in Mudra, certain MSME loans, Stand up India, education-skill development
related loans. (इस सरकारी योजनाओं म� लाभाथ� कजार् वापस नहीं कर� तो ब�क के नुकसान क� भरपाई ये कं पनी करेगी)
20.7.5 �🏭🏭FinMin#5: DIPAM (�नवेश एवं लोक प�रसं प�� प्रबं धन �वभाग)
 Department of Investment and Public Asset Management (DIPAM) looks after Disinvestment /
privatization of Govt Companies / Central Public Sector Enterprises (CPSE- सावर्ज�नक �ेत्र के क� द्रीय
उद्यम) (Ref 📑📑#2D: Disinvestment)
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20.7.6 �🏭🏭FinMin#6: Department of Public Enterprises (DPE: सावर्ज�नक उपक्रम �वभाग)
BEFORE AFTER 2021-July Reform
Department of Public Enterprises (DPE) - DPE shifted to Finance Ministry. (सावर्ज�नक
functioned under Ministry of Heavy Industries उपक्रम �वभाग अब से �वत् मं त्रालय के अंतगर्त काम करेगा)
and Public Enterprise - 🤩🤩Benefit? DPE can work with more
(पहले ये सावर्ज�नक उपक्रम �वभाग “भारी उद्योग तथा सावर्ज�नक synergy / coordination with DIPAM
उपक्रम मं त्रालय” के अंतगर्त काम करता था) Department. (तालमेल सं कलन म� बेहतर होगी)
Name: Ministry of Heavy Industries and Public Name changed to Ministry of “Heavy
Enterprise (इस मं त्रालय का नाम बदला गया) Industries.” (Meaning the word “Public
Enterprise removed from it) (More abt this
ministry in 📑📑Pillar#5: Transport Infra)
- DPE looks after Government Companies/Central Public Sector Enterprises (CPSEs)’s
administration, expenditure, financial health, survey/performance monitoring etc. (सरकारी कं प�नयों
के प्रबं धन, ख़च� �व�ीय �ा�, सव��ण/प्रदशर्न क� �नगरानी के बारे म� देखता है)
- DPE gives 'Ratna' status to CPSEs’ that are making good profits. (Ref 📑📑#2D: Disinvestment)
- DPE looks after CPSEs’ employees’ training, rehabilitation (Voluntary Retirement Scheme: VRS)
and other personnel matters (सरकारी कं प�नयों के कमर्चा�रयों के तालीम, �ै��क �नवृ�� इ�ािद का�मक प्रशासन)
- DPE DOESNOT look after selection/recruitment of employees in CPSE. There are separate
organizations for it -given in table below:
Selection/Interview of Managing Director, Who is responsible?
Chairman & other Top-Officials in _ _ (इन उ� पदा�धका�रयों का चयन कौन करता है)
Public Sector Banks/NBFCs/AIFI e.g. SBI, Bank Board Bureau (More in
PNB, LIC, NABARD, NHB etc (What are 📑📑Pillar#1B2)
they? Ref: 1B1: Classification) → → (सरकारी ब�कों/सरकारी �व�ीय सं �ान म� उ�
अ�धका�रयों के चयन के �लए अलग सं �ा BBB है)
Government companies Other than Public Enterprises Selection Board
[Public Sector Bank/NBFC/AIFI] e.g. (PESB) under the Ministry of personnel
ONGC, Coal India, Hindustan Copper, (सरकारी ब�क/ सरकारी �व�ीय सं �ान के अलावा
Hindustan Aeronautics Limited (HAL) etc वाली सरकारी क��नयों म� उ� अ�धका�रयों के चयन
के �लए अलग सं �ा PESB है)
RBI Governor, SEBI Chief etc regulators Separate Committee headed by Cabinet
Secretary (IAS)
The highest official in each of above 6 depts is called ‘Secretary’ (usually an IAS)
→ senior-most among them is designated as Finance Secretary=signs ₹ 1 note.
20.7.7 �Sidenote: Indian Audit and Accounts Department

 As per Press Release FinMin = 6 departments that we learned above.
 This (lesser known) dept is headed by Constitutional Body: Comptroller and Auditor General
(CAG: भारत के �नयं त्रक-महालेखापरी�क इस के मु�खया होते ह� तो इस �वभाग को �व� मं त्रालय का िह�ा नहीं माना जाता)
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🔠🔠❓ MCQ. Find correct Statement(s): (MCQ-Prelims-2015)
1. The Department of Revenue is responsible for the preparation of Union Budget that is presented to the Parliament.
2. No amount can be withdrawn from the Consolidated Fund of India without authorization from Parliament of India.
3. All the disbursements made from Public Account also need the authorization from the Parliament of India.
Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 2 only (d) 1, 2 and 3
🔠🔠❓ MCQ. Which one of the following is responsible for the preparation and presentation of Union Budget to the
Parliament? (MCQ-Prelims-2010) (a) Department of Revenue (b) Department of Economic Affairs
(c) Department of Financial Services (d) Department of Expenditure
🔠🔠❓ MCQ. Fiscal Policy in India is formulated by: (MCQ-CDS-2012)
(a) the Reserve Bank of India (b) the Planning Commission (c) the Finance Ministry (d)SEBI
20.8 💼💼BUDGET→ ⏳REVENUE PART→ 📥📥RECEIPTS→ 🍋🍋TAX RECEIPTS

बजट→ राज� भाग→ प्रा��यां→ कर प्रा��यां
20.8.1 🍋🍋 Types of taxes: direct / indirect: प्र�� कर/ अप्र�� कर
Parameter 🍋🍋🍋🍋Direct Tax 🍋🍋🍋🍋🍋🍋Indirect Tax (e.g.
(e.g. 5% Tax on your 18% GST on purchase of
income) Biscuit)
🤲🤲Incidence of Tax: Point from where Income Tax Assessee Shopkeeper/seller (�वक्रेता )
government collects the tax. (करापात) (प्र�� करदाता खुद)
😰😰Impact of Tax: point where the burden Income Tax Assessee Customer/buyer (ग्राहक )
of tax is ultimately felt and can’t be (प्र�� करदाता खुद)
transferred elsewhere. (कराघात/कर का प्रभाव)
The incidence and impact of tax is…. On the same person Not on the same person.
🎓🎓Note: Above table’s deeper interpretation also involves how ‘burden’ is shifted from seller to
buyer, But we’ll not waste time learning its GRAPH/PHD. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
20.8.2 Types of taxes: Progressive vs Regressive vs Proportional
Type of Tax Example
Proportional If Govt. had a single 10% flat rate direct tax on income irrespective of whether
समानुपाती🔂🔂 you’re a poor, middle class, upper middle class or a rich person. Then each
taxpayers’ same proportion of income(10%) will go into taxes.
Progressive - 5%-20%-30% income tax slabs depending on your income.
(प्रगामी) - Thus, richer the person, bigger proportion of his income will go into taxes.
�😁😁 Thus, direct taxes are progressive in nature.
↗�😥😥 - Misc. term: Degressive tax: It is a blend of progressive tax and proportional
अमीर पे �ादा गरीब tax. If a direct tax increases upto a point & after that limit, a uniform rate is
पे कम charged (5-5-10-10-...10). So, its partly proportional because tax rate remains
unchanged even if income increases. (✋but further PHD/hairsplittery not req
on this term. If MCQ asks then Ans= income tax is PROGRESSIVE TAX)
Regressive - 18% GST on Biscuits worth ₹100 = ₹18 paid as (indirect) tax.
(प्र�तगामी) - When Mukesh Ambani buys one packet, and a poor man buys one packet,
�😁😁 greater proportion of poorman’s income is gone in taxes. Thus, indirect taxes
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Type of Tax Example
↗�😥😥 are regressive in nature. (गरीब आदमी क� वेतन का �ादा िह�ा जाता है)
MCQ. Which one of following is a progressive tax structure? [UPSC-CDS-2015-II]
(a) Tax rate is the same across all incomes (b) Tax rate increases as income increases
(c) Tax rate decreases as income increases (d) Each household pays equal amount of tax
20.8.3💣💣 Adam Smith’s 4 canons of taxation (कराधान के चार �सद्धांत)

1. Canon of Equality (समानता का �सद्धांत): Tax should be equal /proportionate to income. Rich people
should pay more taxes than poors.
2. Canon of Certainty (�न��तता का �सद्धांत): dates, slabs, % should be definite & told in advance.
Randomly govt should not demand “x%” tax to build statue, temple or mosque.
3. Canon of Convenience (सु�वधा का �सद्धांत): tax payer shouldn’t be made wait for a kilometre long
queue & fillup 50 pages worth tax forms.
4. Canon of Economy (�मत��ता का �सद्धांत): to collect ₹ 100 crore tax, govt shouldn’t be spending ₹ 99
crores in salaries of tax officials.
🔠🔠❓ MCQ. Which of the following was not advocated by Adam Smith? (UPSC-CDS-2019-1)
a) Canon of equality b) Canon of certainty c) Canon of convenience d) Canon of fiscal adequacy
🔠🔠❓ MCQ. Find Correct Statements (UPSC-CDS-2016-1)
1. Ability to pay principle of taxation holds that the amount of taxes people pay should relate to their income or wealth
2. The Benefit Principle of taxation states that individuals should be taxed in proportion to the benefit they receive
from Government programmes
3. A progressive tax takes a larger share of tax from poor families than it does from rich families
4. Indirect taxes have the advantage of being cheaper and easier to collect
Answer Codes: (a) 1 and 3 only (b) 2 and 4 only (c) 1, 2 and 4 only (d) 1, 2, 3 and 4
21 🍋🍋🍋🍋 DIRECT TAXES: TYPES (प्र�� करो ं के प्रकार)

Direct Taxes 🧔🧔 of Union Govt. * Means Abolished �🕉🕉 Of State Govt.
👜👜On income - Corporation Tax, Minimum Alternate 1. Agriculture Income tax
(आय पर) Tax (MAT) 2. Professional Tax
- Income Tax on income except agri. (Constitutional ceiling of
- Capital Gains Tax (CGT) max ₹2500 per year)
- ❌ *Dividend Distribution Tax (DDT)
🏠🏠On assets, - Securities Transaction Tax (STT) 1. Land Revenue (भू राज� )
transactions & Commodities Transaction Tax (CTT) 2. Stamp/Registration duty
(सं प��, लेनदेन पर) - ❌ *Wealth Tax (सं प�� कर) 3. Property tax in urban areas
- ❌ *Banking Cash Transaction Tax (शहरी �ेत्रों म� सं प�� कर)
- ❌ *Estate Duty
🛒🛒On − ❌ *Hotel Receipt Tax, *Gift Tax #Road Tax (although debatable
expenditure (खचर् − ❌ *Fringe Benefit Tax i.e. When the as in some States/categories of
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Direct Taxes 🧔🧔 of Union Govt. * Means Abolished �🕉🕉 Of State Govt.
पर) employer give benefits to employee apart vehicles- the seller will collect &
from salary e.g. subscription to gymkhana submit)
or golf-club.
💼💼Budget-2020: (Expected collection-wise): Corporation tax > Income Tax > STT
💼💼Budget-2021: (Expected collection-wise): Income Tax > Corporation Tax > STT
🔠🔠❓MCQ. Corporation tax is imposed by _ _ _ [UPSC-CDS-2013-II]

(a) State Government(b) Central Government (c) Local Government(d) State as well as Central Government
21.1 🍋🍋🍋🍋DIRECT TAXES: MERITS AND DEMERITS (प्र�� करों के लाभ व् नुकसान)
😀😀Merits of Direct Taxes 😓😓Demerits (नुकसान)
1. Progressive (प्रगामी: richer the person higher
the tax): income inequality ⬇
2. Promotes civic consciousness (नाग�रक चेतना)
since citizen directly feels the ‘pinch of tax’
(चुभन महसूस करना).
3. To ⬆ savings & investment: Income tax
deduction/exemptions on NPS/ LIC etc. 1. Externality (बाह्यता) not counted: Academic
4. Elasticity (लचीलापन): As public’s income level Books Author vs Film star promoting cigars
⬆ then tax revenue ⬆ [30% Income Tax on both].
5. Certainty (when and how to pay IT, �न��तता) 2. Hardship not counted: Working Carpenter
6. Can ⬇ volatility in International currency [5%] vs sleeping landlord [5%] (किठन प�रश्रम के
exchange rates by imposing Tobin Tax �लए कोई �रयायत नहीं )
(📑📑More in Pillar#3) (मुद्रा �व�नमय दर क� अ��रता 3. High level of direct tax= laziness, less foreign
को कम िकया जा सकता है ) investment. (उची दरे लोगों को आलसी बनाती है)
4. Narrow base: poor people not covered. If we
try then very large Income tax staff will
required to supervise over poor people. (सं क�णर्
आधार)
5. Prone to litigation & loopholes, tax evasion,
avoidance. (📑📑More in #2B: Blackmoney)
(मुकदमेबाजी, कर-चोरी, कर-प�रहार)
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21.2 UNION TAX, CESS AND SURCHARGE (क� द्रीय कर, उपकर और अ�धभार)
Any Union - Computed on taxable income, profit, transaction. Goes to Consolidated Fund of
Tax India → Later divided between Union and states as per the Finance Commission
(सं घ कर) formula. (except if IGST: divided on GST Council’s formula.)
Surcharge - Computed on Tax amount. So, it is a ‘tax on tax’. This ₹₹ will also goto CFI. It is not
shared with States using Finance Commission Formula.
(अ�धभार) - Usually, surcharge doesn’t have any clear objective in ‘prefix’, so it may be used for
any purpose. Exception is 10% Social Welfare Surcharge (समाज क�ाण अ�धभार) on the
customs duty on imported goods. → ₹₹ specifically used for social welfare schemes
of the Union. (सामा� �प से इन पैसों का उपयोग िकस खास काम म� होता है उसे �� बताया नहीं जाता)
Cess - Computed on [(Tax) + (Surcharge, if any)]
(उपकर) - Clear objective is mentioned. E.g. Krishi Kalyan Cess, Swachh Bharat cess, Road &
infrastructure, Health & Education, GST compensation cess etc.
- By default, cess goes to CFI→ from there, it goes to Public Accounts. Sometimes
there may be separate fund inside public account for it, e.g. Central Road Safety
Fund, Prarambhik Shiksha Kosh etc.
- Finance Commission can’t prescribe formula to share cess with States. (Although
some of the cess money will invisibly goto states as a part of scheme implementation
e.g. Pradhan Mantri Fasal Bima Premium share, etc. but that depends on discretion
of Union) (इस रकम को �व� आयोग रा�ों के साथ नहीं बाँट सकता. क� द्र सरकार अपने �ववेक से अलग अलग
योजनाओं म� शायद इस उपकार का कु छ पैसा रा�ों को दे सकती है )
- GST Compensation Cess is shared with States, as per GST Council formula. <More
in the GST segment of this handout>
21.2.1 🍋🍋🍋🍋: 🏦🏦 Direct Tax → Cess: 🍋🍋Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN)
प्र�� करों पर लगाए गए उपकर का पैसा इस फं ड म� डाल�गे और �व�वध �ा� योजनाएं चलाएं गे
⇒ Govt levies 4% Health & Education Cess on direct taxes such as income tax & corporation
tax. (What is Cess? Ref: Pillar#2A) प्र�� करों पर �ा� व �श�ा उपकर
⇒ 2021-March: govt created a new “Non-Lapsable” fund under Public Account. (What is
“Non-Lapsable fund? Ref: Pillar#2D). लोक लेखा म� एक ग़ैर-��गत �न�ध बनायी जाएगी
⇒ This fund will receive ₹ ₹ from above cess.
⇒ Health ministry will use this money for
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o 1) Ayushmann Bharat & its sub schemes like PM-JAY (5L-Health insurance),
o 2) Pradhan Mantri Swasthya Suraksha Yojana (setting up AIIMS-like institutions in
every state & upgrading government medical colleges).
o 3) National Health Mission (NHM) रा�ी� य �ा� �मशन
o 4) Health emergencies like Corona �ा� आपदाएँ (More in 📑📑Pillar#6)
21.3 🍋🍋🍋🍋: 🏦🏦 DIRECT TAX → CORPORATION TAX (�नगम कर)
Figure 1: �नचोड़ �नचोड़ के कर/टे� ल�ग,े िकसी को नहीं ब��गे!

⇒ Also known as “Corporate Income Tax (CIT: �नगमो पे लगने वाला आयकर)”
⇒ It’s Levied on Company’s profit, under the Income-tax Act, 1961. (Technically levied on “NET
Income” but we’re not here for CA-exam’s pedantry.)
Table 2: Corporation Tax Rates before 2019-Sept 📅📅
25% If Indian company's turnover is upto ₹400 cr.** 99.3% companies fall here.
30% If Indian company’s turnover is higher than ₹400 cr.** 0.7% companies fall here.
40% foreign company’s profit from India
⇒ Additionally “x%” surcharge (अ�धभार) amount on above Corporation Tax amount, depending on
the company's turnover.
⇒ Additionally 4% health and education cess (उपकर) on above [Corporation Tax + Surcharge]
21.3.1 🍋🍋🍋🍋: 🏦🏦 Corporation Tax Cut in 2019-Sep
Since Indian corporate sector was facing a slowdown, Nirmala.S announced tax-cuts:
Corporation Tax Before After
🌳🌳 Existing Indian companies 25-30% depending on 22 % tax
(वतर्मान भारतीय कं प�नयों पर ) turnover +10% surcharge on (tax)
+ 0-12% surcharge +4% cess (on tax +
depending on profit surcharge)
+ 4% health edu cess = 25.17%
🌱🌱 New INDIAN MFG company -- 15 %
registered from 1/10/2019. (but they must +surcharge & cess as
start manufacturing by 31/3/2023) given above
= 17.01%
🐼🐼 Foreign Company’s profit from India 40%+surcharge+cess no change
🐷🐷 Zero profit companies 18.5% MAT 15% MAT
Related Topics: Laffer Curve, Tax elasticity etc in 📑📑2B: black money handout.
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21.3.2 🍋🍋🍋🍋: 🏦🏦🏦🏦 Corporation Tax: announcements in 2019 and 2020 budgets
⇒ 💼💼Full Budget-2019:
 Additional tax benefits to companies producing solar power, electric batteries, computer
server, laptop etc. in any part of India.
 Companies operating from GIFT-city-IFSC given 100% exemption from Corporation
Tax for 10 years. (previously this ‘tax holiday’ was for 5 years; We’ll learn GIFT-City-
IFSC in Pillar#3.).
Note: Tax holiday= for this much years, you’ll not have to pay tax. कर भरने से छु ट्टी
⇒ 💼💼Budget-2020
• If a Sovereign Wealth Fund (📑📑Ref-pillar#1C) invests in Indian infrastructure projects → Tax
holiday for them. E.g. Abu Dhabi Investment Authority
⇒ 💼💼Budget-2021:
• Tax holiday for developers of affordable housing till 31/3/2022. (meaning 0% corporation tax /
capital gains tax on builder’s profit).
21.3.3 🍋🍋🍋🍋: 🏦🏦🏦🏦: 🤓🤓✋ Corporation Tax: Exemption from audit for small companies
⇒ Audit (लेखा परी�ण) is a systematic and scientific examination of the Balance Sheet/Accounts
Books/Financial Transactions. Audit is done by an independent person known as 🤓🤓 Auditor.
⇒ By default, companies with turnover above ₹1cr, need to present their audited accounts to the
Govt. (1 करोड़ से �ादा क� कमाई करने वाली कं प�नयों ने अपना लेखा-परी�ण सरकार म� जमा करना होता है)
⇒ 💼💼Budget-2021: if the company carries out 95% of their transactions digitally, they'll be
exempted from the audit requirement, if their turnover upto ₹10cr. (अपना �ादातर लेनदेन िड�जटल
मा�म से करने वाली कं प�नयों को लेखा परी�ण से मु��- भले ही उनक� कमाई 10 करोड़ तक हो।)
⇒ 🤩🤩Benefit? 1) No need to hire auditors → ⏬Tax Compliance Burden for the company (कर
अनुपालन के खच� कम होंगे कं पनी के �लए) 2) ⏫digital Transaction → ⏬ scope for Tax Evasion & Black
Money (िड�जटल भुगतान म� बढ़ोतरी से काले धन और कर चोरी के अवसरों म� कमी)
21.3.4 🍋🍋🍋🍋: 🏦🏦🏦🏦 Corporation Tax on Startups
Figure 2: “अभी अभी धं धा शु� िकया है, थोड़ा ब� दो, मा�लक!” IT Dept: “ठीक है, �सफर् थोड़े वष� के �लए ही!”
Startup is a company not older than 10 years and not having turnover more than 100 cr. & is doing
innovation in goods/services. Govt helps them through Startup India Scheme (📑📑more in Pillar4B).
💼💼Budget-2020 →
 Startup can claim 100% deduction (=Tax Holiday) on its profits, for 3 years out of the first 10
years of incorporation. (as such they get tax benefits under Startup India scheme, but new budget
fine tuned those technical definitions further.)
 Related concepts: Angel Tax (More in 📑📑Pillar#2B: Black Money)
💼💼Budget-2021 →
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 Most of above rules related to Startup company Tax Holidays = shall valid upto 31/3/2022.
 Person makes investment in startup → sells his share/partnership @profit to other investor →
0% Capital Gains Tax on that Profit till 31/3/2022.
21.4 🍋🍋🍋🍋: 🏦🏦 EQUALISATION LEVY / GOOGLE TAX (समकारी लेवी/ गूगल टै�)
Figure 3: “हमारा server तो भारत म� है ही नहीं तो हमे ब� दो!” IT Dept: “तुमको तो �ब�ु ल ही नहीं ब��गे!! 👺👺🤬🤬
⇒ If a foreign company makes profit in India, they have to pay 40% Corporation Tax.
⇒ If an Indian businessman purchases digital advertisement slots in google-adsense / facebook =
those (foreign) digital-ads companies are making profit.
⇒ But earlier, google/facebook did not pay tax on that profit, claiming their business activity (of
displaying digital-ads) is done outside India on global servers.
⇒ So, Budget-2016 imposed tax on such income/fees of foreign digital advertisement companies.
⇒ Officially called “Equalisation Levy” (EQL), unofficially nicknamed “Google Tax” / “Digital
Service Tax (DST).
⇒ It’s not part of “Income Tax” or “Corporation Tax” under the Income Tax Act 1961, but a
separately imposed by the Finance Bill/Act 2016.
⇒ Foreign Company can’t escape it saying we’re protected under Double Taxation Avoidance
Agreement (DTAA) in our home country. (More in 📑📑Pill#2B: blackmoney)
Table 3:✋ further operational guidelines NOTIMP. Not-here4C.A. Exam
💼💼Budget- • 6% Equalisation Levy on foreign digital advertisement companies e.g. Google’s
2016 adsense, facebook digital ads (�वदेशी िड�जटल �व�ापन कं प�नयाँ)
💼💼Budget- • 2% Equalisation Levy on foreign companies engaged in

2020 • E-commerce (ई-�ापार)/selling goods & services to Indian residents e.g.
Microsoft/Adobe selling digital softwares on their site
• Digital subscription (िड�जटल सद�ता) to Indian residents e.g. Netflix,
⇒ 🤧🤧 Corona crisis: foreign companies kept requesting Indian govt to defer tax-filling dates &
reduce tax%. But Indian Govt not giving them relief. (कोई �रयायत नहीं �मलेगी)
⇒ 2021: India & USA working on a deal to ‘phase-out’ equalization levy under ‘Global Minimum
Tax’ regime. (More in 📑📑Pillar#2B: Black Money) इसे धीरे धीरे ख़� कर िदया जाए एसा समझौता होने वाला है.
Related terms:
1. Significant Economic Presence (SEP: उ�ेखनीय आ�थक उप��ती): Concepts basically means if a
foreign company is making money from Indians through digital ads / streaming services (e.g.
NETFLIX videos from overseas servers) then the company has ‘SEP’ in India, therefore, Indian
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govt has powers to tax it. 💼💼Budget-2020 made some technical changes into it. But, poor
cost:benefit chasing it for MCQs.
2. OECD used a phrase ‘Tax challenges of digitization’ to denote above problems where digital
services type Multinational Corporation (MNC) are avoiding taxes. (ब�रा��ीय �नगमो द्वारा कर को टालना)
3. France has implemented tax on large technology companies called GAFA Tax (Google Apple
Facebook Amazon) from 1st Jan 2019. Other nations also doing similar.
4. What is the difference between tax, duty, levy?= if you get selected in IRS (Indian revenue
service) they’ll teach you in training. 🎓🎓✋Not-imp here. #थोड़ा-पढ़ो-आगे-बढ़ो.
5. What is onshore/offshore safe harbor regime for fund managers? 🎓🎓✋Not-important
Related terms: Global Minimum Tax, DTAA, GAAR, PoEM etc in 📑📑Pillar#2B:
🔠🔠❓ MCQ. With reference to India’s decision to levy an equalization tax of 6% on online advertisement services
offered by non-resident entities, Find correct statements? (Pre-2018)
1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country
under the “Double Taxation Avoidance Agreements”.
Answer Codes: a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2
21.5 🍋🍋🍋🍋: 🏦🏦🐷🐷 MINIMUM ALTERNATE TAX (MAT: �ूनतम वैक��क कर)
Figure 4: मेरा मुनाफा शू� है! मुजे ब� दो मा�लक! IT Dept: तुमको तो �ब�ु ल ही नहीं ब��गे!! 👺👺👺👺
- Some industrialists use tax-deduction, exemptions, depreciations and accounting tricks to
become “Zero Profit Companies” & escape paying Corporation Tax. So,
- Budget-1996 (Chidambaram) introduced 18.5% MAT on book profit using a different type of
formula. (What was the formula, not important).
- MAT is subjected to + surcharge + cess.
21.5.1 🍋🍋🍋🍋: 🏦🏦🏦🏦 AMT (Alternative Minimum Tax)

✋Not important for exam. Move to next topic.
21.6 🍋🍋🍋🍋: 🗃🗃 DIVIDEND DISTRIBUTION TAX (DDT: लाभांश �वतरण कर)
- 1997: FM Chidambaram started to levy DDT on a shareholder’s dividend income. In reality,

company (=source) will cut that much ₹ ₹ portion from shareholders’ dividend, & directly
deposit that ₹ ₹ to the govt, as DDT.
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- Shareholder did not have to pay Income tax on it.
- DDT Rate: 15% + cess + surcharge = 20.56% on dividend paid.
- 💼💼Budget-2020: abolished DDT. But, dividend will be taxable in the hands of shareholder (i.e.
he’ll pay income tax on it). 🤩🤩Benefits?
 Previously even lower middle-class shareholder’s ~ 20% dividend was cut in the name of
DDT. But now he may have to pay barely 0-5% income tax on income from dividend.
 Thus, Shareholders get to keep more ₹₹ for spending→ shopping spree → demand,
production, economic growth.
21.7 🍋🍋🍋🍋: 🗃🗃🗃🗃 BUYBACK TAX (शेयर क� वापसी-खरीद पर कर)
Profit making companies sometimes repurchase their own shares back from shareholders
⇒ Impact? These many shares are extinguished from company’s liability side.
⇒ Benefit to company? No need to pay dividend on these shares in future.
⇒ Budget-2013: Government ordered UNLISTED companies to pay “20% Buyback tax” they buy
back their own shares from the market.
⇒ (Full) Budget-2019: made this applicable on LISTED companies as well. (Ref: 📑📑1C)
21.8 🍋🍋🍋🍋 : 🏠🏠🏠🏠🏠🏠CAPITAL GAINS TAX (CGT: पूंजीगत लाभ कर)
- When an owner makes profit by selling his capital assets such as non-agro-land, property,
jewellery, paintings, vehicles, machinery, patents, trademarks, shares, bonds & other securities-
then he has to pay CAPITAL GAINS TAX (CGT).
- Depending on how long did the owner keep that asset before selling it, he will pay:
- EITHER Long Term Capital Gains tax (LCGT: x% दीघार्व�ध) OR
- OR Short Term Capital Gains tax (SCGT: y% अ�ाव�ध)
- In practice, the buyer will deduct that much ₹ ₹ portion from the payment to seller, and deposit
to the government. (वा��वक जीवन म� खरीदार ये रकम बेचने वाले के भुगतान म� से काट के सरकार को जमा करता है )
- However, some people form shell companies abroad & do transactions from there to avoid
paying taxes to India. (More in 📑📑Pillar#2B: Black Money. For Shell companies, DTAA, GAAR,
Round Tripping, Angel Tax etc)
- 💼💼Budget-2018:
- Earlier Listed companies Shares, Mutual Funds Units etc. were exempt from LCGT.
- But, large amount of money is invested here, and owners make good profits by selling
them so govt applied Long Term Capital Gains Tax system on them @10%.
- 💼💼Interim-Budget-2019:
- IF person sells his house on profit, then he has to pay CGT.
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- However, if he uses the profit to invest in two more residential houses in India, then no
need to pay CGT. He can use this scheme only once in his lifetime. (Before Budget-2019,
it was for only 1 new residential house.)
- Income Tax computation on the notional rental income from 2nd house also tweaked
but we’re not here for CA exam.
- 💼💼Full-Budget-2019
- If Startup entrepreneurs unable to secure capital from investors → they sometimes have
to sell their house arrange money for starting business.
- So, Govt had exempted their house-selling-profit from CGT.
- Companies operating from GIFT-city-IFSC given some exemptions from CGT. (More
about GIFT City IFSC in 📑📑Pillar#3A: FDI)
- 💼💼Budget-2020 & 2021: some minor technical updates. notIMP.
🔠🔠❓MCQ: In which of the following circumstances may ‘capital gains’ arise? (Pre’12)
1. When there is an increase in the sales of a product.
2. When there is a natural increase in the value of the property owned.
3. When you purchase a painting and there is a growth in its value due to increase in its popularity.
Answer Codes: (a) 1 only (b) 2 and 3 only (c) 2 only (d) 1, 2 and 3
21.9 🍋🍋🍋🍋: 👪👪 INCOME TAX ON INDIVIDUALS (��क आयकर)
James Wilson (financial member of the Council of India, founder of the Economist magazine and
Standard Chartered Bank) introduced income tax in India on 24 July 1860 to compensate the British
losses during 1857’s Sepoy mutiny. So, 24th July is celebrated as Income Tax Day (Aaykar Diwas).
Suppose the gross income of an Indian Resident (age less than 60) is ₹9 lakhs.
- Out of this gross income, first we have to subtract the tax-deductions and tax-exemptions (कर-
कटौती और कर-छू ट) like income from agriculture, investments made in Provident Fund, NPS, LIC,
Medical Insurance etc (upto a certain limit), house rent allowance (HRA), repayment of
home/education loan, money donated in eligible charitable funds etc
- 💼💼Full-Budget-2019: additional tax deduction (कर कटौती) given
- if took loans to buy electric vehicle🚗🚗
- if a taking home loan for the first time. 💼💼Budget-2021 → extended this scheme till
31/3/2022 (छोटे मकान खरीदने के �लए म�म वग�य प�रवार ने जो कजर् �लया होता है उस कजर् पर जो �ाज चुकाना
होता है उस िहसाब से आयकर म� उ�� रयायत दी जाएगी.)
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- 👻👻Atma-Nirbhar 3.0: �First time home buyers of home upto Rs. 2 cr will get income tax
relief. How exactly? Associated concepts of circle rate of stamp duty etc. = beyond the scope of
UPSC MCQs. We'll not waste time. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
- After subtracting such things, suppose taxable Income is: ₹5,50,000/-
- From this amount, Salaried individuals get standard deduction of ₹50000.
- (Previously, it was ₹40k but Interim-Budget-2019 raised it to 50k).
- So, ₹5,50,000 - 50000 = ₹5 lakh is the taxable income, THEN…
Total Taxable Income: ₹5 lakh Income Tax Amount
Out of that upto 2.5 lakhs 0% 0%
From 2,50,001 to 5 lakhs = ₹2.5 lakhs 5% of 2.5 lakhs* 12500
left
From 5,00,001 to 10 lakhs = ₹5 lakhs 20% of of that 5 lakhs N/A
From 10,00,001 & above 30% of that amount N/A
Total Income Tax ₹12,500
Minus Tax Rebate of ₹12,500 (if taxable income is upto ₹5l)** -(MINUS) ₹12,500
0
Total Income Tax to be paid
Surcharge (अ�धभार): 10%-37% surcharge on Tax amount, IF 0% of 0% = 0
taxable-income is above ₹50 lakhs
Cess (उपकर): 4% Health and education cess on (Tax + Surcharge). 4% x (0+0) = 0
(Before Budget-2018, there was only 3% Education Cess).
Total payment to IT Dept: Income Tax + Surcharge + Cess 0
- **Previously, rebate was ₹2500 if taxable income upto ₹3.5 lakhs but Interim-Budget-2019
raised it to keep middle-class voters happy before General Elections.
- Full-Budget-2019: no changes in income tax %rates or slabs, but Nirmala S. justified that ‘rich
people need to contribute more for national development, so I’m raising the surcharges on them.’
Surcharge if taxable income is Before Full-Budget-2019 After full-Budget-2019
More than ₹50 lakh upto 1 cr. 10% Unchanged
More than ₹1 cr upto 2 cr. 15% Unchanged
More than ₹ 2 cr upto 5 cr. 15% 25%
More than ₹5 cr 15% 37%
2019-Sept: Facing protests from the Foreign Portfolio Investors (FPI), Nirmala.S clarified above
enhanced surcharges will not be applicable on the profits made from selling listed companies’ shares.
But, poor cost:benefit chasing all such technical things.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
21.9.1 ��Income Tax Slabs before 💼💼Budget-2020

- Before Budget-2017: there were three tax slabs in income tax: 10%, 20%, 30%;
- After Budget-2017: 5%, 20%, 30%.
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- Income tax slabs for senior citizens are slightly relaxed. i.e.
- �Age 60+ but less than 80 Yrs: upto 3l(0%), 3-5l(5%)...remaining slabs same as young.
- ��Age 80+ years: upto 5l(0%)...remaining slabs are same as young.
21.9.2 (Optional) New slabs for Income Tax in 💼💼Budget-2020

IF you give up exemptions and deductions (छू ट और कटौती) such as
- Salaried employees’ standard deduction, HRA, Leave Travel Concession (LTA)
- Section 80C-walle deduction (e.g. investments made in LIC/NPS etc upto ₹1.5 lakh per year) Etc.
- Then you can opt to pay with new (reduced) income tax slabs viz.
(new slab, if you give up deduction & (old slabs, if u don’t give
TAXABLE Income (per annum)
exemptions) up)
Upto ₹2.5 lakh Nil / 0% Nil / 0%
>₹2.5 lakh-₹5 lakh 5% (But 12500 rebate so
5% (But 12500 rebate so in reality ₹0)
(meaning from 2,50,001 to 5,00,000) in reality ₹0)
>₹5 lakh to ₹7.5 lakh 10%
20%
>₹7.5 lakh to ₹10 lakh 15%
>₹10 lakh to ₹12.5 lakh 20%
>₹12.5 lakh to ₹15 lakh 25% 30%
>₹15 lakh 30%
Surcharge & cess applicable? Yes Yes
E.g. An employee with annual salary
₹1.95 lakh** ₹2.73 lakh
₹15lakhs will pay total INCOME TAX
**It is left to individual’s discretion whether he wants to stay in old / new system. But if all people
opted for the new slabs then Govt will hypothetically get ₹40,000 crore less (compared to old
system). Technically, called “Revenue forgone or Tax Expenditure” (प�र�� राज�/राज� खचर्).
⇒ But, ⬇Income tax paid = ⬆disposable income with people (खचर् करने के �लए उपल� आय बधेगी)→
shopping spree → ⬆demand → production, economic growth etc.
⇒ And shopping spree = ⬆Indirect tax collection e.g Mobiles = 18% GST.
⇒ Currently the Income Tax Act is riddled with various exemptions and deductions. Ordinary
people can’t understand and have to consult Chartered Accountants (CA) & investment advisors
before filing taxes. Now process is easier. (सी.ए. क� सहायता नहीं लेनी होगी. कराधान का सरलीकरण होगा)
21.9.3 🍋🍋🍋🌱🌱Income Tax Slabs in 💼💼Budget-2021, Compliance relief to Senior Citizen👴👴

- No changes in the income tax slabs. so the previous system of normal slab and optional slab
continued. आयकर क� दरों म� कोई बदलाव नहीं िकया गया, पुरानी �व�ा जारी रहेगी.
- IF senior citizen👴👴 aged 75 years/> or older AND has only pension and interest income THEN:
- He need not file the income tax return form. व�र� नाग�रक �जसका प�शन और ब�क बचत �ाज के
अलावा आय का अ� कोई �ोत नहीं है उसने आयकर फॉमर् नहीं भरना होगा
- The paying bank will deduct the necessary tax on their income.
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- 🤩🤩Benefit? ⏬compliance burden on the senior citizen. बुजुगर् पर कर-अनुपालन के बोज म� कमी
21.10🍋🍋🍋🌱🌱DIRECT TAX CODE (DTC) TASK FORCE (2017-2019)
⇒ 2017: Finance Ministry setup this taskforce under CBDT member Arbind Modi. Later, he retired
so another CBDT member Akhilesh Ranjan was made Chairman.
⇒ Taskforce had noted IRS officer, Chartered Accountant, Tax Lawyer, Corporate Consultant etc.
⇒ While Government did not disclose full report in public domain, but according to journalists, it
contains following suggestions:
1. Replace the Income Tax Act 1961 with a simpler Direct Tax Code (प्र�� कर सं िहता).
2. Reduce the corporation tax further. �नगम करों म� और कटौती क� जाए
3. Tax rates for domestic and foreign companies should be same. This will encourage ease of doing
business in India.भारतीय और �वदेशी कं प�नयों पे एक समान �नगम कर लगे तािक �ापार म� सुगमता
4. Give additional tax relief for the startup companies. (More in Pillar4B)
5. Increase the number of tax slabs from present three (5%,20%,30%) to four (10%, 20%, 30% and
lastly 35% for super-rich earning ₹ 2 crore />).
6. Abolish Dividend Distribution Tax (DDT). [which is actually done in 💼💼Budget-2020]
7. Setup Litigation Management Unit to look after the tax related court cases in an efficient
manner. (मुकदमों क� प्रबं धन इकाई बनाई जाए तािक कराधान के के सों का प्रभावी �प से �नपटारा हो सके )
++ many other reforms, but poor cost:benefit chasing them. #थोड़ा-पढ़ो-आगे-बढ़ो
21.11🍋🍋🍋🍋DIRECT TAXES: MISC. CONCEPTS (इधर उधर के �छटपुट मुददे)

21.11.1 🍋🍋👪👪Hindu Undivided Family (HUF) (िहंदू अ�वभा�जत प�रवार):
- A Hindu, Buddhists, Jains, or Sikhs family members can come together, pool their assets and
form an HUF under the Income Tax Act. (उनको आयकर बचाने म� कु छ फ़ायदे होते ह�)
- HUF is taxed separately from its members, & helps saving taxes due to certain
provisions/loopholes of Income Tax Act. How exactly? Ans. not here for CA exam.
21.11.2 🍋🍋�Presumptive Taxation (प्रक��त कराधान)

- Salaried employees can easily compute their taxable income from their annual salary, & pay
income tax. (तन�ाह-शुदा/ वेतन-भोगी कमर्चारी के �लए आयकर �गनना ब�त आसान होता है)
- Companies hire full time Chartered Accountants to computer their taxable income and pay
Corporation tax. (और कं पनी के मा�लक तो िहसाब िकताब रखने के �लए CA को नौकरी पे रख�गे)
- But self-employed freelance consultants / professionals such as lawyers, doctors, fashion
designers, DJ-walle-babu etc. face difficulty in keeping such account books. (लेिकन �रोजगा�रयों के
�लए िहसाब िकताब रखना थोड़ा मु��ल होता है )
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- So, for above persons, Income Tax Act has Presumptive Taxation System i.e. their
‘income/profit’ is computed as “x%” of their gross receipts, and on that amount they’ve to pay
income tax (depending on slabs) + applicable cess and surcharges. (प्रक��त कराधान प्रणाली: �� क�
सकल आय म� से कु छ प्र�तशत उसका मुनाफा मान �लया जाएगा, उस मुनाफ़े पर उसने आयकर भरना होगा)
- To encourage less-cash-economy, Budget-2017 had given benefits in this presumptive taxation
calculation formula, If the entrepreneur received payments in cashless format -NEFT, RTGS,
Cheque, Card etc. (यिद िड�जटल भुगतान से लेन देन कर�गे तो इस प्रणाली म� भी और �रयायत� दी जाएं गी.)
Table 4: ✋don't confuse the terms and at the same time no need for CA-giri
Income Tax on income ⇒ A direct tax levied by Union.
other than agri → ⇒ Every resident has to pay it on his taxable income.
(आयकर ) ⇒ Within that income tax: lawyers, doctors, fashion designers etc.
self-employed/freelance professionals do calculation of income
tax using Presumptive Taxation
Professional tax ⇒ It is a separate direct tax Levied by State Govt on the
(�वसाय कर) →[गैर-िकसान professionals (who are not farmers).
पेशेवर पर रा� सरकार का कर] ⇒ Constitution says it can’t be more than ₹2,500 per yr per person.
21.11.3 🍋🍋⏰Advance Tax ? (अ�ग्रम कर)
- New financial year starts from 1st April 2019 and ends on 31st March 2020.
- If everyone paid all of their direct taxes at 11:59PM on 31st March 2020, then govt. will face
money-shortage for the whole year till 31st March midnight comes.
- So, Advance Tax mechanism requires people to pay their Income tax and Corporation tax in
advance-instalments on quarterly basis (every 3-3 months), If their annual tax liability is ₹10,000
or more. (बड़े आयकरदाता और कं प�नयों ने हर तीन तीन महीने पर िक�ों म� कर जमा करना होगा)
21.11.4 👻👻 ATMA NIRBHAR BHARAT → Tax Ordinance 2020 [कर अ�ादेश]

- Traditionally financial year ends @31st March 2020. So, accordingly, people/companies deposit
the taxes, fillup the tax return-forms, buy LIC/PPF/NPS policies (for tax deduction) etc.
- But, corona lockdown → Ordinance extended deadlines to file Income tax, TDS, TCS and GST
etc. to June 2020. (कोरोना ताला-बं धी मे कराधान क� आ�खरी तारीख/अं�तम �त�थयों म� कु छ �रयायत�/ छू ट दी गई )
21.12🍋🍋🍋✂TDS & TCS

To keep track of income/payment & reduce opportunities of tax-evasion/blackmoney, Government
requires TDS/TCS to be collected in certain payments.
Who collects/cuts it? From whose payment?

TDS (खरीदार) Buyer of goods/services/investment before ⇒ Seller’s fees (e.g. wedding-
TAX making payment to the seller/investor. Examples: DJ/Catering walla)
DEDUCTED ⇒ University paying salary to employee/professor ⇒ Employee’s salary,
⇒ Depositor/ lender’s interest
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Who collects/cuts it? From whose payment?
AT SOURCE ⇒ Book Publisher paying royalty to author ⇒ Shareholder’s dividend etc.
⇒ Banker/Bond-Issuer paying Interest
⇒ Company paying dividend to shareholder
TCS (�वक्रेता) Seller of Goods/Service e.g. Luxury Car Customer who is buying
TAX Showroom Owner, Foreign Currency Seller specified types of
COLLECTED goods/services/foreign
AT SOURCE currency. (चु�नदं ा व�ुओ ं और सेवाओं
के ग्राहक)
FAQ/Moral Outrage/कु छ लोग अनाव�क �प से भावुक हो जाते ह� और झं डा लेके पीएचडी करने बेठ जाते ह�:
⇒ Whether TDS/TCS applicable on “X” thing or not? ✋Ans. not important beyond examples given in table.
⇒ Can we call TDS and TCS indirect taxes? Ans. ✋No they are administrative mechanisms to discourage black
money, they are not separate taxes. E.g. TDS that is cut from salary/dividend/bank interest= ultimately that TDS ₹₹
goes into the income tax computation of respective employee/shareholder/depositor. So it is not an indirect tax.
21.13🍋🍋�✂TAX DEDUCTED AT SOURCE (TDS): (स्रोत पर कर कटौती)
- Suppose a college pays ₹10,000 to a freelance visiting faculty or a bank/NBFC/post-office pays

₹10,000 as interest to a depositor, then how to ensure that payment-recipient (visiting faculty)
reports his income to the tax authorities, otherwise he could avoid paying taxes!!
- So, Income Tax Act requires such organizations (college) to deduct a portion of the payment at
source and deposit it to IT-dept. along with PAN card number of the recipient.
- Then, payment-recipient (visiting faculty) will be forced to file his tax return form, to unlock his
TDS amount.
- 😰😰On one side, TDS helps fighting tax evasion but on the other side, TDS also creates hardship
for lower middle-class persons, because part of their payment is cut in advance. So, in each
budget, Govt will finetune the norms, such as (कभी कभी �रयायत दी जाती है)
- Full-Budget-2019: TDS on cash withdrawal to encourage digital payments
- 2% TDS if total cash withdrawn during a financial year exceed 1 crore from a single user-
account in bank or post-office. This will encourage digital payments.
- Agricultural Produce Market Committee (APMC) Mandi traders are exempted from
above rule. More about APMC in 📑📑Pillar#4A.
- Related? Banking Cash Transaction Tax (BCTT: 2005-09) in 📑📑Pillar#2B:Black Money
- Full-Budget-2019: TDS: Other measures
- (while companies are required to cut TDS on almost every payment made to anyone, but
from now onwards) Even if an individual person is paying larger than ₹ 50 lakhs to
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contractors or professional, he’ll have to cut 5% TDS. (So tax evasion by real estate
brokers, high-profile wedding-organizers etc. can be checked.)
- 💼💼Budget-2020, 2021: some technical changes. NOTIMP for Exam#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
21.13.1 👻👻 (🍋🍋🍋✂) TDS → ATMA NIRBHAR BHARAT REFORMS
⇒ Whenever salary, contract, professional fees, interest, rent, dividend, commission, brokerage, etc.
are paid, the payment giver is required to cut a certain % of the amount as TDS and deposit to
the Income Tax Department. It helps in tracking tax evasion & tax avoidance. We had learned in
original lecture series on budget.
⇒ These TDS rate% vary as per nature of payment. (It could be 0.5% on some payment, it could be
10% on some payment etc.)
⇒ FinMin has ⏬ TDS% by 25% compared to their original rates so as to unlock ₹50,000 cr in the
hands of people. = ⏫shopping → economic revival. कोरोना के दौरान TDS दरों म� कटौती क� गई
21.13.2 🍋🍋🏎🏎✂Tax Collected at Source (TCS): (�ोत पर सं गृहीत कर)
- If Mika Singh buys an SUV car worth ₹50 lakhs, then it means he must be a rich man. How to
ensure he is paying Income Tax regularly (apart from TDS mechanism)?
- So, the car showroom owner (seller) is required to collect extra 1% from Mika (Buyer) and
deposit to IT-dept. Mika will have to file tax-return to unlock this amount.
- Does this apply on used cars? Ans. we are not here for CA exam.
- Indian residents can convert their ₹₹ into foreign currency with the help of RBI-authorized
forex dealers under, RBI’s Liberalised Remittance Scheme (LRS: More in 📑📑Pillar3).
- 💼💼Budget-2020: Authorized Forex dealers will have to cut 5% TCS while converting Indian ₹₹
into foreign currency. Similar norms on foreign tour operators.
21.13.3 🍋🍋🍋🍋Tax refund? (कर वापसी)
- A person is eligible to receive income tax refund from IT-dept IF he has paid more tax to the govt
than his actual tax liability. e.g. If college deducted 10% TDS from freelance visiting faculty
payment, but what if he was in 0% or 5% Income Tax slab? Then, Income Tax Department will
refund his money with interest.
- Similarly, GST refund can be claimed by an entrepreneur from GSTN webportal.
- 👻👻ATMA NIRBHAR BHARAT FM announced, “we’ll issue tax refunds more quickly.” So more
shopping demand ⏫→ economic revival. (�रफं ड का पैसा ज� से ज� आपके खाते म� जमा करवा द�गे)
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21.14🍋🍋MISC. DIRECT TAXES - FINANCIAL TRANSACTION TAXES (�व�ीय लेनदेन कर)
21.14.1 🍋🍋🍋🍋 (Concept) Tobin Tax / Robinhood Tax
- 1970s: Nobel recipient American economist James Tobin proposed a small tax everytime
currency is converted into another currency (e.g. $ to ₹).
- Such tax will discourage short term speculative investment and flight of capital from one country
to another = stabilizing the global economy and currency exchange rates.
- In India, foreign currency conversions subjected to (previously Service Tax) & now GST. So not
really direct tax. However, some other nations collect it as direct tax.More in pillar#3
21.14.2 🍋🍋🍋🍋STT & CTT (प्र�तभू�त लेनदेन कर और व�ु लेनदेन कर)
- Securities Transaction Tax (STT: प्र�तभू�त लेनदेन कर) is levied on the sale and purchase of shares,
ETF-units, derivatives and other securities at stock-exchanges. It's rate (0.001%-2%) varies as per
the nature of the securities. Full-Budget-2019 relaxed certain STT norms on Option contracts.
How? NOTIMP
- Commodities Transaction Tax (CTT: व�ु लेनदेन कर) is levied on non-agricultural commodities
traded at Commodities-Exchanges. Rate ~0.01%.
Table 5: Not here for C.A. Exam, #थोड़ा-पढ़ो-आगे-बढ़ो
Direct Tax By Description
Capital Gains Union Applicable when share (or any capital asset e.g. home) is “sold at
Tax Govt profit” by its previous owner.
Securities Union ⇒ Applicable on the selling price of share, bond and other securities.
Transaction Govt ⇒ Irrespective of whether seller is making profit or loss.
Tax
Dividend Union ⇒ Applicable on the dividend paid by by company to a shareholder.
Distribution Govt And 💼💼Budget-2020 abolished this tax.
Tax
State ⇒ Applies on value of share/bond/securities, immovable properties
Govt (e.g. building) and certain types of legal agreements e.g. rent
agreement etc.
⇒ Irrespective of whether seller is making profit or loss.
⇒ 2020: Union govt amended the Indian Stamp Act, 1899 so that the
Stamp Duty Stamp duty rates on share/bonds/securities become uniform across
(�ा� शु�) the states. (प्र�तभू�तयों पर �े� शु� के दरों को सभी रा�ोमे एकसमान िकया).
Union collects → distributes it to State Govt of domicile of the
buyer. (प्र�तभू�त खरीदार �जस रा� का है, उधर क� रा�सरकार को �मलेगा)
⇒ Corona crisis → Union Govt deferred implementation date to 1st
July 2020. (इसका अमल ��गत िकया गया, कोरोना के चलते)
⇒ 🎓🎓✋Further operational mechanism/rules= poor cost:benefit.
Next Handouts in Pillar#2
2A1) ✅ Direct Taxes 2A2) Indirect Taxes & GST 2B) Black Money, 15th Finance Commission
2C) Subsidies, Salaries, Revenue Expenditure, Revenue Deficit
2D) Disinvestment, Deficit, FRBM Act, Fiscal Council, Budgeting-Railway budget, plan-non plan budget, & scheme types etc.
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PILLAR #2A: BUDGET: TAXATION: Indirect Taxes & GST
Table of Contents
22 💼💼BUDGET→ ⏳REVENUE PART→ 📥📥RECEIPTS→ 🍋🍋TAX →🛒🛒 Indirect Taxes .................... 260
22.1 🍋🍋🍋🍋 Indirect Taxes: types (अप्र�� करों के प्रकार).................................................................................. 260
22.2 🍋🍋🍋🍋 Indirect Taxes: merits and demerits (लाभ व् नुकसान ) ................................................................ 261
22.3 🍋🍋🍋🍋🍋🍋🍋🍋 (Concept) Pigouvian Tax (�पगो�वयन कर)........................................................................ 261
22.3.1 🍋🍋🍋🍋🍋Cess and Surcharges on Excise & Customs .............................................................. 262
22.3.2 🍋🍋🍋🍋⛽Indirect Tax → ⛽Petrol & Diesel price high because ............................................ 262
22.3.3 🍋🍋🍋🍋⛽: GST on Petrol Diesel Electricity: NITI Aayog 6 year roadmap.............................. 262
22.3.4 ⛽Petrol-Diesel: Dynamic Fuel Pricing System & oil bond repayment ................................... 263
22.4 🍋🍋🍋🍋🍋↗�Cascading Effect of Indirect Taxes ......................................................................... 263
22.5 🍋🍋🍋🍋🍋🍋🍋🍋: Indirect Taxes: A Timeline of Reforms ...................................................................... 264
22.6 🍋🍋🍋🍋🍋🍋 Indirect Taxes → GST: Timeline (समयरेखा) ....................................................................... 266
22.7 🍋🍋🍋🍋:📙📙📙📙 GST: 101st Constitutional Amendment Act, 2016 .................................................... 267
22.8 🍋🍋🍋🍋: 🧔🧔🧔🕉🕉 GST Council: Composition? जीएसटी प�रषद............................................................ 267
22.8.1 🧔🧔🧔🕉🕉 GST Council: Functions? They’ll decide following- ............................................... 267
22.9 🍋🍋🍋🍋🍋🍋 GST Input Tax Credit (ITC: इनपुट कर प्र�य)........................................................................ 269
22.9.1 🍋🍋🍋🍋↩ Inverted Duty Structure Problem in GST on Textile .............................................. 270
22.9.2 💿💿GST: Exempt vs ZERO RATED ............................................................................................. 271
22.9.3 💉💉Vaccine GST can’t be 0% ZERO RATED or “EXEMPTED” because ............................... 271
22.10 🍋🍋🍋🍋🍋🍋🍋🍋 Centre’s Indirect Taxes subsumed in CGST .......................................................... 272
22.10.1 📈📈 GST Revenue Collection Figures: जीएसटी राज� प्रा�� के आंकड़े ............................................... 273
22.11 🍋🍋🍋🍋(�🕉🕉)🌬🌬 States’ Indirect Taxes subsumed in SGST .................................................... 275
22.12 🍋🍋🍋🍋🍋 GST Rates on Services =0%: सेवाओं पर जीएसटी क� दर........................................................ 276
22.13 🍋🍋🍋🍋🍋🍋 GST Rates on Goods : सामान पर जीएसटी क� दर� ................................................................... 277
22.13.1 🍋🍋🍋🍋Indirect Tax → 💊💊GST Rate ⏬ on Corona Related Items (2021-Jun) ................... 280
22.14 🍋🍋🍋🍋⏰🗓🗓 GST Composition Scheme (जीएसटी सं रचना योजना) ..................................................... 281
22.14.1 🍋🍋🍋🍋⏰🗓🗓 GST Mechanism: Quarterly Returns and Monthly Payment of Tax (QRMP) 281
22.14.2 🍋🍋🍋🍋: 💸💸💸💸(😈😈) 1% GST deposit in cash for controlling fake ITC claims ....................... 282
22.15 🍋🍋🍋🍋↩ Reverse Charge Mechanism (�वपरीत प्रभार क� �व�ा) ...................................................... 282
22.16 🚛🚛🚛🚛 E-way Bill System (ई-वे �बल प्रणाली) from 2018 onwards ...................................................... 283
22.17 🧔🧔 → 🤑🤑(��) Compensation to States: WHY?..................................................................... 283
22.17.1 🧔🧔 → 🤑🤑(��) Compensation to States: HOW? ............................................................... 284
22.18 🤧🤧🤧🤧:🧔🧔 → 🤑🤑(��) GST Compensation & Back2Back Loans ......................................... 285
22.18.1 🤧🤧🤧🤧🤧🤧[🧔🧔 → 🔪🔪(�� GST compensation: "back to back" loans ₹1.10 lcr ................ 285
22.18.2 🤧🤧🤧🤧🤧🤧[🧔🧔 → 🔪🔪(�� Back to Back loans: Beneficiary States..................................... 286
22.18.3 🤧🤧🤧🤧🤧🤧:⚖ GST Back to Back Loans and Fiscal Deficit / FRBM for States ....................... 286
22.18.4 ✍Conclusion : GST compensation (�न�षर्: जीएसटी मुआवजे के बारे म�)........................................... 286
(Batch:PCB5) Mrunal’s Economy Pillar#2A: Budget → Revenue Part → Indirect Taxes & GST → Page 259
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22.19 🍋🍋🍋🍋🕵🕵 GST Related Organizations (सं �ाए) ............................................................................... 286
22.19.1 🕵🕵�� Group of Ministers (GoM: मं �त्रयों का समूह) ................................................................... 286
22.19.2 Distribution of Admin. Responsibilities प्रशास�नक �ज�ेदा�रयों का �वभाजन ....................................... 287
22.19.3 ⚖🕵🕵🍕🍕 National Anti-Profiteering Authority (NAA/NAPA).............................................. 287
22.19.4 🕵🕵🍼🍼 Authority for Advance Ruling (AAR-अ�ग्रम फै सलों के �लए प्रा�धकरण)..................................... 288
22.19.5 🕵🕵💻💻GSTN Network (Not for Profit Company- मुनाफ़ा रिहत कं पनी ) ......................................... 288
22.19.6 📲📲 💻💻 Project Saksham: Digital/ICT integration (2016) ......................................................... 288
22.19.7 🔢🔢🔢🔢 HSN and SAC Codes ....................................................................................................... 289
22.20 🔢🔢🔢🔢🔢🔢 PAN vs GSTIN vs Aadhar ............................................................................................. 289
22.20.1 🔢🔢🔢🔢🔢🔢 PAN/GSTIN vs UID (=Aadhar Card) ..................................................................... 290
22.21 🍋🍋🍋🍋🍋🍋 GST: Benefits (लाभ) ......................................................................................................... 291
22.21.1 🍋🍋🍋🍋🍋🍋: ⚓ GST Benefit: Zero Rated Exports (शू� रेटेड �नयार्त ) ............................................ 293
22.22 🍋🍋🍋🍋🍋🍋 GST: Challenges for Mains & Interview (चुनौ�तयां) ........................................................ 293
22.22.1 🔢🔢🔢🔢High Rates and Multiple Slabs (उ� दर और कई �ैब) ......................................................... 293
22.22.2 🤹🤹😢😢Frequent changes harming long term business planning ............................................. 293
22.22.3 📉📉📉📉 Fall in collection (आमद म� कमी) .......................................................................................... 294
22.22.4 🤯🤯Inconvenience to Small Traders (छोटे �ापा�रयों के �लए असु�वधा)................................................ 294
22.23 ✍ GST: Conclusion Template (सार/�न�षर्) ..................................................................................... 295
22.24 ✍🎺🎺Mock Q for Mains GSM2/GSM3 (250 words each) ........................................................... 295
22 💼💼BUDGET→ ⏳REVENUE PART→ 📥📥RECEIPTS→ 🍋🍋TAX →🛒🛒 INDIRECT TAXES

बजट→ राज� भाग→ प्रा��यां→ कर→ अप्र�� कर
- 🤲🤲Tax incidence (करापात)= @Person from whom govt collects the tax. (e.g. shopkeeper)
- 😥😥Tax impact (कराघात/कर का प्रभाव) = @Person who finally bears the tax & can’t pass its burden
on further. (e.g. Consumer)
- In the indirect taxes, tax incidence and tax impact does not fall on the same person. E.g. Customs
Duty on import and export, Excise duty on manufacturing of goods, Service tax on services, Sales
Tax, Value Added Tax (VAT), and Goods and Services tax (GST).
- Indirect taxes fall under the Ambit of FinMin→ Department of Revenue (राज� �वभाग)→ Central
Board of Excise and Customs (CBEC): (क� द्रीय उ�ाद एवं सीमा शु� बोडर्) → Budget-2018 renamed it as
Central Board of Indirect Taxes and Customs (CBIC): (क� द्रीय अप्र�� कर और सीमा शु� बोडर्)
22.1 🍋🍋🍋🍋 INDIRECT TAXES: TYPES (अप्र�� करों के प्रकार)
🥤🥤 Ad- Valorem tax (यथामू� कर) 🚭🚭 Specific Tax per unit (�व�श� कर प्र�त यू�नट)
Taxes based on the value of something. E.g. Tax based on quantity of items. E.g. ₹ 260 Excise duty
35% Customs Duty on import of orange on production of every 1000 cigarettes of 65-70mm
juice. So, if juice priced at ₹1000 imported, length. Here we’re taxing them irrespective of their
then ₹350 as tax. manufacturing price or selling price.
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🥤🥤 Ad- Valorem tax (यथामू� कर) 🚭🚭 Specific Tax per unit (�व�श� कर प्र�त यू�नट)
Easier to administer. Difficult to administer, leads to inspector-raj &
[इसे िक्रया��त करना �ादा आसान है] litigation. But, if slight increase in this tax, then greater
burden passed on to the consumer so it helps reducing
harmful consumption. (How exactly? Ans.
microeconomics graph is not imp)
22.2 🍋🍋🍋🍋 INDIRECT TAXES: MERITS AND DEMERITS (लाभ व् नुकसान )
😀😀 Merits लाभ 😥😥 Demerits नुकसान
➔ Convenient (सुगम) to collect because the ➔ Regressive (प्र�तगामी) in nature, both poor and
traders act as honorary (=unpaid) tax rich taxed equally for the same item then
collectors. Wider base because everyone poor people end up paying more portion of
covered e.g. 18% GST on Biscuit. their income in indirect taxes.
➔ Elastic (लचीला): small ⬆brings large revenue, ➔ This tax is hidden in the price. Customers do
because everyone is affected. Although they’re not always feel the pinch of paying indirect
“relatively” less elastic than Direct taxes. tax so it promotes less civic consciousness
(Poor cost benefit interpreting its than direct taxes.[नाग�रक चेतना नहीं जगाता]
Microeconomics graph) ➔ Indirect taxes ⬆→ product becomes
➔ 🚭🚭 Can ⬇harmful consumption by expensive → demand ⬇ so uncertainty
imposing higher taxes on cigar, alcohol, soft involved in how much ₹ ₹ will Govt actually
drinks & fast food. (हा�नकारक पदाथ� का उपभोग कम earn?[वा�व म� िकतनी आमदनी होगी �न��तता नहीं]
करवा सकते ह�) ➔ High level of corruption, evasion, cascading
effect if input credit is not given e.g. erstwhile
sales tax system.[भ्र�ाचार, कर चोरी के अवसर]
22.3 🍋🍋🍋🍋🥂🥂🚭🚭 (CONCEPT) PIGOUVIAN TAX (�पगो�वयन कर)

- An externality (बाह्यता) is a positive or negative consequence of an economic activity experienced
by unrelated third parties. E.g. Cement company (related parties: labourers & consumers
benefit); whereas unrelated third parties (local community, flora and fauna) are harmed by
cement company’s air-pollution. [ग़ैरसं बं�धत तीसरे प� पर सकारा�क या नकारा�क असर]
- English economist Arthur C. Pigou proposed taxing the companies that create such negative
externalities: e.g. polluting industries, cigarettes (passive smoking), alcohol (social disharmony).
- We HAVE high level of indirect taxes on petroleum, tobacco and alcoholic products.
- We HAD “Clean environment cess” on Rs 400 per tonne of coal (but abolished in GST)
- Sin tax? Similar concept- imposing tax on immoral things like alcohol, tobacco. Difference
between Sin Tax vs Pigouvian tax = that pedantism/hairsplittery NOT IMP🎓🎓✋
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22.3.1 🍋🍋🍋🍋🍋Cess and Surcharges on Excise & Customs
Cess / Surcharge Description
Social Welfare - 💼💼Budget-2018 It also introduced 10% SWS on Customs Duty on
Surcharge (SWS) imported goods.
On Customs - 💼💼Budget-2021- SWS will no longer be applicable on the gold and
(समाज क�ाण अ�धभार) silver. (Because additional burden of Agriculture Infrastructure and
Development Cess (AIDC) on gold-silver. So, if SWF also levied = too
much tax burden on people= Which may encourage more smuggling
and black money, so govt exempted these goods from SWS)
Health Cess - 💼💼Budget-2020 Introduced 5% Health Cess on the customs duty on
On Customs imported medical devices (आया�तत �चिक�ा उपकरण).
(�ा� उपकर) - This Cess ₹₹ will be used for building (Ayushman Bharat scheme ke)
hospitals (to treat PM-JAY ₹5lakh health insurance-walle poor
patients) in Aspirational Districts (आकांशी-�जले=backward districts
identified by NITI Aayog.)
Agriculture - 💼💼Budget-2021 introduced this (कृ �ष अवसं रचना और �वकास उपकर)
Infrastructure and - This cess will be applicable on the Excise duty on petrol
Development Cess (cess@₹2.5/litre) and diesel (cess@₹4/litre)
On Customs - This cess will be applicable on Customs Duty on Gold silver, alcoholic
And beverages, certain types of edible oils, certain fruits, certain Pulses,
Excise Cotton, Urea/fertilizer. (Cess varies from 1.5-100% depending on item)
22.3.2 🍋🍋🍋🍋⛽Indirect Tax → ⛽Petrol & Diesel price high because

⛽🚗🚗PETROL (Approx taxes in middle of 2021) ⛽🚛🚛DIESEL
A) 🧔🧔Union Basic excise ₹1.40 + Special additional excise ₹11 + Basic excise ₹1.80 + Special
Tax ₹18 Road Infrastructure cess +₹2.50 Agriculture additional excise ₹18 + ₹18
infrastructure and development cess (AIDC) Road Infra cess +₹4 AIDC
B) �State State VAT ₹20 per litre. State VAT ₹15 per litre.
Tax
Total in India 135% taxes on base price 116% taxes on base price
=A+B
elsewhere Taxes on fuel: EU (45-60%), Canada 15-30%, USA (15%)
⇒ If above fuels are replaced with highest GST slab (28%) → hardly ₹5-6 per litre each for Union
and State = Loss of over 4 lakh cr on petrol and diesel taxes in GST system compared to present
(Excise VAT) regime.
⇒ So, cheap petrol-diesel is not possible, unless Union and State govts are willing to take deep cuts
in their revenue. Corona= direct tax collection ⏬, so govt can’t afford to reduce tax% on fuel.
22.3.3 🍋🍋🍋🍋⛽: 🗓🗓GST on Petrol Diesel Electricity: NITI Aayog 6 year roadmap
2021-Aug: NITI Aayog proposed following formula:
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⇒ 28% GST on petrol and Diesel. + Compensation Cess for States (this compensation will be
given to states for a period of six years)
⇒ 18% GST on Electricity.
✋However this is a proposal stage. Separately a case is going on at Kerala High Court. We’ll update
when/if something big happens. (अभी यह सब प्र�ा�वत है.असल म� लागू होना बाक� है. जब कु छ बड़ा होगा, तो देख�गे)
Related topic: OPEC Cartel, crude prices? Ans. (📑📑Ref: HDT-Pillar#3A: BoP)
22.3.4 ⛽Petrol-Diesel: Dynamic Fuel Pricing System & oil bond repayment
⇒ 1970s to 2002: Administered Price Mechanism (APM: प्रशा�सत/�नयं �त्रत मू� तं त्र): Wherein the
government fixed the prices of petroleum fuels and paid subsidy to the oil marketing companies
(OMC: तेल �वपणन कं प�नयां) for their losses by issuing Oil Bonds to them.
⇒ 2002-2014: Govt gradually began decontrolling fuel prices, ⏬its own subsidy burden.
⇒ Present system= Dynamic Fuel Pricing System (�धन क� ग�तशील �प से बदलने वाली मू� प्रणाली): wherein
OMCs decide the prices of petrol and diesel on DAILY basis, based on the movement in
international prices. Associated keyword/formula/methodology is “Trade parity price (TPP)”.
⚾📻📻⚾🎓🎓✋What is means, how it works? = Poor cost benefit chasing that.
⇒ 😍😍 Benefit of dynamic pricing? In theory, If the oil prices lowered in the international
market, petrol diesel should become cheaper in India. �व� बाजार म� दाम �गरने पर इं जन के दाम भारत म� भी
कम होने चािहए. But, Union and State govt keep ⏫⏫ taxes on it so it remains expensive for
common people.
⇒ 🤧🤧🤧🤧Corona crisis = ⏬ transport → ⏬ demand of crude oil → prices fallen or remained
moderate in 2020-21. (�व� बाजार म� क�े तेल क� क�मत� या तो कम �ई है या म�म �र पर रही है)
⇒ But, Corona crisis → direct tax and GST collection ⏬. Government required more ₹₹ to run
the schemes. So, ⏫ excise & VAT. (उ�ाद शु� और वैट क� दरों म� बढ़ोतरी क� गई)
- 2021-Aug: FM Sitharaman says we cannot reduce excise duty on petrol and diesel, because we
have to repay principal + interest on the oil bonds issued by the previous UPA-II government to
subsidise fuel prices in 2012-13.(मोदी सरकार ने कहा पेट�ोल डीज़ल पे उ�ाद शु� नहीं काट सकते �ोंिक कांग्रसे सरकार
ने जो पेट�ोल डीज़ल पर स��डी देने के �लए ऑयल माक� िटंग कं प�नयों को ओईल-बॉ� जारी िकए थे उसका बकाया पैसा चुकाना है)
- 2021-Nov: First time in last 3 years, Modi govt ⏬ cuts Petrol excise duty down by Rs 5/litre,
diesel by Rs 10/litre. Reason? 1) GST collection improved so Excise could be ⬇ without hurting
poverty welfare schemes 2) UP Election 3) farmers require diesel for irrigation pumpsets in
Rabi/winter season. (उ�र प्रदेश चुनाव से पहले क� द्र सरकार ने पेट�ोल डीज़ल के उ�ाद शु� म� क� कटौती)
22.4 🍋🍋🍋🍋🍋↗�CASCADING EFFECT OF INDIRECT TAXES
If a government levies 10% indirect tax every time an item is sold, then buyer will have to to pay tax
on tax. This ‘cascading effect’ of indirect taxes (अप्र�� करों का सोपानी प्रभाव) raises the price of final
product. Observe:
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Table 1:✋ <NOTIMP For UPSC. Prepare only for State Tax officers’ Jobs’ Interview>
Suppose, Price 10% Tax on price Total
Retailer bought from wholesaler ₹100 ₹10 ₹110
Retailer sold to customer with ₹10 profit ₹120 ₹12 ₹132
Breakdown the ₹132 paid by the final customer: 132=100+10+10+11+1
- 132= 100 (price of original product)+10 (tax paid by retailer to wholesaler)+10 (as retailer’s
profit margin)+11 (tax paid by customer to buy from retailer) + 1**.
- 1** this one rupee is 10% of 10(tax paid by retailer to wholesaler). So, it’s “TAX on TAX paid at
previous stage” / cascading effect of tax on the end-customer.
- Then, both buyer and seller will prefer to do transaction without bills, to entirely avoid tax
liability and its cascading effect → Govt.’s revenue collection ↓, Fiscal deficit ↑, black money ↑
- This problem can be solved, if govt gives some type of cashback, reward points or input tax credit
(ITC: इनपुट कर प्र�य) to the sellers, on the indirect taxes they’ve already paid in previous stage.
- To claim such input tax credit, the sellers will have to show the bills/ invoices for each stage =
self-policing = black money ↓.
22.5 🍋🍋🍋🍋🍋🍋🍋🍋: INDIRECT TAXES: A TIMELINE OF REFORMS
Year Who? Reform in Indirect taxation [परो� कराधान प्रणाली म� �ा सुधार िकए गए?]
1944 Union Central Excise Act (क� द्रीय उ�ाद शु� अ�ध�नयम) to levy Excise duty on goods
🧔🧔 produced/manufactured in India. Abolished on most items after GST.
1956 Union Central Sales Tax Act (क� द्रीय �बक्र� कर अ�ध�नयम) to levy tax on inter-state commerce.
🧔🧔 In practice, CST was given to the source/exporting state from where goods went to
the destination/importing state. Abolished after GST.
1962 Union Customs Act (सीमा शु� अ�ध�नयम) to levy Customs Duty on import and exports
🧔🧔 - 💼💼Budget 2018: Raised customs duty on a range of imported products—from
fruit juice, perfumes, TVs, mobile phones etc. to encourage Make in India
programme.
💼💼Interim-Budget-2019 & full Budget 2019:
- ⬆Customs duty on gold & other precious metals to control current account
deficit (more in Pill3) [�णर् तथा अ� क़�मती धातुओ ं पर सीमा शु� बढाया तािक चालू खाता घाटा
कम हो सके ]
- ⬆Customs duty on imported items like Cashew & other food items, PVC,
tiles, autoparts, CCTV camera, video recorders, electronics, imported books
etc. to encourage #MAKE-IN-INDIA [�वदेश से आया�तत चीज़ों पर बढ़ाया तािक लोग �ानीय
चीज़� �ादा ख़रीद� और �देशी उद्योग को प्रो�ाहन �मले]
- ⬇Customs duty on import of raw material / intermediate goods required for
Make in India e.g. parts of electric-vehicles, chemicals etc. [�वदेश से आया�तत क�े
माल पर सीमा शु� कम िकया था िक �ानीय उ�ादन म� मदद �मले]
💼💼Budget-2020
- ⬆On imported footwear, furniture, Wallfans, food grinder, oven, tricycle,
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scooter, earphones, etc to protect Indian companies
- ⬇ Imported raw material / inputs used in manufacturing vehicles, mobiles,
sports accessories, newspaper etc. in India #MAKE-IN-INDIA
- 0% Customs Duty on import of defense equipment that are not being
manufactured in India.
💼💼Budget-2021
- ⏫Increased On imported raw silk ethanol leather auto parts, Mobile phone
parts, Solar lamps, etc. To help domestic farmers & manufacturers
- ⏬Decreased On imported Naptha Nylon Iron Steel Copper Platinum etc to
help Local manufacturers Who use it as raw material
- ⏬Decreased Customs Duty on the items which are subjected to Agriculture
Infrastructure and Development Cess (AIDC)- To prevent additional burden
on the customers
Related concepts: Inverted Duty Structure, Countervailing Duty, Anti-Dumping
Duty, RoDTEP/MEIS etc. (More in 📑📑Pillar#3A: Import Export).
1986 Union - Modified Value Added Tax system (MODVAT:क� द्रीय �बक्र� कर सं शो�धत मू� व�धत कर
🧔🧔 प्रणाली) based on LK Jha Committee recommendations.
- Entrepreneur gets Input credit for Excise duty he already paid in previous
stage E.g. Ratan Tata getting input credit for rubber, tires and steel he bought
to make Nano car. [�पछले चरण म� जो उ�ाद शु� बढ़ा था उसक� माफ़� �मले]
- Limitation: he’ll NOT get input credit (इनपुट प्र�य) for the States’ Indirect taxes
like Sale Tax. [हालाँिक ये वाली छू ट रा� सरकार के करों म� नहीं �मलती थी]
1994 Union - FM Manmohan Singh introduces 5% Service Tax (सेवा कर) on telephone bills,
🧔🧔 non-life insurance and stock-brokers [शेयर बाज़ार के दलाल].
- Over the years, more services were subjected to Service Tax, except those in
“Negative List” (E.g. postal service, etc.). Successive govts. also increased tax
amount and added Swachh Bharat Cess & Krishi Kalyan Cess on it. [डाक सेवा
इ�ािद कु छ चु�नंदा सेवाओं को छोड़कर बाक़� सब सेवाओं पर सेवा कर लगाए जाने लगा]
- Ultimately, Service Tax+Cess = total 15%. Abolished after GST.
2004 Union - Central Value Added Tax system (CENVAT: क� द्रीय मू� व�धत कर) Entrepreneur
🧔🧔 gets Input credit for Excise Duty and Service Tax he already paid in previous
stage. [उद्योगप�त ने �पछले चरण म� जो उ�ाद शु� और सेवा कर िदया है उसक� माफ़� �मले]
- But he’d NOT get input credit for the state taxes like Sale Tax/ VAT.
2005 States - Previously, State governments levied Sales Tax on sale of goods however these
�🕉🕉 rates varied from state to state, no input credit & therefore problem of
cascading effects & tax evasion. [रा� सरकारों के �बक्र�कर म� �पछले चरण वाली माफ़� नहीं]
- From 2005 onwards, State governments begin replacing Sales Tax system with
Value Added Tax (VAT: मू� व�धत कर). Uttar Pradesh was the last state to
implement it from 2008.[िफर रा� सरकार वैट �व�ा लेकर आए जहाँ �पछले चरण पर चुकाए
गए वैट पर उद्योगप�त/�ापारी को माफ़�/ टै� क्रेिडट �मले]
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- In VAT regime, a dealer gets input credit for the VAT he already paid in the
previous stage.
- But he’d not get input credit for Union’s Indirect Taxes like Customs Duty,
Excise Duty or Service tax. He’ll not even get input credit for various other
indirect taxes of the state like Luxury Tax, Entertainment Tax, etc. which were
not subsumed in VAT. So cascading continued.[हालाँिक वेट पर �मले इस प्रकार के टै�
क्रेिडट का उपयोग अ� करों क� देयता चुकाने म� नहीं इ�ेमाल कर सकते थे इस�लए GST लाना पड़ा]
2017 Both From 1st July, 2017: Goods and Services Tax (GST: व�ु एवं सेवा कर) became
🧔🧔🧔 effective. Here, supplier gets input tax credit for indirect taxes of Union & States
(CGST,SGST) that he paid in the previous stage. [GST प्रणाली म� �पछले चरण म� चुकाए गए
परो� करों के ऊपर माफ़�/टै� क्रेिडट �मलता है]
🔠🔠❓MCQ-UPSC-Pre-2014. The sales tax you pay while purchasing a toothpaste is a:
(a) tax imposed by the Central Government
(b) tax imposed by the Central Government but collected by the State Government
(c) tax imposed by the State Government but collected by the Central Government
(d) tax imposed and collected by the State Government
🔠🔠❓MCQ-UPSC-CDS-2013-I. Which of the following are direct tax in India?
1. Corporation tax 2. Tax on income 3. Wealth tax 4. Customs duty 5. Excise duty
Ans. Codes: (a) 1, 2 and 3 (b) 1, 2, 4 and 5 (c) 2 and 3 (d) 1, 3, 4 and 5
22.6 🍋🍋🍋🍋🍋🍋 INDIRECT TAXES → GST: TIMELINE (समयरेखा)

2004 Vijay Kelkar Task Force on Fiscal Responsibility and Budget Management (FRBM)
recommends GST. [�वजय के लकर स�म�त ने GST लागू करने क� �सफ़ा�रश क�]
2006 In Budget speech, P.Chidambaram announces the launch of GST from 2010
2011 UPA government introduces 115th Amendment Bill 2011 to implement GST lapsed with
the dissolution of 15th Lok Sabha. (लोकसभा �वघटन चलते ये �वधेयक पास नहीं हो पाया)
2014-16 Modi govt. introduces 122nd Constitutional Amendment Bill 2014 in 16th Lok Sabha.
Since GST aimed to change federal financial relations, so under Art.368, this
constitutional bill required:
- @Union Parliament Lok Sabha and Rajya Sabha each:_50% majority of the total
membership, and 2/3rd majority of all members present and voting.
- @State Vidhan Sabha: approval by majority of state assemblies (i.e. 15 Vidhan-
sabhas of India at that time)
Ultimately, it passed & became
- 101st Constitutional Amendment Act, 2016 (सं वैधा�नक सं शोधन अ�ध�नयम/ क़ानून)
SIDE NOTE: other imp amendments Acts
- 102nd , 2018: Constitutional status to National Commission for Backward Classes
(NCTC को सं वैधा�नक दजार् िदया जाए)
- 103rd , 2019: 10% EWS reservation (आ�थक �प से �पछड़े वगर् के �लए आर�ण)
- 104th , 2020: Anglo Indian reservation removed in LS & Vidhan shaba but SC/ST
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continued till January 25, 2030. (एं �ो भारतीय समुदाय का आर�ण हटाया)
- 105th, 2021: To restore states' power to make their own OBC lists- After SC
judgement (रा� सरकार अपनी OBC सूची बना सके )
22.7 🍋🍋🍋🍋:📙📙📙📙 GST: 101ST CONSTITUTIONAL AMENDMENT ACT, 2016
101 वां सं वैधा�नक सं शोधन अ�ध�नयम, 2016 amended following articles in our Constitution.
246-A - States given power to tax goods and services. (previously, they couldn’t tax services.)
- But only UNION will have the power to tax inter-state supply of goods and services
in the form of “IGST” (एक रा� से दू सरे रा� म� व�ु और सेवा क� आपू�त पर के वल क� द्र सरकार टै�
माँग सकता है �जसे IGST कहा जाएगा)
268-A Previously, this article empowered Union to levy Service Tax. But, since tax on services
has been brought under GST, this article was deleted. (सेवा कर को हटाया गया)
269-A IGST (on inter-state trade) will be distributed between Union and states, as per the
formula by the GST Council (जीएसटी प�रषद)
270 CGST (=new indirect tax of Union, which replaced Excise Duty & Service Tax)..this
CGST will be distributed between union and states as per the formula by the Finance
Commission (�व� आयोग �सफ़ा�रशों के अनुसार CGST को क� द्र और रा�ों म� बाँटा जाएगा)
279-A President of India to appoint a constitutional body, “GST Council headed by Finance
Minister. ” (जीएसटी प�रषद िक �नयु�� रा��प�त कर�गे, और �वत् मं त्री इस प�रषद का अ�� होगा)
366 🥂🥂 Alcoholic liquor for human consumption (मिदरा) is kept out of GST. (i.e. State govt
continue to levy State Excise on its production and State VAT on its sale.)
22.8 🍋🍋🍋🍋: 🧔🧔🧔🕉🕉 GST COUNCIL: COMPOSITION? जीएसटी प�रषद
🧔🧔Union representatives (2 प्र�त�न�ध) �🕉🕉 States’ representatives (31)
1. Finance Minister as the Chairman - Each state government (including UT with
2. Union Minister of State for finance or legislature: J&K, Delhi & Puducherry) can
revenue. (�व� या राज� के क� द्रीय रा� मं त्री) nominate 1minister to GST council- it may
be their minister of finance or Dy.CM or any
other minister as per their wish.
- One of them will be selected as the Vice-
Chairman of GST council.
🗳🗳 Voting power: 1/3rd (एक �तहाई) 🗳🗳 Voting power: 2/3rd
✓ If all members don’t no unanimously agree over a proposal (यिद िकसी प्र�ाव पर सवर्स��त नहीं, तो वोिटंग
होगा) → it’ll be put for voting → then minimum 3/4th votes required to pass the proposal.
✓ Council Meetings to proceed only with quorum of 50% of total membership.(अ�नवायर् �ूनतम हा�ज़री)
22.8.1 🧔🧔🧔🕉🕉 GST Council: Functions? They’ll decide following-
1. List of indirect taxes, cess, surcharge of the union and states to be subsumed under GST-regime.
(पुराने करो को जीएसटी-�व�ा म� स��लत/ �वलीन करना)
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2. Decide the date from which Crude oil, Petrol, Diesel, Aviation Turbine Fuel and Natural Gas will
be put under GST regime. (Until then excise-VAT on these five hydrocarbon fuel products, will
be unilaterally decided by Union and individual States). [कौन सी तारीख़ से इन पाँच चीज़ों पर GST लगाना है]
3. Decide Standard rates (सामा� दर) for GST (i.e. CGST, SGST and UTGST). IGST = {CGST +
(SGST or UTGST depending on destination)}
4. Decide Special rates (�व�श� दर) for GST, during natural disaster / calamity if required.
a. E.g. 2019-Jan, GST-Council also allowed Kerala to levy a 1% calamity cess (आपदा उपकर)
on intra-state trade for next two years, for the rehabilitation of 2018’s flood-victims.
5. Integrated GST (IGST) system during interstate commerce, and its tax-sharing.[]
6. Norms related to GST registration of businessmen. If a goods selling Bizman has turnover above
“x” lakhs, he must register @GSTN online portal, he must collect GST from consumers and
deposit it there. Originally the “x” was ₹20 lakhs for ordinary states; ₹10 lakhs for Sp.cat states &
Telengana. However, in 2019-Jan the GST council doubled this limit to ₹40l & ₹20l respectively
(Turnover limits for service seller bizmen in Manipur, Mizoram etc separate but hairsplittery not
REQ, not here for C.A. Exam).[�ापारी/उद्योगप�त/आपू�तकतार् के पं जीकरण के �लए �नयम बनाएगा]
7. Protecting the interests of the special category states (खास श्रेणी के रा�) i.e. 8 North Eastern states
and Himalayan states (Himachal and Uttarakhand.) e.g. 2021-Sikkim proposed to levy Covid
Cess on pharmaceutical companies and electricity companies to collect money for Corona wave
2.0. But, GST Council’s group of ministers (GoM) committee rejected Covid Cess proposal.
However GoM committee recommended Union Govt to give ₹250 crore grant/compensation to
Sikkim for fighting Covid Wave 2.0. (कोरोना क� दू सरी लहर से लड़ने के �लए �स��म को मुआवज़ा/अनुदान)
8. Compensation to the states for their revenue loss in switching from VAT to GST regime
(through Cess mechanism: रा�ो को उपकर द्वारा मुआवजा)
9. Dispute settlement between Union vs state(s), state(s) vs state(s). (�ववाद �नपटान)
So, Constitutional Amendment→ set up GST council → GST council’s meeting→ laws passed by
Parliament and Vidhan Sabhas, to implement the GST related mechanisms.
1. 🧔🧔 Parliament has passed:
✓ Central Goods & Services Tax Act (CGST: क� द्रीय व�ु एवं सेवा कर अ�ध�नयम)
✓ Integrated Goods & Services Tax Act (IGST: एक�कृ त माल और सेवा कर अ�ध�नयम)
✓ Union Territory Goods & Services Tax Act (UTGST: क� द्र शा�सत प्रदेश माल और सेवा कर
अ�ध�नयम): Finance Act 2020 → amends UTGST Act to update list of UTs:
i. (new) Ladakh without legislature.
ii. (merged) 1) Dadra and Nagar Haveli + 2) Daman and Diu = treated as single UT
(because Govt merged them in 2019).
✓ Goods and Services Tax (Compensation to States) Amendment Act. माल और सेवा कर (रा�ों
को मुआवजा) सं शोधन अ�ध�नयम
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✓ Parliament originally passed them 2017, later amended in 2018 As per the
recommendations of the GST Council.
2. �🕉🕉 State Legislatures have passed State Goods and Services Tax Acts. (SGST)
3. �☪Jammu & Kashmir passed SGST Act on 8th July, 2017→ then GST system became
effective there as well. JAMMU AND KASHMIR REORGANISATION ACT, 2019 has not
abolished this SGST act. Present status is:
✓ SGST applicable on J&K (UT with Legislature:�वधा�यका यु� क� द्रशा�सत प्रदेश)
✓ UTGST on Ladakh (UT without Legi: �वधा�यका-हीन क� द्रशा�सत प्रदेश)
�🕉🕉🕉☪ Stereotyping helps in faster revision
22.9 🍋🍋🍋🍋🍋🍋 GST INPUT TAX CREDIT (ITC: इनपुट कर प्र�य)
• GST is a ‘destination based’ indirect tax on consumption of goods & services.(GST उपभोग पर लगने
वाला ‘�ान-आधा�रत’ अप्र�� कर है)
• GST is applicable on supply of goods or services. (व�ुओ ं और सेवाओं क� आपू�त पर लगता है)
Table 2: When Goods / Services (produced &) supplied →
in same the State (or UT without legislature) = in another State (or UT w/o LSR)
Intra-state supply (अंत:रा�) = Inter-state supply (अंतररा�ीय)
🧔🧔(�🕉🕉 → �🕉🕉) 🧔🧔(�🕉🕉 → �☪)
1. 🧔🧔Union levies →CGST 1. 🧔🧔Union levies IGST =CGST + (SGST or

2. �🕉🕉 State levies → SGST UTGST depending on destination).
3. UT without legislature levies → UTGST 2. From this IGST→ CGST goes to Union, and
the other portion goes to the �☪
Destination State/UT without legislature.
Table 3: Suppose in Jan-2021: a Gujarat based Calendar printing company is doing following
Bought (Input) in 2021-January Price ₹ CGST SGST IGST, if inter-state
(Guj) supply
Printer from Mumbai @18% GST 1 lakh N/A N/A 18k
Ink from a factory in Guj @18% GST 10k 900 900 N/A
Paper from Himachal @12% GST 20k N/A N/A 2400
Total 1.30 lac 900 900 20,400
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Table 4: Suppose company manufactures (prints) and sells calendars @₹100 each, @12% GST
Sold (Output) in 2021-January Price CGST SGST Guj) IGST, if inter-state supply
500 Calendars within Gujarat 50k 3000 3000 N/A
500 Calendars to Rajasthan 50k N/A N/A 6000
Total 100k 3000 3000 6000
So, how much tax will the Calendar company have to deposit online at the GSTN webportal?
GST liability in 2021-January CGST SGST (Guj) IGST
GST Taxes collected on Output (from wholesalers, 3000 3000 6000
retailers or customers)
MINUS GST Taxes paid on Input (in previous stage -900 -900 -20,400
for raw material, intermediate goods)
=Company must deposit how much tax @GSTN 2100 2100 -14400**
webportal?
** this is the input tax credit (ITC) company can use for offsetting its tax-liability in future.
- Suppose in Feb-2021, company did not purchase any inputs and sold 1,500 calendars in
Tamilnadu @₹100 each = ₹ 1,50,000 + 18,000 (IGST) it must have collected from the
Wholesalers/ retailers/ end-customers of Tamilnadu.
- But in Feb-2019, Company need not deposit ₹18000 @GSTN webportal, because already it
has ₹14400 IGST credit🤑🤑 so Company only needs to deposit 18000 MINUS 14400= ₹3600.
- Cross-utilization of ITC🤑🤑:
- IGST credit can be used for payment of all GST taxes.
- CGST credit can be used only for paying CGST or IGST.
- SGST credit can be used only for paying SGST or IGST.
If the goods or services are sold in union territory without legislature, then instead of SGST, they
(practically the Union Govt) will levy UTGST but the funda will remain similar as above.
22.9.1 🍋🍋🍋🍋↩👚👚 Inverted Duty Structure Problem in GST on Textile

An inverted duty structure in GST arises when the taxes on output or final product is lower than the
taxes on inputs, creating an inverse accumulation of input tax credit- then government has to refund
the GST to the business man. = administrative & accounting inconvenience for the govt.
Input Raw material Output Final Product Implication

Fiber (रेसा) 18% GST Apparel shirt/pants etc. Trader will accumulate
= 5% GST (व�) 13% GST credit. Govt
will have to refund.
AFTER Reform: GST council imposed Uniform 12% GST on manmade fibre (MMF), yarn, fabrics
and apparels, footwear. (जीएसटी म� एक उ�ा शु� सं रचना: यिद क�े माल जेसे के कपड़ा ख़रीद पर उधयोगप�त ने 18 पस�ट
जीएसटी टै� देना पड़े और उसम� से तैयार िकए गए शटर्-पतलून क� �बक्र� पर 5% GST लगता हो तो, तो असल म� सरकार ने उस
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उधयोगप�त को 13% GST refund देना होगा। इस िहसाब-िकताब और �रफ़ं ड क� माथाप�ी से बचने के �लए कपड़ा-जुते के क�े माल
और अं�तम उ�ाद पर एक समान 12% जीएसटी लगाया जाएगा )
22.9.2 💿💿GST: Exempt vs ZERO RATED

💿💿GST ZERO RATED (0%) GST EXEMPT/NIL RATED 🥂🥂NON-GST Supply
IF Govt levies 0% GST on IF Govt levies 0% GST, & These goods/services are NOT
the Goods/Services & ✋DOESNOT allow Bizman to subjected to GST. They are
✅ALLOWS bizman to claim ITC. E.g. Jaggery (ग�े का subjected to other taxes. E.g.
claim ITC. For example: गुड़). ⇒ Petrol,Diesel etc 5
⇒ 18% GST on laptop ⇒ So if Bizman bought a hydrocarbon products=
bought by Infosys machine for crushing Excise & VAT.
Company (Input) sugarcane → he’ll not get ⇒ 🥂🥂Alcohol for human
⇒ 0% GST on EXPORT of ITC consumption = State
Software Services ⇒ So, then. to recover the Excise & VAT
(Output). cost+tax on input, Bizman
⇒ Here, Indian software may charge more selling
company will price of jaggery on
accumulate / gain 18% customer.
GST. ##
GST-ITC Given = YES🤩🤩 GST-ITC Given = NO✋ GST-ITC Given = NO✋
- In Software EXPORT case, Infosys Company gained ITC. So, A) Govt will REFUND and/or B)
Infosys can use this ITC for adjusting/offsetting future sales within India.
- In both case A and B case, ultimately govt will not be able to earn GST from Infosys, however
government benefits from the increased exports→ jobs, GDP. Besides, more profit for Infosys in
export = more Corporation Tax for Govt.🤩🤩
22.9.3 💉💉Vaccine GST can’t be 0% ZERO RATED or “EXEMPTED” because

Present situation ✈Export of Vaccine 🚛🚛Domestic Sale of Vaccine
Vaccine → 0% GST (Zero Rated) 5% GST
⇒ If Vaccines domestic sales pe 0% GST (ZERO RATED) = Businessman will accumulate large
amount of ITC. Govt will have to refund. = Less tax collection for Govt. 😰😰
⇒ If Vaccines’ domestic sales pe GST EXEMPT/NIL RATED = Businessman will NOT get any ITC
on raw material /machines → he’ll ⏫ price of vaccine on patient.😰😰 (similar to Sugarcane
machine-Jaggery case).
वै�ीन को GST दायरे से बाहर नहीं िकया गया �ोंिक ऐसा करने पर फामार्�ूिटकल कं पनी को क�े माल क� ख़रीदारी पर अदा िकया गया
GST माफ़� भी नहीं �मलेगा तो ग्राहक पर क़�मतों का बोझ बढ़ता है.
😤😤MORAL Outrage: Isn’t there an inconsistency in logic/will there not be inverted duty structure
problem in Vaccine mfg similar to Textile? Ans. GST council decides rates based on variety of
factors like what are the tax rates on the inputs and how much GST-losses for the government versus
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the benefit to the ordinary patients etc. If you get selected in IRS they will teach it to you there. सरकार
अपना िदमाग़ लगाकर रेट �नधार्�रत करती हे, अपने को झं डा लेके पीएचडी करने क� ज़�रत निह।
22.10 🍋🍋🍋🍋🍋🍋🍋🍋 CENTRE’S INDIRECT TAXES SUBSUMED IN CGST

Table 5: क� द्र के अप्र�� कर जो क� द्रीय व�ु एवं सेवा कर (सीजीएसटी) म� �वलीन हो गए
Indirect Tax of Union Whether replaced by CGST?
⚓For import-export: Basic - No, Customs Duty is NOT replaced with GST. It’s
Customs Duty, cess / surcharge on separate from GST-regime. So, imported goods are
it. subjected to Customs duty + IGST.
सीमा शु� और �व�भ� उपकर / अ�धभार - Previously, imported goods were subject to Customs
Duty + education cess (�श�ा उपकर) but Budget 2018
replaced it with Customs Duty + 10% Social Welfare
Surcharge (समाज क�ाण अ�धभार).
- 💼💼Budget-2020: 5% Health CESS (�ा� उपकर) on
imported medical devices (�चिक�ा उपकरण) for hospitals
construction in Aspirational (=backward) Districts.
⚓On imports: Special Additional They’re not ‘replaced’ with CGST. More about t them in
Customs Duty (SAD), (More in 📑📑Pillar#3B: World Trade Organization)
Countervailing Duty (CVD), Anti-
Dumping Duty (ADD)
Central Sales Tax CST was the Union tax levied on sale of items in inter-state
(CST-क� द्रीय �बक्र� कर) trade, and it was assigned to the ‘Origin state’. It’s replaced
with IGST (= CGST + SGST) एक रा� से दू सरे रा� म� माल सामान
बेचने पर ये कर लगता था हालांिक उद्गम रा� को क� द्र सरकार यह रकम देता था
�On providing services: Service Yes, completely replaced by CGST. These previous cess /
tax (सेवा कर) and Krishi Kalyan Cess surcharge are deleted. [GST आने पर ये सारी चीज़ ख़� हो चुक� है]
and Swatchh bharat Cess
�On manufacturing/production - Yes, completely replaced by CGST (except 5
of goods: Excise duty and various hydrocarbon fuels: petrol, diesel etc.)
Cess / surcharges on it.(उ�ाद शु� और - Excise on manufacturing medicinal & toiletry
�व�भ� उपकर / अ�धभार) preparations containing alcohol (e.g. Cough syrups,
deodorants and perfumes) also replaced by CGST.
- Alcoholic Liquor for human consumption- falls in States’
purview so Union Excise / CGST not applicable on it.
🚭🚭Excise duty on Tobacco products - It’s replaced with 14% CGST. Further, Union also levies
[तं बाकू उ�ादों पर उ�ाद शु�] + GST Compensation Cess + National Calamity
Contingency Duty** (NCCD:-रा��ीय आपदा आक��कता ड्यूटी)
on them.
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Indirect Tax of Union Whether replaced by CGST?
- **because 101st Constitutional Amendment allows
Union to tax tobacco products separately.
- NCCD money goes to Public Account → National
Disaster Response Fund set up under Disaster
Management Act, 2005.
⛽Excise duty on - Once GST council decides the date they’ll be brought
production/refining of Crude oil, under GST-regime. अभी जीएसटी नहीं लगता. भ�व� म� जीएसटी
Petrol (Motor Spirit), Diesel, प�रषद तय करेगी उसके बाद लगेगा.
Aviation Turbine Fuel and natural - Until then refineries / oil-drilling companies have to pay
gas: क�े तेल, पेट�ोल (मोटर ��रट), डीजल, excise duty+cess/surcharges to Union for production /
�वमानन टरबाइन �धन और प्राकृ �तक गेस पर manufacturing of these items. (and petrol pump owner,
उ�ाद शु� etc will have to pay VAT to states on their sale.)
- Presently, Petrol & Diesel are also subjected to Union’s
Road and Infrastructure Cess (सड़क और बु�नयादी ढांचा उपकर)
its ₹₹ goes into Public Account→ Central Road &
Infrastructure Fund under Central Road Fund Act 2000.
🍋🍋🍋🍋Corporation Tax, Income ⇒ 👿👿Arre Bhai, they’re 🍋🍋🍋🍋DIRECT Taxes of Union, so
Tax, Capital Gains Tax etc [�नगम कर, they are not replaced by GST. ये सब प्र�� कर है.
आयकर और पूंजीगत लाभ कर] ⇒ The GST is meant to replace 🍋🍋🍋🍋🍋🍋 INDIRECT
Taxes only. जीएसटी के वल परो� करों के साथ जुडा है
22.10.1 📈📈 GST Revenue Collection Figures: जीएसटी राज� प्रा�� के आंकड़े
GST registered suppliers have to deposit the GST at the GSTN portal on monthly basis ( except those
who opted for the GST composition scheme).
In monthly collection of GST, there are ups and downs based on seasonality.
Year/Month 2017 monthly avg. 2018 monthly avg. 2019 and 2021
GST collection 89700 cr 98114 cr Given in graph below.
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Table 6: Data from 💼💼बजेट (Approx. Amount)
Year → 2019-20 2020-21 (BE 2020-21 (Revised 2021-22 (BE:
(Note: this is including Cess & on 1st Feb Estimates on 1st Feb Budget
Surcharge) 2020) 2021) Estimates)
🏢🏢 Corporation Tax (direct tax) 5.56 Lcr 6.81 Lcr 4.46 Lcr 5.47 Lcr
� Income Tax (direct tax) 4.92 Lcr 6.38 Lcr 4.59 Lcr 5.61 Lcr
⛽- Excise Duty (petrol, diesel 2.48 Lcr 2.67 Lcr 3.61 Lcr (⏫ than 3.35 Lcr⏬
etc.) & expected bcoz govt
🚭🚭- National Calamity kept raising excise
Contingent Duty on Tobacco on petrol diesel)
⚓Customs Duty 1.25 Lcr 1.38 Lcr 1.12 Lcr (bcoz 1.36 Lcr⏫
⏬Corona =⏬
import export)
👨👨A) CGST 5.14 Lcr 5.80 Lcr 4.31 Lcr (⏬) 5.30 Lcr⏫
👨👨👨👨B) IGST Not mentioned separately
C) GST compensation Cess 98k cr 1.10 Lcr 84kcr⏬ 1.00 Lcr⏫

GST collected by Union=A+B+C 6.12 Lcr 6.90 Lcr 5.15Lcr⏬ 6.30 Lcr⏫
Table 7: कौनसे करो म� सबसे �ादा आमदनी होगी सबसे �ादा आमदनी होगी
Upto 💼💼Budget 🏢🏢 Corporation> 🛒🛒GST>�IT >⛽Excise> ⚓ Customs >🗃🗃STT
Estimate-2019 (Securities Transaction Tax)
Revised Est 2019 🛒🛒GST>🏢🏢 Corporation >�IT >⛽Excise> ⚓ Customs >🗃🗃STT
💼💼Budget-2020 (BE) 🛒🛒GST>🏢🏢 Corporation >�IT >⛽Excise> ⚓ Customs >🗃🗃STT
(Budget Estimates on 1/2/2020) बजट अनुमान
💼💼Budget-2020 🛒🛒GST>�IT >🏢🏢 Corporation >⛽Excise> ⚓ Customs >🗃🗃STT
(RE: revised Estimates on 1/2/2021) सं शो�धत अनुमान
💼💼Budget-2021 (BE) 🛒🛒GST>�IT >🏢🏢 Corporation >⛽Excise> ⚓ Customs >🗃🗃STT
(Budget Estimates on 1/2/2021) बजट अनुमान
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22.11 🍋🍋🍋🍋(�🕉🕉)🌬🌬 STATES’ INDIRECT TAXES SUBSUMED IN SGST
Table 8: रा�ों के अप्र�� कर जो रा� व�ु एवं सेवा कर (एसजीएसटी) म� �वलीन हो गए
�🕉🕉: Indirect Tax of State Govt. → whether replaced by SGST?
🛒🛒On sale of goods: State Value Added Tax ✅Yes, By default VAT is replaced by SGST, but read
(VAT) (In some states called “Commercial below:
tax” वा�ण��क कर)
🛒🛒⛽State VAT on selling of Crude oil, ✋Once GST council decides the date, these’ll be
Petrol (Motor Spirit), Diesel, Aviation brought under GST-regime. Until then, petrol pump
Turbine Fuel and natural gas [�धन �बक्र� पर रा� owners, LPG gas distributors etc. will have to collect
सरकार क� वेट कर] VAT (+ any cess / surcharges) from the customers
and deposit to the state government.
- 🥂🥂 State Excise on production of liquor ✋No, they're completely kept out of GST. [unlike
for human consumption (मानव उपभोग के above ⛽petro items where GST council will
�लए बनी शराब के उ�ादन पर रा� उ�ाद शु�) implement it after “x” date]. Since inception of our
- 🥂🥂 State VAT on sale of liquor for Constitution, the power to tax 🥂🥂 liquor was with
human consumption. (मानव उपभोग के �लए �🕉🕉:States, & it constituted a major source of
बनी शराब/ म�दरा क� �बक्र� पर रा� वैट) revenue for them, so States were unwilling to hand it
over in GST regime. Had 🧔🧔Modi govt tried to bring
liquor in GST-regime, then majority of the Vidhan-
Sabhas may not have passed this Constitutional
Amendment Bill.
⚡Electricity Duty �बजली शु� ✋No, it’s not replaced by SGST
🚗🚗Road Tax on vehicles. ✋No, it’s not replaced by SGST. Its status as
direct/indirect tax is vague because in some states/
vehicle categories: buyer himself deposits while in
some cases, seller required to collect & deposit.
🚗🚗Purchase tax on vehicle, boats, and ✅Yes replaced by SGST
animals-खरीद कर
🏗🏗Advertisement tax on hoarding, banners ✅Yes replaced by SGST
etc.- �व�ापन कर
⛱Luxury tax at Hotels, Spas, Resorts etc.- ✅Yes replaced by SGST
अ�ाशी �वला�सता कर
🚛🚛Entry tax/Octroi for entry of goods in an ✅Yes replaced by SGST
area -प्रवेश के �लए कर , ऑ��ोई
🐎🐎Taxes on Lottery, horse race betting, ✅Yes replaced by SGST. Since they’re
gambling etc. लॉटरी, घोड़े क� दौड़ सट्टेबाजी, जुआ ‘sinful/demerit goods’, they’re subjected to highest
slab : 14% SGST + 14% CGST = 28%
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📽📽Entertainment Tax on Cinema, Live ✅Yes, replaced by SGST unless levied by a local
Performance shows etc.- मनोरंजन कर body. e.g. Kerala local bodies 10% on movie tickets.
🍋🍋🍋🍋Income tax on Agriculture, 👿👿Arre Bhai, they’re 🍋🍋🍋🍋DIRECT Taxes of State
Professional tax, Property tax, Stamp Duty, so not replaced by GST. The GST is meant to replace
Land revenue [कृ �ष आय कर, �ावसा�यक कर इ�ािद] 🍋🍋🍋🍋🍋🍋 INDIRECT Taxes only.
22.12 🍋🍋🍋🍋🍋 GST RATES ON SERVICES =0%: सेवाओं पर जीएसटी क� दर
Which of following is ZERO Rated & which one is NIL Rated/EXEMPT? Ans. Poor cost:benefit.
1. Services provided by union government, state government, local bodies, constitutional bodies,
department of post (except premium services like speed post), Railways (except premium
services like first class AC ticket)
2. Services by Reserve Bank of India and other financial regulators.
3. Services by Banks/NBFCs in connection with Government sponsored banking, insurance and
pension schemes. (Refer to financial inclusion handout)
4. Group insurance schemes for paramilitary forces
5. ESIC, EPFO services to the subscribers
6. Religious, charitable activities, cooperative societies, Public libraries, Public toilets,
Crematorium, Burial grounds.
7. Hotel room rent less than ₹ 1000 per day, Rent on residential accommodation
8. Aviation Services in North-eastern States
9. Transport services to milk, (physical/paperbased) newspaper, defence equipment, relief material
during disasters etc.
10. Doctors, para-medics, Ambulance, Blood bank.
11. Agriculture warehouse, cold storage, renting of Agro machinery, Contractor who is supplying
farm labourers, APMC (Agricultural produce market committee)
12. Agriculture pre-processing of food e.g. ripening, waxing, retail packing, labelling of fruits and
vegetables which do not change essential characteristics of the said fruits or vegetables.
13. Veterinary doctor, Animal husbandry related services except racehorses
14. � Educational services by Educational Institutes (like schools colleges universities Vocational
institutes. NOT COACHING Institutes)
15. Private training partners in government skill development schemes
16. Sports training and events by recognised sports body
17. Sports, Art, Culture etc. clubs with member-fees less than “X” rupees.
18. Circus, dance, drama or ballet, award function, concert, pageant, musical performance or any
sporting event where admission fees is less than “X” rupees.
19. Admission to a museum, national park, wildlife sanctuary, tiger reserve, zoo, ASI-recognized
Heritage sites.
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20. 2020-Oct decision: satellite launch services supplied by ISRO, Antrix Corporation Ltd. and NSIL
would be exempted. (More about these organizations in (More in 📑📑Pillar#5: communication
infrastructure)
21. Any service EXPORTED outside India (THEY ARE “ZERO RATED Export”)
In the Pre-GST era, most of above services were having 0% Service Tax. वतर्मान म� उ� पर 0% जीएसटी
लगता, उसी प्रकार भूतकाल म� जब ‘सेवा-कर’ था तो वो भी इनम� से �ादातर सेवाओं पर 0% था.
If a given service is not in the above list, then it will be subjected to GST: <see next table>
Example of services (कु छ उदाहरण सेवाओं If supplied in the same If supplied to another State or
के �जन पर GST लगता है) State or UT w/o LSR then UT w/o LSR (: IGST)
(�🚛🚛🚛) (�🚛🚛🚛🚛)
Plumbing, carpentering, Ads in print - 🧔🧔Union gets 2.5% IGST 5% (its bifurcation is same
media, Ebooks CGST like left cell. Union gets half in
- �State/UT gets 2.5% CGST, and other half goes to
SGST or UTGST “DESTINATION” State/UT as
SGST/UTGST amount.
- Accommodation in hotels, inns, Similar as above but 6+6 IGST 12%

guest houses with daily charges
₹1,000 to 7500/-
- Movie tickets upto Rs. “x”
(presently ₹100)
- Engineering related services
- � Coaching Services, Similar as above but 9+9 IGST 18%

- Online Information Database
Access and Retrieval such as e-
book, e-newspaper, e-music,
WebSeries/OTT platforms-
AmazonPrime, Hotstar etc.
- Ads in digital media,
- Legal and accounting services
- DTH/TV channels, Movie tickets
above Rs.“x”
- - Hotel rooms ₹ >7500 per day
🏇🏇Gambling, Horse Race club, Similar as above but 14+14 IGST 28%
Casino
For more, you may refer to: https://cbec-gst.gov.in/gst-goods-services-rates.html
22.13 🍋🍋🍋🍋🍋🍋 GST RATES ON GOODS : सामान पर जीएसटी क� दर�
Which of following is ZERO Rated & which one is NIL Rated/EXEMPT? Ans. Poor cost:benefit.
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1. Fresh milk, Pasteurized Milk
2. Live animals (except race horses), poultry, pigs, shrimps, fishes, insects etc. and their
“UNBRANDED” eggs, meat, honey, rawsilk etc. fresh products.
3. 🍋🍋Fresh flowers, leaves, fruits vegetables, unroasted coffee beans & tea leaves, Salt.
4. Unbranded grain crops/ cash crops like wheat, maze, rice, oat, barley, coconut, sugarcane etc &
their unbranded flour, jaggery; seeds for sowing.
5. Bread (**except when served in Restaurant/ pizza)
6. Prasadam supplied by religious places. (धा�मक �ानों द्वारा िदया जाने वाला प्रसाद)
7. Deities made of stone, marble or wood; Puja Samagri like Rudraksha, Panchamrit
8. Rakhi, Kumkum, Bindi, Sindur, Plastic / glass bangles without precious metal.
9. Fresh unpacked - water, coconut water, Non-alcoholic Toddy, Neera
10. Human blood, contraceptives, sanitary napkins, tampoons, hearing aid
11. Tocilizumab (Corona Drug), Amphotericin B (Black Fungus Drug) (From 2021-Jun)
12. Electricity, Firewood (�बजली और जलाने क� लकड़ी)
13. Judicial / Non-judicial stamp papers, Court fee stamps, ordinary post cards etc.
14. Printed Books, Maps, Cheque Books; physical edition of Newspapers, journals, periodicals
irrespective of whether they have advertisement or not.
15. Khadi sold by Khadi and Village Industries Commission(KVIC) certified outlets
16. Gandhi topi, Charkha, national flag, Earthen pot, clay idols
17. Agricultural hand tools like spade, axes, sickle.
18. When a constitutional / public authority auctions the gifts received by him.
19. Spacecraft, satellites and their launch vehicles.
20. Import of specified defense goods not manufactured in India
21. Free sample or gift given. E.g. “Offer: Toothpaste pe toothbrush FREE” then only Toothpaste
subjected to GST. No gst on that free-toothbrush. (ग्राहक को लुभाने के �लए मु� म� िदया जाने वाला स�पल)
22. Any Goods EXPORTED outside India (technically called “ZERO RATED Export”)
If a given goods is not in the above 0% list (and not kept out the GST-regime like Petrol-Diesel-
Daaru), then it will be subjected to GST: such as:
Example of Goods (list not If supplied in the same If supplied to another State or
exhaustive) State or UT w/o LSR UT w/o LSR (: IGST)
Diamond, Semi-precious stones like Union gets 0.125% CGST IGST 0.25% (its bifurcation is
agate, amber, topaz, lapis lazuli etc. same as left cell. But
State/UT gets 0.125% “DESTINATION” state/UT gets
SGST or UTGST the SGST/UTGST portion)
Jewellery, Pearls, Gold, platinum, Similar as above IGST 3% (funda same as above)
silver etc. 1.5%+1.5%
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Milk powder, Baby food, Pizza bread, 2.5%+2.5% IGST 5%

Mineral ores, certain medicines
💊💊Corona related drugs/devices:
💉💉Vaccines, Remdesivir, Oxygen
Concentrator, Ventilator, Covid
Testing Kits, Pulse Oximeters, 🌡🌡
Temperature check equipment,
🧴🧴Hand Sanitizer, crematorium
furnaces
Fruit Jams, Butter, Cheese, Canned 6%+6% IGST 12%

Fish, Sugar cubes, Textile, certain
medicines & surgical items, Railway
wagon, electric car & its chargers
🚑🚑Ambulances
➢ Ice cream, cakes, biscuits; 9%+9% IGST 18%

➢ Soap, perfume, paint
➢ Electronics, Computer & Mobile
accessories
➢ Certain medicines
➢ Alcohol based hand sanitizers
➢ Paint, Polish, Wax and similar
petroleum products
Luxury goods, Sin Goods, Demerit 14%+14% IGST 28%

goods (�वला�सता /पाप/ अवगुण सामान):
➢ Caffeinated Beverages e.g. Red bull
➢ 🚭🚭 Tobacco products, Pan
Masala
➢ Cement, Granite, Marble
➢ Air Conditioners, TVs of “x” size
➢ Motor vehicles, Aircrafts, Yacht
➢ Guns, Lottery ticket.**
🍸🍸Alcohol for human consumption Outside GST-regime. Subjected to State Excise + VAT
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⛽Crude oil, Petrol (Motor Spirit), Until GST council announces: Union Excise + State VAT +
Diesel, Aviation Turbine Fuel and various cess/surcharges.
Natural Gas
As of 2018-December, very few items left in the 28% slab. PM Modi has announced to bring 99% of
the items in 18% or lower slab.
✋Notes: <DONOT LOOSE SLEEP IN FOLLOWING>
- ** Originally, state Government run lottery = 12% GST & other (private) lotteries= 28% GST.
But from 2020 all types of lotteries = 28%. While Kerala Govt opposed to this move fearing less
sales of State lottery so GST council had to go for voting → majority voted in favour of 28%.
This is the first matter since inception of GST council, wherein voting had to be done. All
previous decisions were taken unanimously without voting.
- As the elections come near, GST Council will bring down more items in lower GST-slabs to keep
the voters (or bizmen) happy, so above tables/lists are “not static”. E.g. from 1/4/2019: norms
will be changed for real estate property: affordable houses 1% GST without input tax credit
(ITC), non-affordable housing: 5% without ITC and Commercial properties: 12% WITH ITC.
- 2019: To boost electric vehicle, GST council ⏬ GST on e-vehicle & its chargers to 5%
- For more, you may refer to: https://cbec-gst.gov.in/gst-goods-services-rates.html
22.13.1 🍋🍋🍋🍋Indirect Tax → 💊💊GST Rate ⏬ on Corona Related Items (2021-Jun)

GST Council usually meets every three months. But Corona= meetings not done regularly. e.g. 2020-
Oct meeting → next meeting in 2021-May i.e. more than 7 months passed. (व�ु एवं सेवाकर प�रषद सामा�
�प से तीन तीन महीने पर �मलती है िकंतु कोरोना सं क्रमण के चलते ऐसा नही हो पाया.)
2021-May: GST Council meeting outcomes:
⇒ reduced the penalties on merchants for late-filing of GST documents/data.(GST के द�ावेज़ देरी से
जमा करने पर लगने वाले जुमार्ने म� कमी क� गई)
⇒ Formed a Group of Minister (GoM) headed by Meghalaya CM Conrad Sangma to examine GST
rates of Covid vaccine, drugs and related items. (मं �त्रयों का एक समूह बनाया है जो वै�ीन इ�ािद चीज़ों पर GST
दर� िकतनी लगायी जाए समी�ा करेगा) 2021-Jun: Based on GoM's recommendations, GST Council decided
following:
Table 9: These GST rates valid upto 30/9/2021, unless renewed further
Item & GST BEFORE AFTER

💊💊Tocilizumab (Corona Drug), Amphotericin B (Black Fungus Drug) 5% Nil /
0%
💊💊Corona related drugs/devices: Remdesivir, Oxygen Concentrator, 12% 5%⏬
Ventilator, Covid Testing Kits, Pulse Oximeters
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🌡🌡 Temperature check equipment, 🧴🧴Hand Sanitizer, crematorium furnaces 18% 5%⏬
🚑🚑Ambulances 28% 12%⏬
💉💉Vaccines 5% 5% 🤐🤐
🔠🔠❓MCQ. Consider the following items:(Asked in UPSC-Pre-2018)
1) Cereal grains hulled 2) Chicken eggs cooked
3) Fish processed and canned 4) Newspapers containing advertising material
Which of the above items is/are exempted under GST (Good and Services Tax)?
(a) 1 only (b) 2 and 3 only (c) 1, 2 and 4 only (d) 1, 2, 3 and 4
22.14 🍋🍋🍋🍋⏰🗓🗓 GST COMPOSITION SCHEME (जीएसटी सं रचना योजना)
⏰GST (Regular) scheme 🗓🗓GST Composition Scheme

If an industrialist or seller is registered with GST, Such monthly compliance is very tedious for
he must collect the taxes at above varying rates, small entrepreneurs / small merchants so they
and deposit them on the monthly basis at GSTN may opt for GST Composition scheme wherein
webportal. [उद्योगप�त ने हर महीने GST क� रक़म सरकार म� instead of above (5-12-18-28%) rates they’ll have
जमा करनी होगी] to collect only flatrate GST of 1% on goods, 5%
on restaurants, 6% on all services.
🤩🤩Good: He will get input tax credit, 😰😰Bad: He’ll NOT GET Input Tax Credit.
😰😰Bad: He’ll have to deposit tax & forms on 🤩🤩Good: He’ll not have to deposit tax/forms on
monthly basis @GSTN webportal monthly basis to GSTN webportal. He’ll have to
do it on Quarterly basis (3-3-3-3 months)
Compulsory if turnover is above “x” lakhs / Optional scheme, NOT compulsory. NOT every
crores. [बड़े उद्योप�तयों के �लए अ�नवायर् है] supplier is eligible. Only if turnover is below “y”
lakhs / crores, and doing “z” type of biz, then
you’ll be eligible.
Approx 1.12 crore taxpayers registered here Hardly 17 lakh taxpayers registered here
22.14.1 🍋🍋🍋🍋⏰🗓🗓 GST Mechanism: Quarterly Returns and Monthly Payment of Tax (QRMP)
जीएसटी का पैसा हर महीने सरकार म� जमा करो लेिकन खरीदी और �बक्र� के िहसाब िकताब के फॉमर् आराम से तीन-तीन महीने म� जमा करो
⇒ Bizman will have to deposit the GST Tax ₹₹ to Government on a monthly basis (1-1 month), but
he may submit the GST forms on quarterly basis (3-3 months) [Forms showing summary of
Incoming and outgoing supplies]
⇒ 🤩🤩Benefit? ⏬Compliance burden. Bizman will have to spend less time filling monthly forms /
have to pay less fees to the chartered accountant.
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⇒ Scheme applicable to? Small traders/taxpayers having turnover Not more than ₹"X" cr.
(Presently, X = ₹5cr), But the exact figure is not important. Sufficient to know that it is not
available for everyone. छोटे �ापा�रयों पर कर-अनुपालन का बोझ कम होगा
⇒ The scheme is not compulsory. It is optional / Voluntary. अ�नवायर् नहीं है. वैक��क है
22.14.2 🍋🍋🍋🍋: 💸💸💸💸(✋😈😈) 1% GST deposit in cash for controlling fake ITC claims
फज� टै� क्रेिडट को रोकने के �लए अ�नवायर् �प से 1% जीएसटी नगदी म� जमा करना होगा
⇒ Scamsters acquire Aadhaar card/pan card xerox of innocent victims → Register multiple
fake/dummy companies in their name → Generate fake invoices to show they purchased
good/services (input) price+GST → Then they show (output) fake exports bills (Because exports
are subjected to 0% GST) thus they accumulate GST input tax credit (ITC) from govt, thus gain
money. Then they pull out this accumulated ITC money through other fake bills & refund forms.
धोखेबाज फज�-कं प�नयां बनाकर, उसम� खरीदी �बक्र� के फज�-�बल बनाकर सरकार से जीएसटी-क्रेिडट का गबन करते ह�.
⇒ To control this nuisance, the govt ordered Bizmen to compulsorily deposit at least 1% of their
GST liability in Cash to the Govt. (if businessman’s monthly sales is ₹50 lakh/or more)
⇒ 🤩🤩Benefit? Fraudster will have to make a trip to the bank branch /GST office To deposit the
cash. It will generate CCTV footage, paper-evidences, etc which will help nabbing them. धोखेबाज ने
नगदी रकम जमा करने के �लए ब�क शाखा और सरकारी द�रों के च�र काटने होंगे वहां सीसीटीवी और कागजी सबूत द्वारा उ�� ढू ंढना
आसान होगा।
✋How/why/what/JamesBond-giri= They will teach you In the IRS training academy. We are not
here to Learn exact modus operandi.#⏳📚📚थोड़ा-पढ़ो-आगे-बढ़ो
22.15🍋🍋🍋🍋↩ REVERSE CHARGE MECHANISM (�वपरीत प्रभार क� �व�ा)
कु छ ख़ास मामले जहाँ �वक्रेता नहीं ब�� ग्राहक ने खुद सरकार को GST जमा करना पड़ेगा
- Normally, a seller must collect the GST tax from buyer & deposit to the govt.
- However, in selected cases when seller is not registered with GST number, while buyer is
registered with GST number, then buyer will have to deposit the tax to government.
- How / when / why = NOT IMP, EXCEPT the MCQ word Association that ‘Reverse Charge
Mechanism’ is associated with GST, just like ‘E-way bill’ mechanism is associated with GST.
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22.16🚛🚛🚛🚛 E-WAY BILL SYSTEM (ई-वे �बल प्रणाली) FROM 2018 ONWARDS
Figure 1: checkpost पे उ�ीड़न कम होगा

- When goods worth ₹50,000/> are moved within a state (intrastate) or from one state to another
(inter-state), then the truck/transport/cargo/shipping/aeroplane company must generate E-way
Bill from GSTN Portal / App / SMS.
- E-way bill’s self-declaration (that our truck is carrying “x” type of goods worth “y” value) reduces
the scope of bribery, delay, red-tape, harassment at the check post, thereby ensuring a hassle-free
rapid movement for transporters throughout the country.
- E-way bill system became effective from 2018.
- Related: GST council announced the E-invoice (=bill generation through govt’s online portal)
from January-2020 on pilot basis, then E-way bill will not have to be generated separately.
- This will provide relief to businessman, will improve the tax-surveillance and fight against false
ITC-credit claims through fake invoices.
- As such E-invoice was to become compulsory from 1/April/2020. However, because of Corona,
deadlines have been deferred. Deadlines keep changing, notIMP. (��गत िकया, बाद म� लागू कर�गे)
22.17🧔🧔 → 🤑🤑(��) COMPENSATION TO STATES: WHY?

Recall Definition: GST is a destination based indirect tax on consumption of goods and services.
(जीएसटी व�ुओ ं और सेवाओं के खपत-�ान पर आधा�रत अप्र�� कर है।)
✓ For the Union govt, largest source of tax collection were corporate tax and personal income tax.
Both are direct taxes and therefore kept out of the GST regime.
✓ For the state governments, VAT was largest source of tax income, but it is to be subsumed under
GST, along with other indirect taxes, cess and surcharges levied by the states. Therefore, states
were afraid their revenue income will ⬇.[रा�ों क� आमदनी का मु� साधन “वैट” हटा िदया इस�लए वे �चं�तत थे]
✓ Secondly, GST is a destination-based tax, therefore industrialized states are not happy with it.
Consider a Nano car manufactured in Tata's Plant in Gujarat and sold in Uttar Pradesh.
(Destination) UP gets SGST, While (Source) Gujarat gets nothing. Although reverse is also true-
UP's bicycle sold in Gujarat, then Gujarat will earn SGST and UP will get nothing.
✓ But the industrialized states such as Gujarat, Maharashtra, Tamil Nadu, Haryana feared they’d
get less SGST revenue in absolute terms compared to erstwhile VAT regime.
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Notable States that witnessed revenue ⏫ Notable States that witnessed revenue ⏬in SGST
in SGST (compared to VAT in 2019) (compared to VAT)
Andhra Pradesh and some NE states -- Mizoram, Punjab, Himachal, Chattisgarh, Uttarakhand, J&K, Odisha,
Manipur, Sikkim, Nagaland Goa, Bihar, Gujarat and Delhi and others.
22.17.1 🧔🧔 → 🤑🤑(��) Compensation to States: HOW?
Parliament enacted GST Compensation to States Act 2017 (रा�ों को मुआवजा अ�ध�नयम)
✓ Under its provisions, GST council recommended Union Govt to impose “GST Compensation
Cess” (जीएसटी ��तपू�त उपकर ) on specified luxury & demerit goods, like
○ pan masala (60%), tobacco products (cess varies as per product),
○ aerated water & Caffeinated Beverages (12%), coal / lignite (₹400 per tonne),
○ motor vehicles-aircraft-yacht (3-22% depending on type of vehicle).
○ [These rates may change/update, but don’t worry about figures. For example, E.g.
Passenger vehicles originally 15% cess, but due to slowdown in automobile sector, GST
council reduced it to 1-3% depending on type of vehicle.]
✓ The cess thus collected is used for compensating States for their revenue losses during the first
five years since inception of GST. i.e. 1st July 2017 to 30th June 2022
Table 10: GST Compensation to States Act 2017 (रा�ों को मुआवजा अ�ध�नयम)
Section- ⇒ It contains formula for compensation: State's Projected Revenue = 14% annual
7 compound growth rate than its 2015's VAT collection (base year). If current year
SGST collection is less than Projected Revenue → Union to pay compensation
⇒ (रा� का " अनुमा�नत राज�" उसके 2015 के वेट अनुपात क� 14% वा�षक वृ�द्ध के साथ क� �गना गया। यिद
रा� को एसजीएसटी मे उससे कम आमदनी �ई तो उस रा� को, पहले 5 वष� के �लए, क� द्र मुआवजा देगा- जनता
पर जीएसटी ��तपू�त उपकर लागू करके । )
Section- ⇒ GST Council can recommend extending GST compensation cess beyond the
8 period of five years. (5 साल से के प�ात भी उपकर जारी रखने क� �सफा�रश कर सकता है. )
✓ Compensation available only for SGST. It is not given to The Union Territory Without
Legislature (because they've UTGST e.g. Ladakh)
✓ State Liquor Taxes are outside GST, so Bihar / Gujarat / Nagaland / Lakshadweep / Parts of
Manipur can’t ask more ₹ for compensation from GST for having liquor prohibition (मद्य-�नषेध).
Year → 2018-19(actual) 2019-20 (revised) 2020-21 2021-22 (Estimated)
GST Compensation 95k cr 98k cr 1.10 Lakh Cr 1 Lakh cr.
Cess प्र�तपू�त उपकर expected but in
reality hardly
84,100cr earned
😰😰Controversy?
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- Before Corona: since 2019-August onwards payment pending. Also known as “GST Arrears
problems” (मुआवजे क� रकम बकाया है) . 2019-Dec: only partial compensation released. FM Nirmala. S
says, “Sales are ⬇, so we have not collected enough ₹₹ to release the cess.” Non-BJP states first
complained to GST council, but it did not help much. So some State Govts even threatened of
going to Supreme Court, which hints cooperative federalism is in danger. (सहकारी सं घवाद खतरे म�)
- During Corona: given below →
22.18🤧🤧🤧🤧:🧔🧔 → 🤑🤑(��) GST COMPENSATION & BACK2BACK LOANS
⇒ Feb 2020: when state govts had presented their budgets in their Vidhan Sabha, for next financial
year → they could only estimate the amount of SGST they'll earn between 1/4/2020 to
31/3/2021. फरवरी म� तो के वल अनुमान ही लगा सकते थे िक अगले �व�ीय वषर् म� िकतनी आमदनी होगी!
⇒ So, States had estimated a large/decent collection in SGST for the 2020-21. because, in Feb'2020,
Corona yet to fully develop, so States were optimistic. [फरवरी मे कोरोनावायरस क� गं भीर हानी भारत म� आई
नहीं, इस�लए रा� आशावादी थे िक अ�� आमदनी होगी]
⇒ Consequently, ₹97,000 cr SGST compensation estimated for 2020-21, before corona impact.
⇒ However, by August-2020, started to become more and more clear that the state is unlikely to
earn good amount in SGST. → States lowered their estimates for SGST for 2020-21. (बाद म� रा�ों
को एहसास �आ िक कोरोना के चलते तो ब�त �ादा आमदनी नहीं होगी 😰😰→ तो हम� ब�त �ादा बड़ा मुआवजा चािहए)
⇒ So then States started demanding ₹2.35 lakh crore in GST compensation.
⇒ Union govt's initial reaction was, "Under the GST compensation Act, we are not legally obliged
to pay this large amount (₹2.35lcr) because of unexpected circumstances / 'Act of God' / 'Force
Majure' like Corona. We can only pay the originally estimated amount (₹97kcr)."
⇒ However the Attorney General opined that GST Compensation Act does not provide such
exceptions; Union ought to pay the entire loss amount ₹2.35lcr. (अटॉन�-जनरल का मानना है िक क� द्र ने पूरी
रकम देनी चािहए �ोंिक जीएसटी मुआवजे के कानून म� कोरोनावायरस जेसी आपातकालीन चीजों मे क� द्र कोई माफ� /अपवाद नहीं)
⇒ But, corona → sales⏬ → GST compensation cess collection ⏬. So, the union offered two
options to borrow money for the compensation (�ोंिक जीएसटी म� आमदनी वैसे भी कम है, इस�लए क� द्र ने
रा�ों को पैसा उधार लेकर मुआवजा चुकाने के �वक� िदए….. )
⇒ We will NOT study the difference between those TWO options because it is technical/outdated.
Just memorize that States accepted ‘modified’ version of Option#1. (उन दो �वक�ों म� �ा मुद्दे/�भ�ताए
थे वो हम पढ़ने नहीं बैठ�गे। बस रट्टा मार लो िक रा�ों ने मुआवज़े के �लए �वक�#1 का एक सं शो�धत ��प पसं द िकया था। )
22.18.1 🤧🤧🤧🤧🤧🤧[🧔🧔 → 🔪🔪(�� GST compensation: "back to back" loans ₹1.10 lcr
2020 October: Union Finance ministry agreed to borrow ₹1.10 lakh from market.
⇒ States are not borrowing from market. Union is borrowing from market to help the States.
⇒ Union will give this borrowed ₹₹ as "back to back loans" to state governments. (बैक टू बैक ��प म�)
⇒ In other words whatever ₹₹ union government has borrowed at 5.19% from market → union
will loan it to States at 5.19% (क� द्र ने बाजार से एक हाथ लोन �लया और दू सरे हाथ वही लोन उसी �ाज दर पर रा�
सरकारों को दे िदया..)
⇒ Interest rate: 5.19% Bcoz union govt's G-Sec has less risk of default than State govts' G-Sec, so
Union can get the loans relatively cheaper from investors. क� द्र सरकार के िदवा�लयापन क� जो�खम कम होती है
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इस�लए क� द्र को लोन स�े म� �मल गया। अगर रा� सरकार �यं उधार लेने जाती- चाहे �रजवर् ब�क से- चाहे बाजार से, िफरभी रा�
को 5.19% से तो �ादा ही �ाज चुकाना पड़ता)
⇒ ⏰ Loan Tenure: 3-5 years (ऋण अव�ध)
⇒ Repayment: This principal + Interest will be paid from GST Compensation Cess.
22.18.2 🤧🤧🤧🤧🤧🤧[🧔🧔 → 🔪🔪(�� Back to Back loans: Beneficiary States

States/ UT with List
Legislature
😿😿Will not get Some North Eastern State don’t have any SGST-shortfall → So they will not
get any compensation / back to back loans as per Section-7 formula.
🤑🤑Will get Remaining States & 3 UT (with legislature) who have opted for option#1 →
they will get the money e.g. Andhra, Assam, Bihar, Goa, Gujarat, Haryana,
Kerala etc and Union territories of Delhi, Jammu and Kashmir, Puducherry
22.18.3 🤧🤧🤧🤧🤧🤧:⚖ GST Back to Back Loans and Fiscal Deficit / FRBM for States
⇒ Fiscal Responsibility & Budget Management Act, 2003 required Union and States to control their
fiscal deficits (राजकोषीय उ�रदा�य� और बजट प्रबं धन अ�ध�नयम के अंतगर्त सरकारों के राजकोषीय घाटे पर �नयं त्रण)
o 🧔🧔 For Union: 3% of GDP (GROSS DOMESTIC PRODUCT: सकल घरेलू उ�ाद)
o � For States: 3% of GSDP (GROSS STATE DOMESTIC PRODUCT)
⇒ 👻👻Atma-Nirbhar= Union offered relaxation to States in their fiscal deficit target limits under
FRBM Act. (आ��नभर्र भारत पैकेज म� क� द्र ने रा�ों को राजकोषीय खाध/घाटा �नयं त्रण म� थोड़ी छू ट/�रयायत दी)
⇒ If States opted for the above "back to back loan" offer then the Union will further relax State's
FRBM targets (📑📑Ref: HDT-Pillar# 2D: FRBM)(अगर रा� बैक टू बैक लोन लेते ह� तो ऊकत घाटा �नयं त्रण म� क� द्र
उ�� कु छ और �रयायते / छू ट देगा, यानी िक वे अ�त�र� पैसा कजर् म� ले पाएं गे)
22.18.4 ✍Conclusion : GST compensation (�न�षर्: जीएसटी मुआवजे के बारे म�)

Coronavirus has put unprecedented pressure on the revenue collection of the Union and
States. Consequently, the Union is facing challenges in allocating money for welfare schemes to
releasing the GST compensation to States. Hopefully, after 💉💉 vaccination, when the economy
bounces back, this pressure should subside. (कोरोना के सरकारों के राज� आमदनी म� भारी कटौती आई है �जसके चलते
क�ाणकारी योजना से लेकर जीएसटी मुआवजे तक प्र�ेक �ान म� चुनौ�तया, हालांिक टीकाकरण के जब अथर्तंत्र वापस पटरी पर आ
जाएगा, तब यह चुनौ�तया/ दबाव कम हो जाएं गे)
22.19🍋🍋🍋🍋🕵🕵 GST RELATED ORGANIZATIONS (सं �ाए)

We already learnt about the GST council in the previous pages of handout. Apart from that…
22.19.1 🕵🕵�� Group of Ministers (GoM: मं �त्रयों का समूह)
These committees are set up by GST Council to look into specific issues from time to time
Some examples of GoM headed by _ _ Objective ↡ (for illustration)
2019: Nitin Patel, Dy.CM of Guj Real Estate Sector’s issues under the GST
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Some examples of GoM headed by _ _ Objective ↡ (for illustration)
2019: Sushil Modi, Dy.CM of Bihar Identify the factors responsible for revenue shortfall in
SGST faced by several states, & how to solve it.
2018: Sushil Modi, Dy.CM of Bihar Modalities for revenue mobilisation in case of natural
calamities and disasters.
2021: Conrad Sangma, Meghalaya CM Sangma to examine GST rates of Covid vaccine, drugs
and related items.
22.19.2 Distribution of Admin. Responsibilities प्रशास�नक �ज�ेदा�रयों का �वभाजन
Table 11: ✋don't loose sleep over it unless preparing for State Tax officers' exams
In Excise-VAT regime→ In GST-regime
Union Central Board of Excise and - Budget-2018: CBEC renamed into Central Board
Customs (CBEC:क� द्रीय उ�ाद एवं सीमा of Indirect Taxes and Customs (CBIC:क� द्रीय अप्र��
शु� बोडर् ) officials looked after the कर और सीमा शु� बोडर् )
indirect taxes of the union, - For tax-payers with turnover below ₹1.5 crores:
[They’re recruited by UPSC and their supervision / administrative workload
SSC]. divided between union and state officials in 10:90
State State department officials would ratio.
look after the indirect taxes of the - If turnover ₹1.5 cr/> then 50:50.
state, recruited by the respective
(corrupt/non-corrupt) State PSC.
22.19.3 ⚖🕵🕵🍕🍕 National Anti-Profiteering Authority (NAA/NAPA)
रा��ीय मुनाफाखोरी �नरोधक प्रा�धकरण
⇒ GST provides input credit for most of the indirect taxes of the Union and State Govt. So,
entrepreneur’s cost of production should ⬇, then he should also ⬇ prices for consumers, yet
many companies had not reduced their prices e.g. Dominos Pizza, Nestle, Hindustan Unilever
toothpaste & detergents etc. [टै� क्रेिडट �मलने पर उ�ादन क� लागत कम होती है तो व�ु स�ी होनी चािहए. हालाँिक
कु छ मुनाफ़ाख़ोर कं प�नयां चीज़ों के दाम स�े नहीं कर रही थी तो िफर उ�� सबक़ �सखाने के �लए ये सं �ा बनायी गई]
⇒ So, Union govt set up NAA under Central Goods & Services Tax Act, 2017.
⇒ Depending on the case, NAA can order the culprit company to 1) reduce prices 2) refund money
with interest to consumers 3) deposit money to Consumer Welfare Funds at union & state level
4) Impose penalty upto 10% of profiteered amt 5) cancel registration. Appeal→ High Court.
⇒ This Authority shall cease to exist after two years from its inception (2017), unless GST council
renews it.(हालाँिक ज� के दो साल म� ही इस सं �ा को अपने आप बं द हो जाना था, �सवाय िक GST प�रषद आयु बढ़ा द�)
⇒ 2019-Jun: GST council extended it for another 2 years, which means all crooked companies have
not yet stopped profiteering. (कायर्काल बढ़ाया, �ोंिक बदमाश कं प�नयों क� मुनाफ़ाख़ोरी अभी भी जारी है।)
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22.19.4 🕵🕵🍼🍼 Authority for Advance Ruling (AAR-अ�ग्रम फै सलों के �लए प्रा�धकरण)
⇒ Diabetic foods supplements are subjected to 12% GST whereas pasteurized milk is subject to 0%
GST. If Amul plans to launch ‘Amul Camel Milk' with bottle label: "Camel milk is easy to digest,
high in an insulin-like protein, hence beneficial for diabetic person."
⇒ So, whether Amul’s product be subjected to 0% GST or 12% GST? An entrepreneur would like
to such have clarification from Tax authorities before starting the production, lest he gets
tangled in raids and litigations afterwards. (छापेमारी और मुकदमेबाजी द्वारा उ�ीड़न िकया जाना)
⇒ So, CGST Act, 2017 provides for a statutory body called Authority for Advance Ruling (AAR),
where entrepreneur can seek such advance clarification.
⇒ Higher appeal? Appellate Authority for Advance Ruling (AAAR: अ�ग्रम फै सलों के �लए अपील प्रा�धकरण).
⇒ 🤩🤩Benefit? Reduces scope/opportunity for litigation/harassment/bribe demand → Ease of
doing business (�ापार करने म� आसानी) → helps attract Foreign Direct Investment (FDI: प्र�� वदेशी
�नवेश).
22.19.5 🕵🕵💻💻GSTN Network (Not for Profit Company- मुनाफ़ा रिहत कं पनी )
2013: Goods and Services Tax Network (GSTN) “Not for Profit” Private ltd. company was set up
under the Companies Act.
Original Partners Ownership from Ownership in
2013-18 future**
Union govt 24.5% 50%
All states of India (incl. Delhi & Puducherry) 24.5% 50%
Non-Government Financial Institutions such as 51% 0%
HDFC Bank (20%), ICICI Bank (10%), NSE (10%),
LIC Housing Finance (10%)
**2018-May: GST Council approved acquisition of entire 51% equity held by non-Governmental
institutions & distribute it equally between Centre and the State Governments.
⇒ This company runs the GSTN online portal, where the suppliers register themselves, pay their
GST, claim input tax credits, generate e-way bills etc. [Infosys ltd. helped develop the webportal.]
⇒ GSTN Network ltd. also provides the IT infrastructure and software services to GST officials for
monitoring the tax compliance, issuing notices, data mining etc.
⇒ In future, such data could also be shared with the RBI’s Public Credit Registry (PCR: ऋण क�
सावर्ज�नक र�ज��ी) so the lenders can have a complete picture of the borrower’s business.
⇒ GST Suvidha Providers (GSPs): These are selected private IT/Fintech companies that develop
apps / software to help the taxpayers interact with GSTN portal. E.g. Zoho Accounting Software
22.19.6 📲📲 💻💻 Project Saksham: Digital/ICT integration (2016)

Union Indirect Tax CBEC/CBIC’s Webportal Issue after GST?
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Service tax & ACES (Automation of Central Excise & ⇒ Service tax subsumed
Excise duty Service Tax) ⇒ Excise applied only on
सेवा कर और उ�ाद शु� selected items.
Customs Duty SWIFT (Single Window Interface for - Customs duty not
सीमा शु� Facilitating Trade). subsumed in GST.
- These portals/softwares & digital processes had to be re-engineered to align with the GSTN
portal. So, 2016: CBEC/CBIC launched, “Project Saksham” for Digital/ICT re-engineering/web
portals’ integration. [इन �व�भ� वेब पोटर्ल के बीच डेटा का सम�य करने के �लए प्रोजे� स�म]
- Separately, 2018: Indian Railways also launched Project Saksham but with different objective of
employees’ training and skill-upgradation for doing railway related work.
- Separately, CBIC has Antarang portal for internal communication among CBIC officers.
22.19.7 🔢🔢🔢🔢 HSN and SAC Codes
- Service Accounting Code (SAC) are used for classifying services for GST rates. e.g. coaching
services = SAC Code 999293 = 18% GST.
- Harmonized System of Nomenclature (HSN) developed by the World Customs Organization
(WCO) is used for classifying goods for GST rates. e.g. Jarda scented tobacco = HAC code
24039930 = 28% GST.
- 🤩🤩Benefit? HSN-SAC coding helps in computerised accounting, billing, digitization,
surveillance & big data analytics by Tax authorities.
- 2020: Government threatened that if an imported good doesn’t contain HSN code then we’ll
impose higher level of taxes on it. Benefit? traders will quote HSN number, better
surveillance/data-mining. But low profile topic. ✋DONOT LOOSE SLEEP.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
22.20 🔢🔢🔢🔢🔢🔢 PAN VS GSTIN VS AADHAR
Table 12: ✋don't lose too much sleep over it unless preparing for State Tax Dept Exams
Difference PAN: �ायी लेखा सं �ाक GSTIN: व�ु एवं सेवा कर पहचान सं �ाक
Full form Permanent Account Number Goods and Services Tax Identification Number
issued by the Income Tax issued by the Central Board of Indirect Taxes &
Department Customs (CBIC)
example Suzlon Energy ltd: Suzlon Energy ltd:
AADCS0472N 24AADCS0472N1Z8
Format 10 digit alphanumeric number 2 digit state code+ 10 digits PAN number + 3
(=containing both alphabets and characters = total 15 characters (=containing
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Difference PAN: �ायी लेखा सं �ाक GSTIN: व�ु एवं सेवा कर पहचान सं �ाक
numbers) both alphabets and numbers)
Who has to Every income tax assessee- - IF Individuals / firms registered under the
get it? individual, HUF, firm, company, Pre-GST law (i.e., Excise, VAT, Service Tax
trust (internal different not imp.) etc.) OR
- IF your biz. turnover is above a threshold
limit of “x” lakhs for ordinary states or “y”
lakhs in Sp.cat. States. OR
- Merchants who sell through e-commerce
aggregators like Amazon.
Do all Every PAN card holder is not Every GSTIN holder is required to have PAN
taxpayers REQUIRED to have GSTIN. (e.g. a card number. (Because its format is like that,
have it? salaried employee) observe “format” row above).
How many - Only 1 PAN number allowed - If firm operates from more than one state,
numbers / per individual. then a separate GST registration is required
cards can - Only 1 PAN number allowed for each state.
one have? per company. - If a firm has multiple subsidiaries, they have
- Subsidiary firms will have to to get GST number for each e.g. “Faith
get separate PAN numbers. Hospitality Chain ltd→ Sam’s Pizza
restaurant, Sankalp Dosa restaurant, Saffron
Punjabi restaurant”
Objective Prevent evasion of direct taxes. Prevent evasion of GST, and help the
entrepreneurs claim their input credits.
- PAN number is required for various activities like opening of bank account, opening of demat
accounts (for trading in securities), obtaining registration for GST, VAT-Excise registration (for
Petrol-Liquor dealers) etc.
- So, PAN is slowly becoming a Common Business Identification Number (CBIN) or simply
Business Identification Number (BIN: सामा� �वसाय पहचान सं �ाक)- because if a Department
knows your PAN number they can dig all information about you, know whether you’re eligible
to fill up a particular tender or contract or a scheme application form or not?
22.20.1 🔢🔢🔢🔢🔢🔢 PAN/GSTIN vs UID (=Aadhar Card)

Table 13: ✋don't lose too much sleep over it unless preparing for State Tax Dept Exams
🔢🔢🔢🔢PAN and GSTIN 🔢🔢UID (=Aadhar Card)
Issued by the direct and indirect tax authorities Issued by a Statutory body- Unique Identification
that function under Ministry of Finance. Authority of India (UIDAI:भारतीय �व�श� पहचान
प्रा�धकरण ) that functions under Ministry of
Electronics and Information Technology
(MeitY).
These Tax authorities derive powers from: Aadhaar Targeted Delivery of Financial and
- Income Tax Act 1961 Other Subsidies, Benefits and Services) Act, 2016
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🔢🔢🔢🔢PAN and GSTIN 🔢🔢UID (=Aadhar Card)
- Goods & Service Tax Acts in 2017. (“आधार ए� 2016”)
Primary objective of these id-numbers is to Primary objective is to eliminate bogus
reduce tax evasion by tracking the transactions. beneficiaries in government schemes & reduce
subsidy leakage. Auxiliary benefits: Identifying
dead bodies, tracking criminals, mobile number
ownership, tax evasion etc.
🔢🔢🔢🔢Their format contains both numbers and 🔢🔢Unique Identification number (UID) or
alphabets. Aadhaar is a 12 digit number. No alphabets.
Issued for individual humans, Only for living resident HUMANS of India. Not
HUF/firms/companies/trusts**. given for companies. Resident is defined as
person who lived in India for 182 days/> in last
12 months.
💼💼Full-Budget-2019: we’ll consider giving
immediate Aadhar card to NRIs with Indian
Passport so they don’t have to wait till ~180 days.
It’ll help them get through KYC bank/share
market transaction.
One HUMAN → one PAN number only. No age same (एक इं सान का �सफ़र् एक आधार काडर् �नकल सकता है)
limit. Minors can also join.
- ~₹110 Fees to get PAN card. No fees to get Aadhar. मु� म� �मलता है.
- No fees to get GSTIN
Compulsory to enroll (अ�नवायर् है), if your income Voluntary to enroll. आधार काडर् बनवाना �ै��क है.
or turnover is beyond “x” rupees**. अ�नवायर् / बा�कर नहीं है.**
They contain Demographic info:
- Name - Name, Date of Birth, Gender, Address.
- Photograph & Date of Birth (in case of - Mobile & Email (optional)
“Human”) Biometric info:
- Address. - Ten Fingerprints, Two Iris Scans, and Facial
Photograph.
- **💼💼Budget-2019: > 120 crore Indians have Aadhaarcard but all Indian don’t have PAN card.
Earlier, it was compulsory to give PAN No when filling income tax. But if you don’t have PAN
you can simply quote your Aadhaar number to file Income Tax returns. (�जन लोगों को आयकर भरना है
लेिकन पान-काडर् नं बर नहीं है तो उ�ोंने फ़ोमर् म� अपना आधार काडर् नं बर �लखकर आयकर का पैसा जमा करना होगा।)
- Later IT-department clarified that whoever quotes Aadhar number because he doesn’t have PAN
card → we’ll issue him PAN card on suo-moto basis later on. 💼💼Budget-2020 added technical
reforms in this process. (उसके बाद ऐसे लोगों का पान-काडर् नं बर आयकर �वभाग ख़ुद बनाकर दे देगा।)
22.21🍋🍋🍋🍋🍋🍋 GST: BENEFITS (लाभ)
✓ GST covers both goods and services, with standard rates, minimal number of cess/surcharges.
सामा� दर, ब�त कम चीजों पर उपकर/अ�धभार लगता है।
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✓ GST online portal and e-way bill system reduces the interface between tax-officials and the
assesses, thereby reducing the scope of harassment, bribery and Inspector Raj. (=Ease of doing
business) (उ�ीड़न, �र�तखोरी म� कमी → �ापार म� सुगमता बढ़ी).
✓ GST provides input credits to suppliers thereby incentivizing them to sell with invoice at every
stage. Thus, GST will expand our tax collection, and deter tax evasion. (इनपुट क्रेिडट के �लए �बल बनाना
ज�री, इस�लए करचोरी मु��ल)
✓ GST Input credit system ⬇ the cascading effect of taxes, ↓ cost of manufacturing & selling,
while its anti profiteering authority ensures that such benefits are passed on to the customers in
the form of reduced MRP. (मुनाफाखोरी पर लगाम)
✓ Federal nations such as Canada and Australia shifted from VAT to GST regime. It helped
boosting their revenue, GDP and exports. (कर राज�, जीडीपी, �नयार्त म� बढ़ोतरी)
✓ Thus, GST will help to create a unified common national market for India, & catalyse “Make in
India”, and Assemble in India(More in 📑📑Pillar#4B)
😥😥 Before GST (GST आने से पहले) 🍋🍋🍋🍋🍋🍋 After GST (आने के बाद)
A car company would aim for “in-house GST provides input credits in more efficient and
production” of all necessary intermediate-goods comprehensive manner therefore, instead of
and accessories (e.g. tires, windshield, car-stereo trying to become Jack of all trades, company will
player) because if they buy those raw / pursue Ancillarisation, Subcontracting and
intermediate goods from outside, they’ll have to Outsourcing to procure from MSME industry
pay variety of taxes / cess / surcharges on which and freelance professionals.= More
Input credit may not be available. jobs.(अनुषंगीकरण, उपठे का और आउटसो�सग)
State government charged VAT on sale of goods, SGST/UTGST rates are uniform throughout
but VAT rates were not uniform throughout India, so there is no scope of rate arbitrage.
India. A laptop bag might attract 12%VAT in one Whether you buy a laptop from Chennai or
state and 18%VAT in another. This provided Mumbai the GST% tax rate will be same. (और रा�
scope for ‘rate arbitrage’ (दर अपवं चन) i.e. buying म� एक समान दर� लगती है तो दर अपवं चन म� कमी आएगी)
from another state for profiteering, even if same
item available in home state. Then State govt will
have to deploy more officials at the check posts,
leading to bribery, harassment, inspector-raj.
Suppose, a mobile is manufactured at ₹10,000/- & Both CGST and SGST are computed on the same
is subject to 9% Excise duty and 9% VAT. Then base (₹10,000), therefore tax burden on final
- 9% Union Excise duty = 900. (calculated on consumer is less in GST regime, than in Excise-
base of 10,000) VAT regime. (एक आधार पर क� द्र और रा� के जीएसटी क�
- 9% State-VAT = 981 (calculated on base of �गनती से उपभो�ा पर बोज कम होता है)
10,900 after including excise duty). Thus, GST will reduce impact of tax on end-
customer, so his purchasing power will improve,
leading to more demand, more sales, more
business expansion and GDP growth & jobs.
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22.21.1 🍋🍋🍋🍋🍋🍋: ⚓ GST Benefit: Zero Rated Exports (शू� रेटेड �नयार्त )
- When company buys raw material or intermediate goods it will have to pay GST but if final
product is exported outside India (or sent to Special Economic Zone/SEZ in India: more in
📑📑Pill#3), it'll be subjected to 0% IGST.
- So, whatever GST the company had paid on the inputs, all of that will become its “Input Tax
Credit” (and company can use this ITC to pay for the taxes on the purchase of raw material and
intermediate goods in the next time), thus reducing its cost of production.
- This will improve price competitiveness of Indian products in foreign markets. (�वदेशी बाजार म�
भारत का सामान िकफायती बनता है)
- Australia and other GST countries also follow similar “zero rated export” regime.
🔠🔠❓MCQ. What are the most likely advantages of implementing GST? (Asked in UPSC-Pre-2017)
1. It will replace multiple taxes collected by multiple authorities thus create a single market in India.
2. It will drastically reduce ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange
reserves.
3. It will enormously increase the growth and size of Indian economy of India & will enable it to overtake China in the
near future.
22.22🍋🍋🍋🍋🍋🍋 GST: CHALLENGES FOR MAINS & INTERVIEW (चुनौ�तयां)

22.22.1 🔢🔢🔢🔢High Rates and Multiple Slabs (उ� दर और कई �ैब)
➢ If Union and States abolished existing indirect taxes (Excise, Custom and VAT), then their
revenue income will obviously decline. Therefore, GST rate needed be high enough to sustain
any fall in revenue collection. Such ‘ideal’ rate of GST, is called Revenue Neutral Rate (RNR). In,
Singapore GST only 7%, Australia GST only 10%.
➢ Whereas in India we’ve FOUR SLABS: 5-12-18-28% slabs. (✋ignore hairsplittery/pedantry over
diamond etc ke 0.125%CGST walle slabs. Official CBIC brochure says four slabs so remember 4)
➢ Many daily necessities are in 18% GST slab. Indirect taxes regressive in nature & harm
purchasing power of poor. (गरीबों क� खरदी श�� को कम करता है)
➢ Petrol, diesel, electricity: not subjected to GST regime yet, So, businessman cannot claim GST-
input credit on them. Even when crude oil prices are ⬇ in the international market, the Union
and State governments ⏫ Union excise and state VAT on the petroleum fuels just to earn more
revenue, which further aggravates the inflation and business cost. (�व� बाजार म� क�ा तेल स�ा होने पर
सरकार �ादा आमदनी के �लए उ�ाद शु� और वेट क� दर बढ़ा देती है।)
22.22.2 🤹🤹😢😢Frequent changes harming long term business planning

 Frequent changes in GST rates makes it difficult for the companies to plan long term business
strategies. (जीएसटी क� दरों म� बार बार बदलाव के चलते, उधयोगप�त लं बी समयाव�ध के �लए रणनी�त नहीं बना पाते।)
 E.g. In 2019-Sept, GST on Caffeinated beverages ⬆ from 18% → 28%. This will ⬇ sales. If
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any soft-drinks company had invested in factory expansion it would suffer. 😰😰
 15th Finance Commission Chairman NK Singh criticized frequent changes in GST rates.
22.22.3 📉📉📉📉 Fall in collection (आमद म� कमी)
 Corona pandemic (महामारी),
 Protectionism (सं र�णवाद) by USA, EU and China = they’re imposing more duties on Indian
exports→ Indian exports become expensive for foreigners → sales ⬇ → manufacturing and
service sector production declined → GST ⬇(More in 📑📑Pillar#3)
 Automobiles, consumer durables (TV, fridge etc), real estate ⬇ due to variety of reasons.
 Unscrupulous traders setup phony shell companies and generate fake invoices to claim input tax
credit through Circular Trading. (How it works?=Modus operandi NotIMP.)
 As a result, States are complaining that GST compensation cess amount is not released in a
timely fashion by the Union Government. → State funded welfare schemes suffer. 😰😰
22.22.4 🤯🤯Inconvenience to Small Traders (छोटे �ापा�रयों के �लए असु�वधा)
➢ 😭😭 In GSTN webportal, the traders have to deposit the GST on monthly basis, upload various
forms & invoice details, generate e-way bills. While govt has tried to keep these online forms/
mechanisms as simple as possible, but since many small traders are not proficient with
computer, excel / accounting software, internet, digital payments- GST-compliance creates
inconvenience to them, and forces them to hire full time accountants, ⏫ cost of operations.
○ 😾😾 (Counter: Even in erstwhile VAT system they had to upload similar things online so,
it’s not entirely new or alien system imposed upon them. Besides, they can opt for the
GST composition scheme where they have to upload things on quarterly basis instead of
monthly basis. GSTN portal also provides free accounting software to small traders so
they don’t have to spend ₹ in buying proprietary software like Tally)
➢ 😭😭 GSTN server crashes often so traders can’t upload things on time, and then they’ve to pay
penalty for crossing monthly deadlines. (सवर्र म� बार बार तकनीक� ख़राबी आ जाती है)
○ 😾😾 (Counter: GST Council has reduced the late-fees, GSTN portal has been given
technical upgrades to reduce the glitches/outages.)
➢ 😭😭 Malaysia scrapped GST in 2018 due to popular uproar against it, So it will not be successful
in India either! (मले�शया म� जन आक्रोश के चलते GST को हटा िदया गया तो भारत म� भी ये नहीं चलेगा।)
○ 😾😾 (Counter: Malaysia had subjected all the goods and services to a flat rate of 6% and
the opposition parties were blaming it for the inflation, and there were many political
dimensions to the entire controversy. Whereas in India, we have kept many daily
necessity goods at 0% to 5% GST. RBI has been successful in keeping the inflation within
2-6% CPI limit. GST is implemented through Constitutional Amendment so even if
Rahul Gandhi promises to “UNDO” this Gabbar Singh Tax, he’ll have to go for another
Constitutional Amendment to scrap the GST which is not so easy.)
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22.23✍ GST: CONCLUSION TEMPLATE (सार/�न�षर्)
(if asked to examine critically the challenges or obstacles in GST) Any new change is accompanied
by difficulties and problems at first. A tax reform as comprehensive as GST is bound to pose certain
challenges not only for the government but also for business community, tax authorities and even
common. But ultimately, <write any of below benefits> �ाभा�वक है िकसी भी बड़े सुधार से शु� शु� म� असु�वधा
1. With the aforementioned features / benefits, GST will help India progress towards “ONE
NATION, ONE TAX, ONE MARKET”. एक रा�� एक कर एक बाजार OR
2. Indeed, the introduction of GST is truly a game changer for Indian economy as it has replaced
multi-layered, complex indirect tax structure with a simple, transparent and technology–driven
tax regime. OR ब�-��रत, जिटल अप्र�� कर सं रचना को एक सरल, पारदश� प्रौद्यो�गक�-चा�लत कर �व�ा के बदल िदया
3. Thus, GST eliminates cascading of taxes,⏬ operational costs, thereby ⏫ ease of doing business
and catalysing Indian economy. करों का सोपानी प्रभाव, लागत म� कटौती, �ापार म� सुगमता, अथर्तंत्र उद्दीपन
22.24✍🎺🎺MOCK Q FOR MAINS GSM2/GSM3 (250 WORDS EACH)
1. (Asked in GSM3-2018) Comment on the important changes introduced in respect of the Long-term
Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018. क� द्रीय बजट
2018 के दीघर्का�लक पूंजीगत कर (एलसीजीटी) और लाभांश �वतरण कर (डीडीटी) के सं बं ध म� पेश िकए गए मह�पूणर् प�रवतर्नों पर िट�णी
कर�। → ✋Note we NEED not prepare answer since >D-2 YEARS SPAN. Q given is only for observation.
2. (Asked in GSM2-2017) Explain the salient features of the constitution (One Hundred and First
Amendment) Act, 2016. Do you think it is efficacious enough ‘to remove cascading effect of taxes and
provide for common national market for goods and services’? १०१ वे सं �वधा�नक सं शोधन अ�ध�नयम, 2016 क� मु�
�वशेषताओं को �� कर�। �ा िक करों के सोपानी प्रभाव को हटाने और आम रा��ीय बाजार बनाने के �लए यह पयार्��प से प्रभावकारी है?
3. (Asked in GSM3-2019) Enumerate the indirect taxes which have been subsumed in the Goods and
Services Tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India
since July 2017. (उन अप्र�� करों को �गनाइए जो भारत म� व�ु एवं सेवा कर म� स��लत िकये गए ह� | भारत म� जुलाई २०१७ से
िक्रया��त (जी. एस. टी) के राज� �निहताथ� पर भी िटप�ी क��जए |)
4. (Asked in GSM3-2020)Explain the rationale behind the Goods and Services Tax (Compensation to
States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal
tensions? (व�ु एवं सेवा कर (रा�ों को ��तपू�त) अ�ध�नयम, 2017 के तकार्धार क� �ा�ा क��जए, को�वद-19 ने कै से व�ु एवं सेवा कर
��तपू�त �न�ध (जी.एस.टी.कॉ�े�ेशन फ�) को प्रभा�वत और नये सं घीय तनावों को उ�� िकया है?)
5. Examine critically the apprehensions surrounding the GST compensation to the States. What measures
have been taken by the Union Government in this regard. (रा�ों को जीएसटी मुआवजे देने सं बं�धत आशं काओं क� जांच
कर�। इस म� क� द्र सरकार द्वारा �ा उपाय िकए गए ह�?)
6. “Is GST a boon or a bane?” examine critically from State governments’ perspective. "�ा जीएसटी एक वरदान या
अ�भशाप है?" रा� सरकारों के ��कोण से गं भीर �प से जांच कर�।
7. “Is GST a boon or a bane?” examine critically from the small traders’ perspective. छोटे �ापारी
8. With respect to ease of doing business in India, discuss the importance of following (1) E-Way Bill
System (2) Authority for Advance Ruling. भारत म� �ापार करने म� आसानी के सं बं ध म�, �न��ल�खत के मह� पर चचार् कर� (1)
ई-वे �बल प्रणाली (2) अ�ग्रम फै सलों के �लए प्रा�धकरण
Handout: [2A)✅Direct & Indirect Taxes [2B) Black Money, 15th Finance Commission
[2C) Subsidies to Disinvestment [2D) Fiscal Deficit, FRBM, Budgeting & scheme types
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2B: Finance Commission, Black Money & 2C: subsidies, revenue expenditure
Table of Contents
23 🍋🍋 (🧔🧔⚖��) Taxation → Finance Commission ...........................................................299
23.1 Introduction to Finance Commission (�व� आयोग) ....................................................................299
23.2 🕵🕵(🍋🍋 🧔🧔⚖�) Fifteenth FC Composition (setup in 2017-Nov)..................................299
23.2.1 📑📑15th FC Terms of Reference (TOR: �वचाराथर् �वषय)? .....................................................300
23.2.2 �15th FC TOR: Conclusion (�न�षर्) ................................................................................300
23.3 🍋🍋 [🧔🧔⚖(��)] FC: Vertical Tax Devolution from Union to States ....................301
23.4 🍋🍋 [�⚖�⚖�] Horizontal Tax Devolution among States ......................................301
23.4.1 🍋🍋 [�⚖�⚖�]15th FC: Horizontal devolution: States’ share .........................302
23.4.2 🧕🧕Finance Commissions & the fate of UTs of J&K & Ladakh ......................................302
23.5 🧔🧔 → 💸💸💸 (��) Grants from Union to States (सं घ से रा�ों को अनुदान) .........................303
23.5.1 💸💸💸🏕🏕15th FC: Local Bodies Grants (�ानीय �नकाय अनुदान) ........................................304
23.5.2 💸💸💸�Post-Devolution Revenue Deficit Grants (अंतरण-प� राज� घाटा अनुदान) .......304
23.5.3 💸💸💸�15th FC: Special Grants: (�वशेष अनुदान) .............................................................305
23.5.4 💸💸💸🌬🌬🌬🌬15th FC: Disaster Management Grants (आपदा प्रबं धन अनुदान:)..................305
23.5.5 💸💸💸🍽🍽15th FC: Sector Specific Grants (�ेत्र-�व�श� अनुदान)-Malnutrition.................305
23.5.6 💸💸💸🍽🍽15th FC: Sector Specific Grants (�ेत्र-�व�श� अनुदान)-Health ............................306
23.5.7 💸💸💸🍽🍽15th FC: Sector Specific Grants (�ेत्र-�व�श� अनुदान)- Others(अ�) .................306
23.5.8 💸💸💸💸💸💸Defence and Internal Security Fund for Union .............................................307
23.5.9 🤏🤏 15th FC: Other recommendations to Govt (सरकार के �लए अ� �सफा�रश�) ....................308
23.5.10 ✍ 15th FC Report: conclusion (�न�षर्- उनके �रपोटर् क� सराहना-क� ब� बिढ़या �रपोटर् बनाया है) ....308
23.5.11 👻👻ATMANIRBAR → 🧔🧔🧔🧔🧔Helping States → Tax devolution and grants ....308
23.6 🕵🕵(🍋🍋🍋🍋⚖�)⏰ FC: Giving Permanent Status (�ायी दजार् देना).....................................308
23.6.1 �👎👎Arguments against giving permanent status to FC (�वरोध म� तकर् ) ........................309
23.6.2 �👌👌Argument in favour of giving permanent status to FC (प� म� तक) ......................309
23.6.3 � Conclusion: give permanent status to FC or not? (�न�षर्) ......................................310
23.7 � FC vs PC vs NITI: What’s the Difference? .........................................................................310
23.8 🍋🍋(🧔🧔⚖�🙏🙏) Special Category States? �वशेष श्रेणी के रा�? ..............................................311
23.8.1 🍋🍋(🧔🧔⚖�🙏🙏) Sp.Cat States → Economic Surveys criticised ..............................312
23.8.2 🍋🍋(🧔🧔⚖�🙏🙏) Sp.Cat States → Hill Union Territory Status for J&K? ...............312
23.9 � Mock Questions for UPSC Mains (250 words each) ........................................................313
24 🍋🍋🍋🍋🍋 Taxation → Black Money & Allied Issues ......................................................................313
24.1 (🍋🍋🍋🍋)�Black Money → Notable Organisations...............................................................315
24.2 🍋🍋🍋🍋 Tax Evasion (Hiding Income / Transaction) ..............................................................315
(Batch:PCB5) Mrunal’s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 296
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24.2.1 🍋🍋🍋🍋⚖ Prevention of Money Laundering Act (PMLA-2002) .................................315
24.2.2 🍋🍋🍋🍋⚖ Undisclosed Foreign Income & Assets Act (UFIA-2015) ..........................316
24.2.3 🍋🍋🍋🍋⚖ Benami Transactions Prohibition Act (BTPA- 1988, 2016) ......................316
24.3 (🍋🍋🍋🍋)💼💼 Tax Evasion → Govt Announcements ..............................................................317
24.3.1 🍋🍋🍋🍋🍋🍋 Tax (Evasion) “Surrender” schemes ..............................................................317
24.3.2 🍋🍋🍋🍋🍋🍋 Vivad se Vishwas Scheme for Direct Taxes (Budget-2020) .......................317
24.3.3 👻👻 Tax Ordinance 2020 in ATMA NIRBHAR BHARAT [कर अ�ादेश] .......................318
24.3.4 🍋🍋🍋🍋🍋🍋 Dispute Resolution Committee (DRC) in Budget-2021 ...........................318
24.3.5 🍋🍋🍋🍋 Tax Evasion → Other Initiatives (अ� कदम) ........................................................318
24.4 (🍋🍋🍋🍋🍋🍋)Tax avoidance (कर प�रहार / कर टालना) .......................................................................319
24.4.1 🍋🍋🍋🍋🍋🍋 Double Taxation Avoidance Agreement (DTAA) & Round Tripping .....319
24.4.2 🍋🍋🍋🍋🍋🍋 Tax Avoidance through Non-Resident Status ...............................................320
24.4.3 🍋🍋🍋🍋🍋🍋 Place of Effective Management (POEM: पीओईएम) .........................................320
24.4.4 🍋🍋🍋🍋🍋🍋 Base Erosion and Profit Shifting (BEPS: बीईपीएस) ..........................................321
24.4.5 🍋🍋🍋🍋🍋🍋 Transfer Pricing (ह�ांतरण मू�) .........................................................................321
24.4.6 (🍋🍋🍋🍋🍋🍋) � Authority for Advance Rulings (AAR) .................................................321
24.4.7 (🍋🍋🍋🍋🍋🍋) � General Anti-Avoidance Rules (GAAR) ..............................................322
24.4.8 🍋🍋🍋🍋🍋🍋 Angel Tax on Startup Investments (2012) .....................................................322
24.5 (🍋🍋🍋🍋🍋🍋:⌛) � Retrospective Tax: Vodafone ...................................................................322
24.5.1 (🍋🍋🍋🍋🍋🍋:⌛) � Retrospective Tax: Cairn Energy ....................................................323
24.5.2 (🍋🍋🍋🍋🍋🍋:⌛) � Retrospective Tax: Conclusion........................................................324
24.6 🍋🍋🍋🍋🌐🌐:🤵🤵 Global Minimum Tax (वै��क �ूनतम कर) .............................................................324
24.6.1 🍋🍋🍋🍋🌐🌐:🤵🤵 Global Minimum Tax: G7 Framework ....................................................325
24.6.2 🍋🍋🍋🍋🌐🌐:🤵🤵 G7-OECD “Two” Pillar Solution for Global Minimum Tax ...............325
24.6.3 🍋🍋🍋🍋🌐🌐:🤵🤵 Conclusion- Global Minimum Tax: �न�षर्..............................................326
24.7 🍋🍋🍋🍋🍋🍋🍋: � Reforms to reduce Tax Terrorism / Harassment ....................................326
24.7.1 🍋🍋🍋🍋🍋🍋🍋: �: Cash Transaction Limit Relaxed for Corona ...........................326
24.7.2 🍋🍋🍋🍋🍋🍋🍋:🧾🧾 Pre-filled online forms for Tax Payers ..............................................326
24.7.3 🍋🍋🍋🍋🍋🍋🍋:🧾🧾 Faceless interaction between Tax payers and Tax official ..............326
24.7.4 🍋🍋🍋🍋🍋🍋🍋:🧾🧾⏰ Time limit on opening of past cases ............................................327
24.7.5 🍋🍋🍋🍋🍋🍋🍋:🧾🧾 Document Identification Number (DIN: द�ावेज़ पहचान सं �ाक) ......327
24.7.6 🍋🍋🍋🍋🍋🍋🍋:🧾🧾⏰ Reducing Tax Terrorism: Misc. Committees ............................328
24.8 📯📯🍋🍋📜📜 Taxpayers’ Charter in 💼💼 Budget-2020 (करदाताओ का अ�धकारपत्र) ........................328
24.8.1 📯📯🍋🍋📜📜 (Indian) Tax Payers' Charter released in 2020-Aug ....................................329
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24.8.2 ✍ 📯📯🍋🍋📜📜 Conclusion: Tax Payers' Charter .............................................................329
24.9 🍋🍋🍋: �� Tax Ombudsman in Economic Survey 2021 .................................................329
24.9.1 🍋🍋🍋: ��Tax ombudsman: Indian experience .......................................................330
24.9.2 😰😰problems in previous Ombudsman system (2003-19)? ...........................................330
24.9.3 🍋🍋🍋: ��Tax Ombudsman: Global experience ......................................................330
24.9.4 🍋🍋🍋: �� Tax Ombudsman: Conclusion / way forward (�न�षर्/आगे का रा�ा) .....330
24.9.5 🍋🍋🍋: Reducing Tax Terrorism / Harassment: online portals/Apps ........................331
24.10 🍋🍋🍋🍋🍋🍋Taxation → Global Treaties, Agreements & Indexes .......................................331
24.10.1 🍋🍋🍋🍋🍋🍋 Tax Information Exchange Agreement (TIEA: कर सूचना �व�नमय समझौता).....331
24.10.2 🍋🍋🍋🍋🍋🍋 USA’s Foreign Account Tax Compliance Act (FATCA-2010)..................332
24.10.3 🍋🍋🍋🍋🍋🍋 Global Financial Secrecy Index (वै��क �व�ीय गोपनीयता सूचकांक) .......................332
24.11 💸💸Black Money → Demonetisation (�वमुद्रीकरण) ..................................................................332
24.11.1 💸💸Why Demonetise ₹ 500 & 1000?...................................................................................332
24.11.2 💸💸How did 99.30% SBN returned into banking system? ..............................................333
24.11.3 💸💸99.30% SBN returned, but Demonetization not failed experiment because: .........333
24.11.4 💸💸Demonetization: Impact as per Economic survey 2016-17 ......................................334
24.12 📘📘📘📘Economic Survey on taxation and fiscal capacity (�व�ीय �मता) ................................334
24.12.1 🍋🍋🍋🍋 Tax: GDP – why low in India (भारत का कर:जीडीपी अनुपात खराब �ों है?) ...................335
24.12.2 🍋🍋🍋🍋 Tax: GDP 📘📘📘📘 ES19: “Use Behavioural Economics to improve Tax
Compliance”............................................................................................................................................335
24.12.3 🍋🍋🍋🍋 Tax: GDP: 15th Finance Commission on how to improve it?...........................337
24.13 🍋🍋Taxation: Misc. Terms ........................................................................................................338
24.13.1 🍋🍋 Net Tax Revenue of the Govt (शुद्ध कर राज�) ...............................................................338
24.13.2 🍋🍋 Revenue Shortfall (राज� म� कमी) ....................................................................................339
24.13.3 � Mock Questions for UPSC Mains (250 words each) ...............................................339
24.14 📥📥📥📥📥📥 Budget → Revenue Part → Receipts → Non-Tax Receipts ........................340
25 📤📤⏰ Budget → Revenue Expenditure (राज� खचर्/ �य)................................................................341
25.1 📤📤⏰(🌽🌽⛽) Revenue Expenditure → Subsidies ...............................................................342
25.1.1 📤📤⏰(🌽🌽⛽) Types of subsidies with selected examples ...........................................342
25.1.2 � � Impact of Subsidies (स��डी का प्रभाव: सकारा�क एवं नकारा�क) .................................343
25.1.3 📘📘📘📘 Past Economic Surveys on subsidy delivery (आ�थक सव��णों के उपाय) ....................343
25.1.4 📘📘📘📘 ES19: Use ‘Behavioural economics (�वहार अथर्शा�)’ to ↓ subsidy bill...............344
25.1.5 ��🕵🕵National Recruitment Agency (NRA: रा��ीय भत� एज�सी) ....................................344
25.2 📤📤⏰🥳🥳 Revenue xpdr → Salaries→ 7th Pay Commission (वेतन आयोग) .........................345
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25.2.1 🥳🥳 Pay Commission: Dearness Allowance (DA: महंगाई भ�ा) .........................................345
25.2.2 🥳🥳 Pay Commission: Misc. terms .....................................................................................346
25.3 👻👻📤📤⏰�🥳🥳 SALARY Reforms in Atmanirbharat 2.0 (Oct 2020) ...............................346
25.3.1 👻👻⏰�🥳🥳 Atma-Nirbhar 2.0: Festival Advance Scheme (�ोहारों म� एडवांस रकम) .....346
25.3.2 👻👻⏰�🥳🥳 Atma-Nirbhar 2.0: LTC Cash Voucher Scheme ....................................346
25.4 (📥📥<📤📤)⏰⚠ Revenue Deficit (राज� घाटा: 5.1% of GDP) ...............................................347
25.5 (📥📥<📤📤)⏰⚠ Effective Revenue Deficit (प्रभावी राज� घाटा: 4.1% of GDP) .....................347
23 🍋🍋 (🧔🧔⚖��) TAXATION → FINANCE COMMISSION

23.1 INTRODUCTION TO FINANCE COMMISSION (�व� आयोग)
- Fiscal Federalism refers to the division of responsibilities of i) taxation and ii) expenditure
between the different levels of the government. राजकोषीय सं घवाद: क� द्र और रा�ों के बीच कराधान और खचर् क�
�ज�ेदा�रयों का आवं टन/बटवारा/�वभाजन
- While the 7th schedule assigns many responsibilities to the States but their taxation power is
relatively lower than Union’s. So, Finance Commission plays a key role in transferring union’s
revenue resources to the state.. रा� क� कराधान श��यां कम है इस�लए �व� आयोग क� द्र के करो से िह�ा िदलाता है
- Article 280: President of India forms a Finance Commission (a quasi-judicial body) every 5th
Year or earlier, with 1 chairman and 4 members. Eligible for re-appointment. Recommendations
are not binding on the government but usually not rejected.
📔📔Further self-study & HINDI TERMS@ M.Laxmikanth’s Indian Polity ch.45.
14th FC: YV Reddy Recommendation Period: 1st April, 2015 to 31st March, 2020
15th FC: NK Singh Originally, it was meant to cover: 1st April, 2020 to 31st March, 2025
But later, Modi Govt ordered it to submit two reports:
1) Report#1: for 1/Apr/2020 to 31/March/2021 → submitted to President
in 2019-Nov, and accepted in 2020-Jan
2) Report#2: for 1/Apr/2021 to 31/March/2026. Title of report is "“Finance
Commission in Covid Times”. Published in 2021-February.
23.2 🕵🕵(🍋🍋 🧔🧔⚖�) FIFTEENTH FC COMPOSITION (SETUP IN 2017-NOV)
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Chairman N.K. Singh (Retd. IAS, Ex-Member of Parliament)
Member1 Shaktikanta Das (Retd. IAS, RBI Gov)
Member2 Dr. Anoop Singh, Professor
Member3 (Part Time) Dr. Ashok Lahiri, Bandhan Bank
Member4 (Part Time) Prof. Ramesh Chand. member of NITI Aayog & Agri Economist.
Secretary Arvind Mehta (IAS)
23.2.1 📑📑15th FC Terms of Reference (TOR: �वचाराथर् �वषय)?
President of India has ordered them to study and recommend following:
1. Union Taxes’ vertical devolution to the states, and its horizontal distribution among the states.
(except cess, surcharge and IGST).
2. Union’s grant-in-aids to the states. (क� द्र द्वारा रा�ों को अनुदान)
3. How to augment State Govts’ Consolidated funds to help their PRI/ULBs
4. Any other matters referred by the President of India such as:
5. Use Census-2011 for your calculation. (जनगणना) –
✓ 😰😰however, Southern States were apprehensive that they’d get less ₹ compared to
Northern States because Southern states controlled their population.
⇒ While allotting money, FC should keep in mind Union’s responsibilities for New India 2022
vision e.g. Swatchh Bharat, Digital India, PM-Jan Arogya etc. so FC should give more money for
that purpose.😰😰Non-BJP states didn’t like this.
6. Recommend measures for Fiscal Discipline/Consolidation for the Union and State governments.
(राजकोषीय अनुशासन/समेकन) e.g. asking State governments to stop populist schemes like Free
TV/Mixer Grinder etc.
7. Shd union continue to provide revenue deficit grants to States? (राज� घाटे क� भरपाई के �लए अनुदान)
8. How to finance the disaster management initiatives? (आपदा प्रबं धन)
9. Performance based incentives to the state governments? (प्रदशर्न आधा�रत प्रो�ाहन) e.g. reducing
population, stopping electricity theft, stopping populist schemes like free mixer-grinders etc.
10. (2019-Jul) suggest ways for allocation of non-lapsable funds for defence and internal security.
(र�ा और आंत�रक सुर�ा �बन�पगत �न�ध)
11. (2019-Oct) Award for the UT of J&K. (This terms of reference required under Jammu and
Kashmir Reorganisation Act, 2019. ज�ू क�ीर पुनगर्ठन अ�ध�नयम)
23.2.2 �15th FC TOR: Conclusion (�न�षर्)
✓ Economic Survey 2016-17 had observed ‘aid-curse’ ('सहायता-अ�भशाप') i.e. over the years, Special
Category States received large amount of funds via Planning Commission and Finance
Commissions yet couldn’t perform well in poverty removal or economic growth due to lack of
accountability and poor governance. (योजना आयोग और �व� आयोग ने दशकों तक �पछड़े रा�ों को पैसा देते िक�ु
कु शासन के चलते गरीबी उ�ूलन व् आ�थक वृ�द्ध नहीं �ई. )
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✓ The 15th FC TOR aimed to link the fund transfers with performance and accountability
parameters. While states are apprehensive, but we’ll have to swallow this bitter pill eventually to
⬆ India’s human dev. & economic growth. (नया �व� आयोग प्रदशर्न आधा�रत प्रो�ाहन और जवाबदेही क� बात
करता है वो आवकायर् प्रशं सनीय है, भारत के मानव �वकास और आ�थक वृ�द्ध के �लए, ये कड़वी दवा हमने पीनी होगी)
✋Error in Answer Writing: Don’t digress to unsolicited Babu-Shona type suggestions &
overthinking like “Southern states should help Northern states in their family planning programs.”
23.3 🍋🍋 [🧔🧔⚖(��)] FC: VERTICAL TAX DEVOLUTION FROM UNION TO STATES
Finance Commission recommends the vertical devolution (ऊ�ार्धर कर अंतरण) from the ‘divisible pool’
of union taxes. (Here IGST, Cess, Surcharge not counted.)
FC → �व� आयोग 12th (2005-10) 13th (2010-15) 14th (2015-20) 15th (2020-21) & 21-26
Chairman? (अ��) C.Rangarajan Vijay Kelkar VY Reddy NK Singh
States Share 30.5% 32% 42% 41%*
 *15th FC’s justification: Compared to 14 FC, 1% extra Union should keep for UTs of J&K &
th
Ladakh’s security & other needs.

 Sometimes finance minister says “States, along with Ladakh, J&K be given 42% share from Union
tax for 2021-2025” Although UT of J&K & Ladakh= to get 1%, so in reality other states getting
42-1=41%.”
23.4 🍋🍋 [�⚖�⚖�] HORIZONTAL TAX DEVOLUTION AMONG STATES
रा�ों के बीच सम�रीय/�ै�तज करअंतरण
Finance Commission also gives formula for How to distribute that share horizontally with
individual States (Guj | Bihar | MH | TN...). 14th FC (YV Reddy)’s formula was…
14th FC horizontal distribution formula components Weight %
👪👪 आबादी Population: as per Census 1971 17%
👪👪 जनसां��क�य Demographic Change as per Census 2011 (To consider the
10%
बदलाव migration angle.)
Income-Distance: Based on per capita income of a state (GSDP ÷
👜👜 आय-दू री 50%
its population). Accordingly, poorer states get more weight
📏📏 �ेत्र Area: more area more weight 15%
Forest-Cover: more forest cover more weight because of
🌳🌳 वन-आवरण Opportunity cost (State can’t allow industries there, else it could 8%
have obtained some taxes)
Based on above formula, Highest to Lowest: Uttar Pradesh > Bihar > MP > WB > MH > Raj> ….. >
Mizoram > Goa > Sikkim.
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15th FC horizontal distribution formula components (घटक) → (भारांक%)
Weight%
(both in Report#1 and Report#2)
Income Distance (आय म� अंतर):
⇒ State GSDP divided by its Population = per capita GSDP.
45%
⇒ For most states, Haryana’s per capita GSDP is taken as benchmark. How poorer is
your state compared to Haryana= more ₹₹ you’ll get.**
📏📏 Area (�ेत्रफल) More area = more ₹₹ 15%
👪👪 Population (as per Census-2011: आबादी): More population = more ₹₹ 15%

Demographic Performance (जनसां��क�य �न�ादन): States that have ⬇ Total Fertility
12.5%
Rate (TFR: कु ल प्रजनन दर), will get ⬆₹₹. More in Pill#6
🌳🌳 Forest and Ecology (वन एवं पा�र��क�): More forest= more ₹₹ 10%
🍋🍋 Tax Effort (कर प्रयास) : States who’ve improved their per capita (State) tax collection
2.5%
in the last 3 years = get more ₹₹
Total (कु ल) 100%
** Note: computing income distance: the Highest per capita GSDP: 1) Goa 2) Sikkim 3) Haryana 4) Himachal.
But since Goa, Sikkim are very small states with a unique economic situation, so it’ll distort statistical formula. So, there are some
internal fine tunings done in formula. Long story cut short: Haryana taken as benchmark for most states. If you’ve more intellectual
curiosity about how above indicators are calculated in real life, you may spend waste time in PHD-reading of the original report@
https://fincomindia.nic.in/
23.4.1 🍋🍋 [�⚖�⚖�]15th FC: Horizontal devolution: States’ share

Table 1: Try to remember 3-5 names in top & bottom each, & your home state for UPSC Interview.
1) Uttar Pradesh (17.931%) 11) Chhattisgarh (3.418%) 21) Himachal (0.799%)
2) Bihar (10.061%) 12) Gujarat (3.398%) 22) Meghalaya (0.765%)
3) MP (7.886%) 13) Jharkhand (3.313%) 23) Manipur (0.718%)
4) W. Bengal (7.519%) 14) Assam (3.131%) 24) Tripura (0.709%)
5) Maharashtra (6.135%) 15) Telangana (2.133%) 25) Nagaland (0.573%)
6) Rajasthan (5.979%) 16) Kerala (1.943%) 26) Mizoram (0.506%)
7) Odisha (4.629%) 17) Punjab (1.788%) 27) Sikkim (0.388%)
8) Tamil Nadu (4.189%) 18) Arunachal (1.76%) 28) Goa (0.386%)
9) Andhra (4.111%) 19) Uttarakhand (1.104%) ANY type of UT = 0% here
10) Karnataka (3.646%) 20) Haryana (1.082%)
23.4.2 🧕🧕Finance Commissions & the fate of UTs of J&K & Ladakh
Until 10th Finance Commission, the FC would also prescribe the revenue sharing formula between
the Union Government and Union Territories.
 But this practice stopped since 11th finance commission i.e. Finance ministry itself decides how
much revenue will be shared with Union Territories based on its own discretion (क� द्रशा�सत प्रदेशों को
िकतने पैसा देना है= क� द्र सरकार अपने �ववेक से तय करता है. �व� आयोग इस म� ‘चूं’ नहीं कर सकता).
 Finance Commission no longer prescribed formula in this regard. But,
 31st October 2019: The state of Jammu Kashmir was officially split into the union territories of
Jammu Kashmir and union territory of Ladakh.
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 Jammu and Kashmir Reorganization Act, 2019 mandates that:
o Whatever amount the former state of J&K was supposed to receive between 31/10/2019
to 31/3/2020 (as per 14th FC formula) …It will be distributed between these two new
union territories on the basis of population ratio and other parameters.
o President of India shall require 15th FC to make award for UT of J&K.
o But, 15th FC report, no separate share is given in verticle / horizontal tax devolutions.
Simply 1% extra kept with Union to look after J&K & Ladakh, compared to 14th FC.
23.5 🧔🧔 → 💸💸💸 (��) GRANTS FROM UNION TO STATES (सं घ से रा�ों को अनुदान)
Apart from the tax devolution, FC would also suggest Union to give grant to the states (grant= NOT
loan, so need not return with interest). (अनुदान मतलब रा� सरकार ने वो पैसा क� द्र को वापस नहीं करना)
14th FC suggested following types of grants→
1. For All States: Grants for Panchayati Raj Institutions (PRI) and Urban Local Bodies (ULB) are
subdivided into two parts (पं चायती राज व शहरी �ानीय �नकायों के �लए अनुदान दो िह�ों म� �वभा�जत)
a. basic grant (प्राथ�मक) and
b. (10-20%) performance based grants.(प्रदशर्न आधा�रत)
2. For All States: Disaster Management Grants. (आपदा प्रबं धन अनुदान)
3. For 14 States: Post-Devolution Revenue Deficit Grants. (अंतरण-प� राज� घाटा अनुदान)
15th FC suggested following types of grants → Numbers NOT GREATLY IMPORTANT
Type Report#1 (2020-21) Report#2 (2021-26)
1) 💸💸💸🏕🏕Local Bodies A) 60cr to Rural A)2.##Lcr Rural
Grants (�ानीय �नकाय अनुदान B) 30cr to Urban B)1.##Lcr Urban
= Total 90k cr =total 4.36Lcr
2) 💸💸💸�Post-Devolution 74kcr 2.94 Lcr
Revenue Deficit Grants
3) 💸💸💸🌬🌬🌬🌬Disaster A) 12kcr in Union ke A) 68 kcr in Union ke Disaster
Management Grants (आपदा Disaster funds funds
प्रबं धन अनुदान) B) 29kcr in State ke B) 1.22 Lcr in State ke Disaster
Disaster funds funds
4) 💸💸💸🍽🍽Sector Specific 7700cr for Nutrition >1 lakh crore for (Sectoral grants
Grants: (�ेत्र-�व�श� अनुदान) with Health, Education, agricultural
💸💸💸� Performance- reforms, rural roads, Judiciary,
based incentives (�न�ादन- Statistics, Aspirational districts)
आधा�रत प्रो�ाहन)
6) 💸💸💸🏰🏰State specific N/A 49599 cr.
grants for tourism, historical
monuments, infrastructure,
water etc.
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Type Report#1 (2020-21) Report#2 (2021-26)
7) 💸💸💸�Special Grants: ~6700kcr N/A
(�वशेष अनुदान)
8) Union Govt ke liye Defense N/A 2.38 Lcr
and Internal Security Fund
23.5.1 💸💸💸🏕🏕15th FC: Local Bodies Grants (�ानीय �नकाय अनुदान)
Description
Rural Local Bodies - Out of the total amount:
given to all three tiers ⇒ 50% is Tied Grants (�न�द�) = meant only for specific objectives 1)
in the panchayats, i.e. sanitation 2) water (��ता और पानी)
village, block and ⇒ 50% is Untied/basic (प्राथ�मक) = can be used for any objective
district. And also, for
depending on location. Except salary & establishment (building
5th and 6th Sch. areas
renovation, electricity bill etc.)
From 1/4/2021 they’ll be required to submit audited accounts online
through Panchayati Raj Institutions Accounting Software (PRIAsoft) to
Comptroller and Auditor General (CAG: �नयं त्रक और महालेखा परी�क)
Urban Local Bodies Divided into two parts:
(ULB) & ⇒ ₹“X” cr million plus population-walli cities. (Excluding Delhi &
Cantonment boards Srinagar for being in UT). These grants are mainly to be used for air
quality improvement, water & solid waste management (वायु गुणव�ा म�
शहरी �ानीय �नकाय सुधार, जल और ठोस अप�श� प्रबं धन).
⇒ ₹”Y” cr for cities with <1million pop: 50% untied (basic) grants + 50%
tied for specific objectives 1) drinking water 2) solid waste
management. (पेयजल और ठोस अव�श� प्रबं धन)
From 1/4/2021, ULBs required to 1) reform property tax rates 2) submit
audited accounts to CAG online.
23.5.2 💸💸💸�Post-Devolution Revenue Deficit Grants (अंतरण-प� राज� घाटा अनुदान)
Figure 1: हमको और पैसा दो, हमारे राज� घाटे क� भरपाई के �लए!

Suppose (amt in ₹cr) 2020-21
Andhra’s own State Budget: (-) 41 kcr
Revenue Expenditure -minus Revenue Income = Revenue Deficit (राज� घाटा)
Andhra’s share from Union’s taxes based on horizontal devolution (+) 35 kcr
Andhra’s Post-Devolution Revenue Deficit = 41-35=6 kcr.
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So 15th FC will give Andhra extra 6 kcr as Post-Devolution Revenue Deficit Grant (अंतरण-प� राज�
घाटा अनुदान). Only 14 states eligible: Assam, Himachal Pradesh, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Uttarakhand, Andhra,Kerala, Punjab, Tamil Nadu, West Bengal.
😤😤FAQ: On above logic/formula, wouldn’t a careless state govt spend truckload of money by
borrowing from market? Ans. REF: Pillar2D: FRBM Act.
23.5.3 💸💸💸�15th FC: Special Grants: (�वशेष अनुदान)
Report#1 (2020-21)
⇒ If a state receives less ₹₹ in (15th FC’s devolution + post revenue deficit grants) in 2020-21
compared to 2019-20 (when 14th FC Rangarajan’s formula was in effect),
⇒ Then such State will get Special Grants just to prevent any ‘feeling of injustice / bias’ (अगर 14व� �व�
आयोग क� अपे�ा 15म� कम �मल रहा हो तो अ�ाय / प�पात के आरोप से बचने के �लए उन रा�ों को �वशेष अनुदान)
⇒ Only 3 states eligible: Karnataka, Telangana and Mizoram. Total ₹6,764 cr for 2020-21
Report#2 (2021-26)
 No such grant announced. (ऐसा कोई �वशेष अनुदान नहीं िदया गया)
23.5.4 💸💸💸🌬🌬🌬🌬15th FC: Disaster Management Grants (आपदा प्रबं धन अनुदान:)
Disaster Management Act, 2005 → Ministry of Home Affairs (गृह मं त्रालय) looks after the subject.
15th FC: recommend 🧔🧔National Disaster Risk Management Fund �State Disaster
�सफ़ा�रशे (NDRMF: एनडीआरएमएफ/रा��ीय आपदा जो�खम प्रबं धन कोष) Risk Management
Fund (SDRMF)
Internal distribution ⇒ 80% amt for National Disaster Response Fund Same pattern, change
आंत�रक �वतरण (NDRF:एनडीआरएफ/रा��ीय आपदा सहायता कोष) word from National
⇒ 20% amt for National Disaster Mitigation to ‘State’
Funds (NDMF:एनडीएमएफ/रा��ीय आपदा प्रशमन कोष)

**Notes on SDRMF:
1) How much will an individual state get? Ans= depends on its past disasters, risk exposure (area &
population wise) etc. आपके रा� म� आपदा का जो�खम िकतना है उस िहसाब से कम / �ादा पैसा �मले
2) Respective State Govt is also required to contribute some money in SDRMF.
23.5.5 💸💸💸🍽🍽15th FC: Sector Specific Grants (�ेत्र-�व�श� अनुदान)-Malnutrition

 Report#1 (2020-21): 15th FC only recommended health → Nutrition grant (₹7700+ cr पोषण
अनुदान) to combat malnutrition (कु पोषण). Ministry of Women and Child Development (MoWCD:
मिहला बाल �वकास मं त्रालय) will oversee its utilization.
 Report#2 (2020-21): given below in the following table:
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23.5.6 💸💸💸🍽🍽15th FC: Sector Specific Grants (�ेत्र-�व�श� अनुदान)-Health
Type Report#2: (2021-26) Amount
Local Bodies Grant (Rural and urban) Local Bodies given ₹₹ to 70kcr
पं चायती राज/नगरपा�लकाओं को प्राथ�मक �ा� convert Primary Health centres (PHC) into
क� द्र को �ा� और क�ाण क� द्र म� प�रव�तत health and wellness centres (HWCs)
करने के �लए ट�क भर के पैसा
Sectoral Grant → Health Critical Care hospitals i.e. facilities with 15kcr
नाजुक देखभाल के अ�तालों को बनाने के �लए Intensive Care Unit (ICU) ventilator, kidney
पैसा dialysis etc.
Sectoral Grant → Health Training of Allied Healthcare workforce (lab 13kcr
�चिक�ा सं ल� मानव बल क� तालीम के �लए पैसे technicians, radiographers, dieticians,
Physiotherapist, ASHA Worker etc)
Sectoral Grant → Health State government to run Doctor training 2kcr
�जले के अ�तालों म� डॉ�री तालीम के कोसर् courses in district hospital
करवाने के �लए पैसा
कु ल �मलाकर Total: 70kcr to local bodies + 30kcr as Sectoral 1.06
Grants = 1.06 Lakh cr. Lcr.
** Healthcare sector Grants are unconditional i.e. not based on performance of a State Govt.
Additional Recommendations by 15th FC on Healthcare
⇒ Union and State Government together should spend 2.5% of GDP on Healthcare sector by 2025.
(क� द्र और रा� सरकार ने �मलकर �ा� �ेत्र म� सावर्ज�नक खचर् को बढ़ाकर जीडीपी के ढाई प्र�तशत तक करना चािहए)
⇒ All-India Services Act, 1951: (presently we've IAS,IPS,Indian Forest Service) → make 4th All
India service: "All India Medical and Health Service" → UPSC to conduct recruitment. This will
help addressing the shortage of doctor in backward states. आईएएस/आईपीएस क� तजर् पर एक और अ�खल
भारतीय सेवा बनाई जाए "अ�खल भारतीय �चिक�ा एवं �ा� सेवा" तािक �पछड़े रा�ों म� डॉ�रों क� कमी को पूरा िकया जा सके
⇒ Most of the medical colleges and super-speciality hospitals (e.g. Cancer) are concentrated in the
Western and Southern parts of India. Union and State government should make efforts to
address this.(प��मी/द��णी रा�ों के अलावा वाले �व�ार म� भी अ�� मेिडकल कॉलेज| अ�ताल बनाने पर जोर िदया जाए)
23.5.7 💸💸💸🍽🍽15th FC: Sector Specific Grants (�ेत्र-�व�श� अनुदान)- Others(अ�)
Report#2: (2021-26) Amount
कृ �ष �ेत्र म� सुधारों के �लए -नी�त आयोग Implementation of agricultural reforms e.g.
द्वारा प्र�ा�वत कानूनों को पा�रत करना, Passing the agricultural formula suggested by
भूजल सं वधर्न, �तलहन दाल लकड़ी उ�ादों Niti Aayog, Groundwater conservation,
को प्रो�ाहन, कृ �ष �नयार्त को बढ़ोतरी Improving Oilseed pulses wood products, 45kcr
agricultural export, (📑📑Ref: HDT-Pillar#4A)
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Report#2: (2021-26) Amount
�ा� �ेत्र  Sectoral grants for Health (Learned in 30k as
previous section) sectoral
 Note: +A) sectoral grant 30k cr + B) grant
separately local bodies given 70kcr= total
more than ₹1 lakh cr but “Sectoral grants
MCQ =count only ₹30k
ग्रामीण सड़कों क� मर�त Maintenance of PMGSY roads (Pradhanmantri 27 kcr
Gram Sadak Yojana) (📑📑Ref: HDT-Pillar#5-
Transport Infrastructure)
�ा�यक सुधार -अ�त�र� �ायालय और Judiciary: ₹₹ for Setting of extra courts and
जजों क� �नयु�� के �लए पैसा- �जसे 5 साल judges to finish the the property cases which are 10 kcr
या उससे अ�धक �वलं �बत सं प��यों के मामलों pending for 5 years or older, Civil cases of
का �नपटारा, ब�ों के यौन शोषण,गं भीर marginalized people, POSCO cases (child sex
अपराध के मामलों का ज�ी �नपटारा abuse) & heinous crimes
उ� �श�ा म� ऑनलाइन पढ़ाई क� �व�ा Higher Education-For 1) developing online 6 kcr
तथा �चिक�ा और इं जी�नय�रंग के कोसर् को learning 2) translating medical engineering
प्रादे�शक भाषा म� अनुवािदत करने के �लए courses in regional languages
�ू ली �श�ा School Education 4.8 kcr
Total Sum (कु ल योग) >1 lakh cr
These grants also include internal quota for performance based incentives i.e. Better performing
States will be given additional money. (इन सभी अनुदान म� कु छ अंद�नी/आंत�रक कोटा होता है, �जसम� अ�धक अ�ा
प्रदशर्न करने वाले रा�ों को अ�धक रकम �मल सके )
23.5.8 💸💸💸💸💸💸Defence and Internal Security Fund for Union

For whom? Union Government (क� द्र सरकार के �लए)
Where? Public Account of India → Modernisation Fund for Defence and Internal Security
(MFDIS: लोक लेखा �न�ध के अंतगर्त र�ा तथा आंत�रक सुर�ा के नवीनीकरण/आधु�नक�करण के �लए कोष या
�न�ध).
Type Non-lapsable Fund (The money in such fund will not lapse on 31st March, so it can
be used in future without getting another approval from parliament.) �बन�पगत �नधी
Amount ₹ 2.38 Lcr (total for 2021-26)
😰😰Controversy on MFDIS Fund? (�ववाद/आलोचना)
⇒ Some State governments are unhappy that the 15th finance commission should stick to its
Constitutional mandate of giving ₹₹ to States & not allot to Union. ESLE less money available for
State Governments' development works. �व� आयोग क� सं वैधा�नक �ज�ेदारी है िक रा�ों क� तरफ पैसा दे, ना िक
क� द्र के िह�े म� पैसा बढ़ाते रहे अ�था रा�ों के पास कम पैसा आएगा
⇒ Since the fund is marked as a non-lapsable fund → Defence ministry may be very involved in
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utilising it and the amount will remain on spent. A similar problem is present in "Nirbhaya fund
for women safety". (📑📑Ref: HDT-Pillar# 2D for more) �बन�पगत �नधी म� पैसा खचर् करने म� मं त्रालय सु�ी
�ादा िदखाते ह� इस�लए असल म� लाभ होता नहीं. भूतकाल म� मिहला सुर�ा के �लए बनाए गए �नभर्या फं ड म� ऐसा ही अनुभव रहा है.
23.5.9 🤏🤏 15th FC: Other recommendations to Govt (सरकार के �लए अ� �सफा�रश�)
⇒ Some States have requested special category status. But it’s not part of our mandate/Terms of
Reference. So we’ve nothing to say on this matter. (कु छ रा� “�वशेष श्रेणी का दजार्” मांग रहे ह� लेिकन रा��प�त
महोदय द्वारा हम� िदए गए �वचाराधीन �वषय म� यह मुद्दा है ही नहीं इस�लए हम इस पर कोई िट�णी नहीं द�गे).
⇒ Reform the taxation system → ⏫ tax collection. (प्र�� कर प्रणाली म� सुधार)
⇒ Review the outcomes of all Govt schemes. Merge/abolish non-essential schemes. सभी सरकारी
योजनाओं क� समी�ा कर� और अनाव�क योजनाओं को �वलीन कर�
⇒ We need a law on “Public Financial Management System” it’ll prescribe the budgeting,
accounting, internal control and audit standards to be followed at all levels of government. (लोक
�व�ीय प्रबं धन प्रणाली के �लए अलग क़ानून बनाया जाए). WHAT IS THIS EXACTLY? ✋✋NOT IMP unless
doing PubAD Optional.
⇒ Govt should follow FRBM Act with full sincerity in letter and spirit. (More in 📑📑Pillar2D: FRBM
Section पूरी �न�ा के साथ एफआरबीएम कानून का पालन ज�री)
23.5.10 ✍ 15th FC Report: conclusion (�न�षर्- उनके �रपोटर् क� सराहना-क� ब� ब�ढ़या �रपोटर् बनाया है)
✓ Sustainable Development Goal#10: ⏬ inequality within the country. SDG-Goal#16 requires
nations to build effective, accountable and inclusive institutions at all levels. (सतत �वकास ल�:
असमानता को कम करो | लोक प्रशासनके सभी �रो मे सं �ानो को प्रभावी, जवाबदेह और समावेशी बनाओ)
✓ In this regard, 15th FC has tried to provide a framework for
○ 1) equitable distribution of revenue 2) incentives tied with performance. ऐसा ढांचा जहा 1)
कर-�वतरण समानता के साथ और 2) प्रो�ाहन प्रदशर्न के िहसाब से �मलेगा
✓ It’ll greatly help to improve India’s human dev+ eco dev. मानव �वकास और आ�थक �वकास मे मदद
23.5.11 👻👻😷😷ATMANIRBAR → 🧔🧔🧔🧔🧔Helping States → Tax devolution and grants
⇒ Corona = Union’s tax income ⏬⏬ but still under Atma-Nirbhar → Union has given
assurance, “We’ll release Tax Devolution and grants to the states as per the figures announced in
the Budget and Finance Commission report.” (हालाँिक कोरोना महामारी म� क� द्र सरकार क� कार आमदनी म� �गरावट
आयी है िकंतु िफर भी �वत् आयोग क� �सफ़ा�रशों के िहसाब से, क� द्र रा�ों को पैसा देगा ऐसा आ�ासन िदया)
23.6 🕵🕵(🍋🍋🍋🍋⚖�)⏰ FC: GIVING PERMANENT STATUS (�ायी दजार् देना)
Figure 2: CAG-UPSC जेसी कायम चालू रहेने वाली सं �ा बनाओ FC को- तभी ठीक से काम होगा- श��कांता
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(Introduction: Origin) Shaktikanta Das, the Governor of RBI and a member of the 15th Finance
Commission (FC), has recommended giving a permanent status to the FC, wherein the old
commission continues to implement & monitor the recommendations till the next commission
starts functioning. (जब तक नया �व� आयोग नहीं बनता पुराने �व� आयोग क� ऑिफस खुली रखनी चािहए)
23.6.1 �👎👎Arguments against giving permanent status to FC (�वरोध म� तकर् )
 Indian economy and Indian union has functioned successfully for over 70 years with this
mechanism, so there is no need for such constitutional amendments and experimentations.
वतर्मान �व�ा यो��प से चल रही है, नए सं वध
े ा�नक प्रयोगो क� कोई ज�रत नही
 Both NITI Aayog and GST Council provide a platform for cooperative federalism (सहकारी सं घवाद
क� चचार् के �लए मं च उपल�).
 Further, we already have the CAG to audit the accounts of the Union and the States.
 Therefore, Giving permanent status to FC= duplication of efforts.(प्रयासों का �थर् दोहराव)
 Even if the FC given a permanent status → states ruled by opposition parties will continue to
allege injustice & partiality, just like they allege with the functioning of Election Commission.
 Then, the Union Finance Ministry’s precious time will be wasted in filing counter-responses to
the States at FC. �व� आयोग पूरा समय रा�ों क� फ�रयाद सुनता रहेगा और क� द्र सरकार उसी के जवाब देने म� लगी रहेगी
23.6.2 �👌👌Argument in favour of giving permanent status to FC (प� म� तक)
 Election Commission has a permanent status even though elections are to be conducted every 5
years. Previous Lok Sabha’s speaker continues to hold position until new Lok Sabha meets for
the first time. Following this rationale, Shaktikanta Das’s suggestion that “Previous Finance
Commission should continue to function & oversee the implementation of its recommendations
until new FC is formed” is valid. (चुनाव तो 5 साल म� एक बार होते ह� िफर भी चुनाव आयोग क� ऑिफस खुली रहती है)
 Finance Commission recommendations are valid for a block of 5 years. Even if there is a war,
disaster, famine or an economic crisis which may affect the revenue collection of the union vs.
the demands by the States, still, the FC-formula/recommendations cannot be modified/finetuned
in-between the five years. So, even if Union/states are feeling any injustice in the FC-formula,
they have to wait for five years to make pleas to the next Finance Commission.
 If FC has a permanent secretariat/office = staff will keep all the records/ Knowledge bank for
future reference, and a few officers will act as ‘Resource Persons’ to assist the new panel. Then,
there will be more consistency in the FC recommendations. (जानकार �ाफ का तबादला हो जाता है)
 Such permanent body can keep a constant vigil (अ�वरत सतकर् ता) on the Union and State finances &
revenue collections and hold them accountable for any transgressions or lethargy (उ�ं घन / सु�ी).
[Present approach of the union governments is if they are not getting enough taxes, they will simply
borrow more money and changing the FRBM targets/goalposts as per their convenience. More
under 📑📑 Pillar2D:FRBM handout]
 Previously, Union and States designed their five-year plans, and so it made sense to have a ‘five-
year formula for tax distribution’. But now the five-year planning system has been discontinued.
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पं चवष�य योजनाओं का दौर ख� हो चुका है, इसी हमने 5-5 वषर् के मान�सकता से �नकलकर �नरंतर �नगरानी रखनी चािहए
23.6.3 � Conclusion: give permanent status to FC or not? (�न�षर्)
⇒ ✅(In-favor) Considering the aforementioned benefits, Finance Commission should be given a
permanent status for better monitoring, accountability, grievance redressal in the matters related
to fiscal federalism. (राजकोषीय सं घवाद के मामलों म� बेहतर �नगरानी, जवाबदेही और �शकायत �नवारण के �लए �व�आयोग
को �ायी दजार् देना लाभकारक होगा.)
⇒ ✋(Against) Considering the aforementioned issues, the present constitutional and institutional
mechanisms are adequate for fiscal federalism; they do not merit any changes for the time being.
(वतर्मान प्रणाली सुयो�, िफ़लहाल कोई प�रवतर्न अनाव�क)
23.7 � FC VS PC VS NITI: WHAT’S THE DIFFERENCE?
� 🍋🍋⚖ Finance �🤴🤴 Planning Commission �🧔🧔 NITI Aayog

Commission (FC) (PC) योजना आयोग National Institution
for Transforming India
Constitutional body Created by executive resolution, so neither constitutional non
statutory. Both headed by Prime Minister as the chairman.
1951: 1st FC setup under KC - 1951: PC set up and over the - 2015: Formed.
Neogy years designed 12 Five Year - Three Year Action Agenda
plans (12th FYP: 2012-2017) (2017-20).
- 2014: Dissolved by Modi - Seven Year Strategy
Government. Document.
- Fifteen Year Vision
Document(2017-32).
- Taxes’ Vertical 1. How much money should It is not in its scope of work to
Devolution and union give to each state for decide how much money
horizontal distribution implementation of Union’s should be given to each state.
among states. centrally sponsored schemes That component is decided by
- + any other matters (CSS)? the Finance Ministry.
referred by the President 2. How much money should - NITI’s primary objective is
in TOR union government give to the to serve as the think tank of
- Each Finance five year plans of the state the Government of India,
Commission arrived at governments? - Helps in policy design.
its own methodology. To answer these Qs, PC would use - Helps in monitoring
E.g. 14th FC: 42% Gadgil Mukherjee formula schemes’ through its
vertical, and 5 factor (designed in 8TH FYP)- based on dashboard e.g. ‘School
formula for horizontal population, per capita income, Education Quality Index’,
distribution. special problems etc. of a state. ‘SDG India Index’, ‘Digital
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Transformation Index’
< More about Planning Commission and NITI Aayog in 📑📑Pillar#4>
🔠🔠❓ MCQ. In India, which of the following review(s) the independent regulators in sectors like
telecommunications, insurance, electricity etc. ? (UPSC Prelims-2019)
1. Ad Hoc Committees set up by the Parliament.
2. Parliamentary Department Related Standing Committees
3. Finance Commission (4) Financial Sector Legislative Reforms Commission (5) NITI Aayog
Answer Codes: (a) 1 and 2 (b) 1 , 3 and 4 (c) 3, 4 and 5 (d) 2 and 5
23.8 🍋🍋(🧔🧔⚖�🙏🙏) SPECIAL CATEGORY STATES? �वशेष श्रेणी के रा�?
Figure 3: हमारा रा� गरीब है, इस�लए हमे �वकास के �लए क� द्र सरकार ने अलग से ढेर सारा पैसा देना चािहए!
- 1952: The National Development Council (NDC: रा�ी� य �वकास प�रषद) was set up, with PM, CMs and
other representatives to approve FYP prepared by the Planning Commission.
- Although NDC became obsolete with establishment of NITI Aayog.(फू टा �आ कारतूस बन चुका है)
- 1969: 5th FC recommended giving extra ₹₹+ tax-relief to certain disadvantaged states. Over the
years, NDC added more states into the Special Category List based on
✓ (i) hilly and difficult terrain (पहाड़ी और किठन भूभाग)
✓ (ii) low population density and / or sizeable share of tribal population (कम जनसं �ा
घन� और / या जनजातीय जनसं �ा का बड़ा िह�ा)
✓ (iii) strategic location along borders with neighbouring countries (पड़ोसी देशों के साथ
सीमाओं के साथ रणनी�तक �ान)
✓ (iv) economic/infrastructural backwardness (आ�थक/अवसं रचना�क �पछड़ेपन)
✓ (v) non-viable nature of state finances. (रा� �व� क� गैर-�निहत प्रकृ �त।)
- Examples: 8 North Eastern states and 3 Himalayan States (JK, Uttarakhand, HP). Although,
Post-370 removal, J&K is no longer in this list.
- 🤩🤩🤩🤩Benefits of Sp.Cat. States? (�वशेष श्रेणी के रा�ों को �ा �रयायते / लाभ �मलते है?)
✓ Industrialists will be given benefits in Union-taxes for setting up factories in these states.
(उद्योगप�त को फै ��ी लगाने पर कर म� छू ट/ �रयायत- तािक वह �पछड़े रा� म� जाने के �लए आक�षत हो )
✓ Union bears higher burden in Centrally Sponsored Schemes (CSS) e.g 90:10 ratio: (क� द्र
प्रायो�जत योजनाएं म� क� द्र सरकार अपनी जेब से �ादा अनुपात म� पैसा देता)
✓ FC & PC would assign more weightage in their formulas to give them more funds.
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- 14th FC: Previous FC assigned extra weightage & funds to Sp.Cat states, but 14th FC stopped
- But, whenever elections are near, W.Bengal, Bihar and Andhra CMs would demand Sp.Cat.
status & blame Union for ‘injustice’. (चुनाव करीब हो- उस व� कु छ रा� नाइं साफ� क� बात करते ह�)
- 15th FC: Some States have requested special category status. But it’s not part of our
mandate/Terms of Reference. (�वत् आयोग के �वचाराथर् �वषयो मे ये है ही नही!)
- So, at present, Sp.Cat states don’t get additional revenue/grants in FC’s formula. Although,
Union upon its own discretion continues to give them certain benefits in CSS. (वतर्मान �व� आयोग,
इन रा�ों को अलग से कोई पैसा नहीं देते। िकंतु क� द्र सरकार �यं के �ववेक से योजनाओं म� �ादा पैसा दे सकती है।)
23.8.1 🍋🍋(🧔🧔⚖�🙏🙏) Sp.Cat States → Economic Surveys criticised
Figure 4: इतने सालों तक ढेर सारा अनुदान िदया िफर भी �वकास �ों नहीं? - "दान एक श्राप है"- Former CEA
- 📔📔📔📔Economic survey 2016-17: Noted that Sp.Cat states have received lot of funds & grant
from previous FCs and PCs, and yet they have not made any tangible progress in improving
public administration or removing poverty (=” Aid Curse”: सहायता का अ�भशाप). Similar problem
with the States having abundant mineral resources (=“Resource Curse”: ख�नज सं साधनों का अ�भशाप).
- ES 2017-18: Noted that compared to Brazil, Germany and other countries with federal polity,
India’s State Governments and Local Bodies are collecting less amount of tax for two reasons :
- 1) Constitution has not given them sufficient taxation powers. (सं �वधा�नक श��यां कम)
- 2) Even where constitution gave them powers like collection of Agricultural Income Tax,
Land Revenue, Property Tax: The States/Local Bodies are shy of collecting taxes due to
electoral politics. (चुनावी लोकलुभावन के चलते सही मात्रा म� टै� नहीं वसूला)
😰😰Result? Poor quality of Public Schools, Public Transport, Police, Drinking Water and Sanitation.
सावर्ज�नक �ू लों, प�रवहन, पु�लस, पेयजल और ��ता क� खराब गुणव�ा
23.8.2 🍋🍋(🧔🧔⚖�🙏🙏) Sp.Cat States → Hill Union Territory Status for J&K?
While FC no longer give extra weightage to ‘Sp.Category States’ in horizontal tax distribution
formula, but Union give additional ₹₹ for their welfare schemes from Union’s own pocket:
Category (श्रेणी) → Welfare schemes Cost sharing (खचर् क� साझेदारी)
A "Special Category States" (�वशेष श्रेणी के रा�): Depending on the scheme, union
- North-Eastern States, and may contribute 80-90% of the
- TWO Himalayan Hilly States: Himachal Pradesh and scheme cost, rest will be borne by
Uttarakhand# the State.
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B - Other States: who are not in above category (UP, Union may bear lower burden
Bihar, etc.) than Sp. Category states e.g.
- Union territory (UT) with legislature: Delhi, 50:50, 60:40 etc.
Puducherry, Jammu & Kashmir.
C - UT without legislature (�बना �वधा�यका के क� द्र शा�सत प्रदेश): 100% funded by Union
Ladakh, Andaman Nicobar etc.
- #
Before removal of Article 370, the State of J&K was previously in Special category.
- But as a UT with legislature, J&K will get lower assistance from Union in the welfare schemes.
So, 2019-Aug: Central Government considering creating a new category ‘Hilly Union Territory
(पहाड़ी क� द्र शा�सत प्रदेश)’ so J&K may continue to received 90:10 funding. <update when done>
23.9 � MOCK QUESTIONS FOR UPSC MAINS (250 WORDS EACH)

1. What are the terms of reference of the 15th Finance Commission? Why were some state governments
apprehensive about them? १५व� �व� आयोग के �वचाराथर् �वषय �ा है? कु छ रा� इस �वषयम� आशं कावान �ों?
2. Compare and contrast the horizontal tax devolution approaches of 14th FC vs 15th FC �े�तज कर अंतरण के
�सध्द्धांतों मे 14वा और 15वे �व�आयोग क� समानता व �भ�ता क� तुलना क��जए
3. Enumerate the grants suggested by 15th FC for 2020-21. अनुदानों क� सूची दी�जए।
4. “The constitution of GST Council has reduced the role of Finance Commission as the balancing wheel of
fiscal federalism in India.” Do you agree? Justify your stand. "जीएसटी प�रषद के गठन ने �व� आयोग क� भारत म�
राजकोषीय सं घवाद के सं तुलन म� भू�मका को कम कर िदया है।" �ा आप सहमत ह�? अपने तकर् को उ�चत ठहराएं ।
5. Examine critically the merits of giving a permanent status to the finance commission. �व� आयोग को �ायी दजार्
देने (के सुझाव) क� यो�ता क� गं भीर समी�ा क��जए.
24 🍋🍋🍋🍋🍋 TAXATION → BLACK MONEY & ALLIED ISSUES

Tax Planning / Tax When person invests money in LIC/PPF/Pension funds etc.in such manner
Mitigation that he can claim various deductions legally available in the Income Tax Act.
(कर-�नयोजन) It’s neither illegal nor unethical. (न ही अवैध और न ही अनै�तक)
Black Money It is an income or transaction that is taxable yet NOT reported to the tax
(काला धन) authorities concealed from the tax authority.
कालाधन ऐसी आय/लेनदेन है जो क� कर-पात्र है, िक�ु कर-अ�धका�रयों से �छपाई गई.
Parallel Economy The economy that runs on black money. (समानांतर अथर्�व�ा जो काले धन पर चलती है)
👺👺Tax Evasion When person hides income or transaction from tax authorities, and thereby
(कर अपवं चन evades paying taxes. It’s illegal. (कराधान यो� आय या लेन देन को सरकार से �छपाना और
कर-चोरी) करचोरी करना)
🤵🤵🤵🤵Tax When person discloses his income and transactions to tax authorities but uses
Avoidance legal loopholes to avoid paying taxes. E.g. Bollywood stars who register digital
(कर प�रहार media companies in Tax Havens. It may not be illegal in every case, but still
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कर-टालना) unethical. (कराधान यो� आमदनी या लेनदेन को सरकार से �छपाना निह, लेिकन क़ानून मे �छद्रों के
इ�ेमाल द्वारा कर को टालना जाना। )
🍸🍸Tax Haven Is a country that demands little taxes from foreigners and offers legal
(कर �गर्) loopholes for Tax Avoidance & opportunities for Tax Evasion. E.g.
एसा देश जहां कर टालने / Liechtenstein, Mauritius, Marshall Islands, Cayman Islands, Panama, Nauru,
Vanuatu etc. These countries are geographically small, & without viable
�छपाने के �लए ब�त अवसर
economy. So they offer such mechanism to attract foreign investors and
�मलते ह�
foreign tourists.
👺👺→🤵🤵Money ⇒ When drug trafficking, ransom, corruption and other criminal activity
laundering generates substantial profits, the criminal tries to spend / invest / hide the
(गैरकानूनी तरीके से प्रा� money without attracting attention.
धन को वैध बनाना) ⇒ Money laundering (धनशोधन) is the process of disguising the source of
money, as if it came from a legitimate activity, & then channelize it into
banks, share market and other financial intermediaries.
Hawala ⇒ Hawala is an illegal money transfer / remittance system. Money is paid to
गैर कानूनी �प से एक जगह an agent who instructs an associate in the relevant country or area to pay
से दू सरी जगह पैसा भेजना the final recipient.
Although used by Indian workers in middle east because lower commission
than post-office/bank transfers, + better network in remote villages
Shell firms, They do not have any active business operations. Created with sole objective
Post-box/ of money laundering/tax evasion/avoidance E.g. Mishail Packers and Printers
Letter-box Pvt Ltd. allegedly setup by Misa Bharti Yadav to launder ₹1.2 crores (as per
companies Enforcement Directorate). मात्र कर चोरी के �लए बनाई गई कं प�नयां
Panama Papers International Consortium of Investigative Journalists is a USA based
(2016) nonprofit organization: released these incriminating documents from certain
Paradise Papers law firms in tax havens & showed how big politicians, businessmen,
(2017) sportsmen, filmstars have setup shell companies for tax evasion/avoidance
Mauritius papers across the world.
(2018) Putin, Sachin, Ambani, Amitabh Bachchan & Aishwarya Rai also named in
Pandora Papers these papers. (पत्रकारों का एक वै��क सं गठन �ज�ोंने अलग अलग द�ावेज़ जारी कर सा�बत िकया-
(2021) कै से दु�नया के रसूखदार लोग फ़ज़� कं प�नयां बनाकर कर चोरी करते ह�)
Tax Terrorism  Happens when tax authorities put undue pressure on an honest taxpayer
(कर आतं कवाद) to pay more taxes. (ईमानदार करदाता पर टै� अ�धकारी अनाव�क दबाव / उ�ीड़न करे)
🍋🍋🍋🍋🍋🍋🍋: �  Critiques have used this word in context of Vodafone & Cairn cases.
TDS/TCS Tax Deduction at Source (TDS) �ोत पर कर कटौती
Tax Collection at Source (TCS) �ोत पर कर सं ग्रह
These are the mechanism to discourage tax evasion. 📑📑Ref:2A: IT Handout
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PAN Card 10 letters alphanumeric numbered assigned to all taxpayers in India by
�ाई खाता सं �ाक Income Tax Dept. 📑📑Ref: 2A: GST Handout for more.
24.1 (🍋🍋🍋🍋)�BLACK MONEY → NOTABLE ORGANISATIONS
Enforcement FinMin → Department of Revenue → ED is a Specialized financial

Directorate (ED: प्रवतर्न investigation agency to enforce following laws
�नदेशालय ) 1. Foreign Exchange Management Act,1999 (FEMA)
2. Prevention of Money Laundering Act, 2002 (PMLA)
Directorate of Revenue FinMin → Department of Revenue → CBIC → DRI is an agency to
Intelligence investigate Customs/Narcotics/Wildlife/Arms related smuggling & illegal
activities. (DRI: राज� आसूचना �नदेशालय)
Financial Intelligence It analyses the suspected financial transactions in domestic and
unit (FIU-2004: �व�ीय crossborder levels & reports directly to the Economic Intelligence Council
आसूचना एकक) (EIC: आ�थक आसूचना प�रषद) headed by the FM
Financial Action Task  is a brainchild of G7, Combating Money laundering and terror
Force (FATF-1989: finance. India became member in 2010. HQ@Paris
HQ@Paris  Greylist: nations that safe haven for terror financing and money
�व�ीय कारर्वाई कायर्दल: ऐसे
laundering. E.g. Pakistan, Syria, Yemen, etc are on the grey list.
बदमाश ग़ैर �ज़�ेदार देशों क�
सूची बनाता है जहाँ धनशोधन और (Update 2021: Mauratius was REMOVED from this list)
आतं क� �व�पोषण के �ख़लाफ़  Blacklist: nations that are not cooperating in the global fight against
स�ी नहीं है) money laundering, terrorist financing. Iran and N.Korea
OECD (1961:  Organisation for Economic Co-operation and Development
HQ@Paris.  Works for International cooperation in the matters of economy and
आ�थक सहयोग तथा �वकास taxation. Known for Base erosion and profit shifting (BEPS) Norms.
सं गठन)  India is not a member of OECD, yet. HQ@Paris.
24.2 🍋🍋🍋🍋 TAX EVASION (HIDING INCOME / TRANSACTION)
24.2.1 🍋🍋🍋🍋⚖ Prevention of Money Laundering Act (PMLA-2002)
धनशोधन �नवारण अ�ध�नयम

➢ 1998: UN General Assembly (UNGA) declaration on Money Laundering → 2002: India enacts
this law to combat money laundering with search-seizure-arrest-penalty. Main agency?
Enforcement Directorate. (सं यु� रा�� सामा� प�रषद क� घोषणा के बाद भारत ने क़ानून बनाया था)
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➢ Cases heard @ PMLA Adjudicating Authority (�ाय�नणर्यन प्रा�धकारी) → PMLA Appellate Tribunal
(अपीलीय प्रा�धकरण) → High Court
➢ RBI, SEBI, IRDAI and other regulators to make norms for Banks/NBFCs.
➢ E.g. RBI’s Know Your Customer (KYC) norms and Anti-Money Laundering (AML) standards.
2013: Online Magazine Cobrapost’s sting operation proved ICICI, HDFC and Axis Bank were
flouting norms so RBI imposed a heavy penalties.
24.2.2 🍋🍋🍋🍋⚖ Undisclosed Foreign Income & Assets Act (UFIA-2015)
अ�ात �वदेशी आय तथा प�रसं प�� अ�ध�नयम

➢ It requires Indian residents to disclose their foreign assets (e.g. bungalow in Dubai, Bank account
in Switzerland), and income coming from foreign sources (e.g. shell company in Cayman Island)
in their income tax forms. (�वदेशी आमदनी और �वदेशी �नवेश क� जानकारी अपने आयकर फॉमर् म� देनी होगी)
➢ Such foreign income will be subjected to 30% income tax. No deduction, exemption or rebate
➢ Violation = Penalty + upto 10 years jail time.
➢ If a company is found violating the Act, then every person responsible to the company shall also
be liable for punishment unless he proves that it was done without his knowledge.
➢ Empowers Union to enter into agreements with other countries for the tax info exchange.
24.2.3 🍋🍋🍋🍋⚖ Benami Transactions Prohibition Act (BTPA- 1988, 2016)
 बेनामी लेनदेन (�नषेध) अ�ध�नयम: 1988’s original act did not achieve much results → amended in 2016.
Main Agency? Income Tax Department.
 Benami refers to properties that buyer registers in the name of his relative, personal staff (Driver,
Gardner) or a non-existent/ fictitious persons (का��नक ��) to avoid tax authorities’ attention.
 E.g. 2018: Misa Bharti Yadav (allegedly) bought farmhouse in the name of her brother-in-law
Nilesh Kumar.
 Cases heard @ PMLA-walli bodies. Violation = Confiscation of property + penalty + Jail
🔠🔠❓MCQ. ‘Prohibition of Benami Transactions Act’: find correct statement(s):(Asked in UPSC-Pre-2017)

1. A property transaction is not treated as a benami transaction if the owner of the property is not aware of the
transaction. (यिद सं प�� का मा�लक कह� िक “मेरे को इस लेन देन के बारे म� नहीं पता था” तो उसक� सं प�� को बेनामी नहीं माना जाएगा)
2. Properties held benami are liable for confiscation by the Govt. (बेनामी सं प�� को सरकार ज�/क़�े मे लेगी)
3. The Act provides for three authorities for investigations but does not provide for any appellate mechanism.
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Answer Codes: (a) 1only (b) 2 only (c) 1 and 3 only (d) 2 and 3 only
24.3 (🍋🍋🍋🍋)💼💼 TAX EVASION → GOVT ANNOUNCEMENTS

24.3.1 🍋🍋🍋🍋🍋🍋 Tax (Evasion) “Surrender” schemes
गुनाह कबूल करो / आ�-समपर्ण करो तो कम जुमार्ना भरना होगा / जेल नहीं जाना होगा
Under such schemes, a tax-evader can declare his undisclosed income, pay the taxes and penalty.
Then, Income Tax Department will not pursue case against him. (Although Police may still pursue
case if income is from narcotics, kidnapping, extortion etc.)
Income Declaration Offer? 45% of the undisclosed income shall be taken away by govt as (tax
Scheme (IDS) 30%+ surcharge + penalty ).
Validity? 2016 June to Sept. ~67,000 cr black money was declared.
Pradhan Mantri - ~50% of the undisclosed income shall be taken away by Govt. as Tax +
Garib Kalyan Yojana Penalty + Pradhan Mantri Garib Kalyan Cess.
(PMGKY) - Further, 25% of the undisclosed income shall be deposited in RBI’s
Launched after
‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. It’ll be a fixed
Demonetization
deposit for 4 years @ ZERO % Interest rate.
Validity?
2016-Dec: - The PM Garib Kalyan cess, and deposit will be used for schemes related to
To 2017-April irrigation,housing,toilets,infrastructure, edu, health etc.
- The scheme was not very successful, hardly ~ ₹ 5000 cr. declared.
🍋🍋🍋🍋🍋🍋🍋🍋 Sabka - > ₹ 3.75 lakh crore tax revenue is locked in the service tax and excise duty
Vishwas L.D.S related cases.
Scheme 2019 - Budget-2019: Launched Sabka Vishwas (Legacy Dispute Resolution)
In budget-2019 Scheme, 2019 (�ववाद समाधान योजना).
- Businessman accepts his fault, Tax officials gives a ‘discount/relief/waiver’
For
in the penalty/late-fees, and the matter is settled, instead of litigating in
Service Tax
& Excise Duty courts for years & years.
24.3.2 🍋🍋🍋🍋🍋🍋 Vivad se Vishwas Scheme for Direct Taxes (💼💼Budget-2020)
Presently, >₹9 lakh cr worth direct tax cases pending before Appellate Forums (अपीलीय मं चों के सम�
लं �बत मामले) viz. IT Commissioner (Appeals) → Income Tax Appellate Tribunals (ITAT: आयकर अपीलीय
�ाया�धकरण ) → HC → SC. So, 💼💼Budget-2020 → “Direct Tax Vivad se Vishwas Bill/Act, 2020”.
⇒ Scope: Appeal related to Income tax or Corporation Tax, pending before a forum as of
31/Jan/2020. Then,
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⇒ Taxpayers can settle with IT dept in following manner
o A) If IT dept filled appeal → he has to pay 50% of disputed tax amt
o B) If Taxpayer filled appeal → he has to pay 100% of the disputed tax amt
⇒ In both situations, he'll get a complete waiver/relief from interest+penalty (�ाज और जुमार्ना से माफ�).
⇒ Above scheme is valid upto 31/March/2020, then Atma-Nirbhar Bharat extended it further.
⇒ This scheme is not applicable if:
o person is under prosecution for criminal activities. (अपरा�धक मामले चल रहे हो)
o If black money is hidden in foreign countries. (�वदेश म� काला धन �छपाया हो)
😰😰Controversies? 1) Southern India’s Members of Parliament angry that Hindi scheme name is
used. (2) both honest and dishonest tax payers are treated equally. Even dishonest tax payer can now
settle without paying interest/penalty.(3) Income Tax officials’ job-transfer etc will be linked to how
many cases they solve in this scheme. They’re also asked to work on weekends to fulfill these targets.
= resentment among staff (आयकर कमर्चारीओमे आक्रोश िक उनके तबादले और पदो��त के �लए इसम� सफलता को �गन�गे).
24.3.3 👻👻 Tax Ordinance 2020 in ATMA NIRBHAR BHARAT [कर अ�ादेश]

⇒ Vivad se Vishwas Scheme & Sabka Vishwas LDS deadline = extended
⇒ Income tax, TDS, TCS, GST: last date for filling = extended (अं�तम �त�थ को बढ़ाया गया)
⇒ TDS rates ⏬ so tax-payer left with more money for spending → shopping / demand⏫ →
economic revival
24.3.4 🍋🍋🍋🍋🍋🍋 Dispute Resolution Committee (DRC) in 💼💼Budget-2021

⇒ 💼💼Budget-2021 Announced to setup this committee under the Income Tax Act (आयकर कानून के
अंतगर्त �ववाद �नपटान स�म�त)
⇒ Anyone with a taxable income up to `50 lakh and disputed income up to `10 lakh shall be eligible
to approach the Committee. Committee can reduce, waive any penalty or give immunity from
any offence. (गुनाह कबूल कर लो /समझौता करवालो तो कम जुमार्ना भरना होगा / जेल नहीं जाना होगा इ�ािद)
⇒ It will help the small taxpayers to settle tax matters without going through legal expenses & time
wastage in the regular appellate process. (i.e. viz. IT Commissioner (Appeals) → Income Tax
Appellate Tribunals (ITAT: आयकर अपीलीय �ाया�धकरण ) → HC → SC) छोटे करदाता का कोटर् कचहरी म�
मुकदम� बाजी म� समय और पैसे बच जाएगा
⇒ It will be a faceless / online Committee to ensure efficiency, transparency and accountability.
24.3.5 🍋🍋🍋🍋 Tax Evasion → Other Initiatives (अ� कदम)
Banking Cash A 0.1% direct tax levied on cash withdrawals from banks. Started by
Transaction Tax (BCTT: Chidambaram but later withdrawn (2005-09). Objective was to encourage
2005-09) less-cash economy and data mining of transactions.
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(Suggested) Banking A proposal by a Pune based think-tank to Baba Ramdev that all the direct
Transaction Tax (BTT) and indirect taxes of the Union and states should be abolished and
ब�िकंग लेनदेन पर कर replaced with 2% tax on banking transactions.
Impracticable because such experiments were tried and failed in Australia
and other countries as people shifted to using barter system, diamonds
and gold for transaction. 2017: Govt clarified they are not considering
any such proposal. So NOTIMP
SC’s special Chairman: Retd. SC Justice MB Shah, and senior tax officials. They
investigation team (SIT) recommended various measures against Black Money hidden in India, in
on Black Money 2014 overseas banks, P-Notes etc. SC ordered Govt to implement its
recommendations.
Operation Clean Money 2017: IT Dept. verified large bank deposits made Post-demonetization.
Project Insight 2017 Income Tax Dept. hired L&T Infotech ltd to develop an integrated
platform for data mining & tracking tax evaders.
(Related) Project Saksham 2016: CBEC/CBIC’s project for digital re-
engineering related to GST. It’s not a ‘drive against black money’ but for
‘Ease of Paying Taxes’.
(Related) Aaykar Setu: CBDT’s mobile app to pay Income Tax.
Restrictions on Cash Budget 2017 → Finance Act, 2017 → if anyone accepts ₹ 2 lakh /> CASH in
Transactions, 2017 a day / in multiple transactions related to one ‘event’, then Income Tax Dept
penalty = 100% of the cash received.
Banks, post office, government organisations are exempted.
Electoral Bonds, 2017 📑📑Ref: Pillar#1C: SEBI/Sharemarket handout
24.4 (🍋🍋🍋🍋🍋🍋)TAX AVOIDANCE (कर प�रहार / कर टालना)
Here, people will not hide the transaction, they’ll blatantly declare transactions in their official
records, but will use legal loopholes (कानूनी-खा�मया) to avoid paying taxes.
24.4.1 🍋🍋🍋🍋🤵🤵 Double Taxation Avoidance Agreement (DTAA) & Round Tripping
दोहरा कराधान प�रहार समझौता
➢ It is a tax treaty signed between two or more countries.
➢ Objective? A taxpayer resides in one country and earns income in another, then he need not pay
(direct) tax twice in two countries for the same income.
➢ e.g. India Mauritius DTAA (1982): If a Mauritius person / company buy shares in India and sells
them at profit, then he need not pay Capital Gains Tax (CGT) in India. Only the Mauritius
government can ask CGT from him. And vice-versa.
➢ Loophole? India has ~10-20% CGT whereas Mauritius has ~0-3% CGT (depending on nature of
asset, how long the buyer kept asset before selling etc). So many Indian Politicians, Businessmen
and Bollywood actors would transfer the money using Hawala to their shell companies in
Mauritius → make those Mauritius Cos to invest back in Indian assets → avoid Indian CGT.
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➢ This process is called Round Tripping (राउं ड-�ट��पंग) i.e. money that leaves the country through
various channels and makes its way back into the country as foreign investment.
➢ Similar loophole in India Singapore DTAA. 2016: Modi government amended the treaties = even
Mauritius and Singapore investments in India will be subjected to Indian taxes.
24.4.2 🍋🍋🍋🍋🍋🍋 Tax Avoidance through Non-Resident Status
If a person is 🦁🦁Has to pay his IT on 🐼🐼Has to pay IT on global income e.g.

income coming from India? income coming from the USA/China?
Ordinarily Yes Yes
resident of India
Non-residents Yes No
If India has a double taxation avoidance agreement (DTAA) with other nation, then above things
may differ (e.g. recall erstwhile Mauritius CGT-roundtripping-walla example)
Table 2: 💼💼Budget-2020 changed these definitions
Definition in Indian Tax laws Before Budget- 💼💼Budget-
2020 → 2020
Ordinarily Indian Resident (साधारणतया भारतीय �नवासी) = person 182 days/> in a 120 days/>
who stays in India for → year
Non resident (गैर �नवासी)= person who stays outside India for 182 days/> in a 246 days/>
→ year
⇒ Implications? Person will have to stay out of India for a longer period if he want to be treated as
“Non-Resident” to avoid taxes on his global income.
⇒ 😷😷Corona lockdown / Travel restrictions so non-residents couldn’t leave India even if they
wanted to. So, Finance ministry allowed some temporary relief regarding "Resident" definition &
submission of documents. How exactly? = NOT-HERE-for-CA-Exam
24.4.3 🍋🍋🍋🍋🍋🍋 Place of Effective Management (POEM: पीओईएम)
 Bollywood Producer “A” forms a shell company in Cayman Islands (because it has a very low
rate of corporation tax). He gives this company international movie distribution rights for his
Indian movie @₹ 10 only.
 Then, Cayman Island company makes ₹ 50 crore profits, but he’d not pay any taxes in India
saying it’s a foreign company making profits from foreign territories, so Income Tax Department
of India has no jurisdiction!
 But, here the Place of Effective Management is India, from where the Bollywood producer was
really taking the decisions of this shell company. (फज� कं पनी के प्रबं धन का वा��वक �ान भारत म� ��त है।)
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 So, Budget-2015 introduced the concept of POEM. Such overseas / foreign company will be
subjected to India’s 40% Corporation tax + cess + surcharge.
24.4.4 🍋🍋🍋🍋🍋🍋 Base Erosion and Profit Shifting (BEPS: बीईपीएस)
 Multinational Corporation (MNC) “M” opens fast food outlets in India & makes ₹ 50 crores
profit. By default, it should be subjected to 40% Corporation tax in India.
 But then MNC shows its Indian outlets had taken loan / raw material / patented technology
from MNC’s shell firm in Bahamas (where Corporation tax is 0-2%). So, after deducting these
operating costs, it has zero profit, so in India, it will pay only 18.5% Minimum Alternative Tax
(MAT), instead of 40% Corporation tax.
 Thus, when MNCs shift profit from its source country to a tax-haven to avoid / reduce paying
taxes, its known as “BEPS”. (ब�रा��ीय �नगम द्वारा मुनाफे को �ानांत�रत करना)
 India signed the OECD’s joint Multilateral Convention to Implement Tax Treaty Related
Measures to Prevent Base Erosion and Profit Shifting (commonly referred to as MLI) ओईसीडी के
ब�प�ीय समझौते पर ह�ा�र िकए ह�
24.4.5 🍋🍋🍋🍋🍋🍋 Transfer Pricing (ह�ांतरण मू�)
 Transfer pricing happens whenever two subsidiary companies that are part of the same
multinational group, trade with each other.
 Suppose Coca Cola’s (Indian Subsidiary company) buys Sosyo Company’s shares or soda
formula at ₹ 10 crores, and then sells it to Coca Cola’s (Cayman Islands subsidiary company) at ₹
10 rupees. Then ₹ 10 is the transfer price.
 Coca Cola (Cayman Islands) further sells Sosyo’s shares / Soda-Formula to other companies at
very high price. Yet, Indian tax authorities will not get any Capital Gains Tax (CGT) even though
Coca-Cola (USA holding company) may be making profit (Capital Gains) of billion$ from this
‘Indian Asset’ (Sosyo).
 2001: Transfer pricing related provisions added in the Income Tax Act. But they were quite
strict leading to ‘tax terrorism’ by IT officials who’d slap notices on every transaction, resulting
into ‘No ease’ of doing business for MNCs.
24.4.6 (🍋🍋🍋🍋🍋🍋) � Authority for Advance Rulings (AAR)
 After above episode, Coca Cola (India) would like to know in advance whether its transfer price
of ₹ “y” or its imported / exported item worth ₹ “z” is agreeable to tax authorities or not? lest it
suffers from notices, raids and litigations afterwards.
 For this purpose, Authority for Advance Rulings (and their Appellate bodies) have been set up
under Income Tax Act, Customs Act and even GST Act (Recall Amul Camel Milk).
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 Advance Pricing Agreement (APA: अ�ग्रम मू� �नधार्रण समझौता)= If in previous example, Coca Cola
approached AAR -> agreement signed between taxpayer and a tax authority that “Transfer price
of ₹ y is agreeable to both of us, and will not attract any notices / raids / litigations afterwards.”
 Related terms? Safe Harbour Regime (SHR), Dispute Resolution Panel (DRP), Alternative
Dispute Resolution (ADR). How they work? poor cost benefit for MCQs.
24.4.7 (🍋🍋🍋🍋🍋🍋) � General Anti-Avoidance Rules (GAAR)
Till now we learned how Indians and foreigners avoid tax payment in India through loopholes like
DTAA, POEM, BEPS, Transfer Pricing etc.
 So, UPA/Congress Govt setup economist Parthasarathi Shome panel who suggested General
Anti Avoidance Rules (GAAR: कर प�रवजर्न रोधी �ापक �नयम) → they were added Income Tax Act
 GAAR empowers Income Tax officials to send notices to both Indians and foreigners for
suspected Tax Avoidance. (For Tax evasion, we’ve separate laws- PMLA, UFIA, BTPA)
 But critics alleged GAAR will result in tax terrorism, harassment, no ease of doing biz. So
successive Budgets kept delaying the GAAR- implementation. Finally done on 1/4/2017.
24.4.8 🍋🍋🍋🍋🍋🍋 Angel Tax on Startup Investments (2012)
⇒ Angel investors are the rich people who occasionally invest equity-capital in start-up companies
out of hobby / timepass / profit motive. (Whereas Venture Capital Companies do the same thing
but on regular & serious basis) (REF More in 📑📑Pillar#1C1)
⇒ In some cases, it was found that rich people were investing in bogus/farzi Startup for money
laundering purpose. HOW? NOT IMP4EXAM. (काले धन को वैध बनाने के �लए फ़ज़� �ाटर्अप मे �नवेश)
⇒ So, UPA/Congress’s Budget-2012 suspicious startup Companies to pay 30% Tax + Penalty on
the investment which they received from Angel investor. (सं िद� �ाटर्अप कं प�नयों को आदेश िदया िक
आपको जो �नवेश म� पैसा �मला है उस पर 30 प्र�तशत एं जल टै� और जुमार्ना भरना होगा)
⇒ This is dubbed as ‘Angel Tax’.
⇒ But then controversy that Angel Tax will discourage the growth of startup companies so norms
relaxed. हालाँिक ऐसी स�ी के चलते �ाटर्अप कं प�नयों क� वृ�द्ध को नुकसान रोकने के �लए �नयमों म� आसानी क� गई.
⇒ Budget-2019: IF Start-ups and their investors provide the required declarations and information,
then IT dept will settle the matter. (हम� जो चािहए वो जानकारी दे दो तो इस के स का समाधान कर द�गे)
24.5 (🍋🍋🍋🍋🍋🍋:⌛) � RETROSPECTIVE TAX: VODAFONE

⇒ (Intro: Origin) To avoid paying capital gains tax in India, the foreign companies usually create
shell companies to indirectly transfer Indian assets. (भारत म� पूंजीगत लाभ कर से बचने के �लए �वदेशी कं प�नयों
द्वारा शेल कं पनी बनाकर भारतीय स��यों क� परो� �प से ख़रीद �बक्र� क� जाती है)
⇒ e.g. 2007: Vodafone (Its Netherland subsidiary company) bought shares of CGP company
(Cayman Island based shell company) from HTIL Company (based in Hong Kong). Thus,
Vodafone became (indirect) owner of Hutch (India) because CGP company owned Hutch India.
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(वोडाफ़ोन ने इसी तरह से परो� �प से भारतीय कं पनी ‘हच’ को ख़रीदा था)
⇒ Income tax dept demanded capital gains tax on → Vodafone went to Supreme Court.
⇒ 2012: Vodafone won the case. Indian Supreme Court ruled that presently Indian tax laws do not
allow taxation on non-Indian assets traded outside India. (सव�� ायालय ने पाया िक इन ��तयों म� कर
माँगना भारतीय कराधान कानूनों के अ�धकार �ेत्र से बाहर ह�।)
⇒ 2012-May: UPA/Congress government amended the Income Tax Act 1962 with retrospective /
Ex post facto effect that “even if non-Indian assets (e.g. Shares of Cayman Company) traded
among Non-Indians (Netherland and Hongkong walli companies), but IF the underlying value is
derived from Indian asset (Hutch) then then we can tax it.” (2012 म� सरकार ने क़ानून म� सं शोधन िकया है
तािक 2007 क� लेनदेन पर पूवर् प्रभावी/भूतल�� प से कर/टे� माँग सके )
⇒ (Definition) Respective taxation= It is an act of demanding tax on a transaction that occurred in
the past, when such transaction was not taxable. e.g. in 2012- demanding tax on 2007’s event,
even though in 2007 it was not taxable as per law in 2007. (पूवर्प्रभावी/भूतल�ी कराधान यानी क� कोई ऐसी
भूतकाल क� लेनदेन पर कर माँगना, �जसपर उस भूतकाल म� क़ानून �पसे कर नहीं लगता था)
⇒ Then Govt issued fresh notices against Vodafone “now any transactions that occurred after 1962
are also taxable. So you pay tax + penalties“
⇒ Separately, India had signed an investment treaty with Netherlands. Such investment treaties
allow the aggrieved investor to complain in the specialised international tribunals at Singapore,
Netherland, etc So, Vodafone (its Netherlands subsidiary company) filed case against Indian
Government in Netherlands. (िद्वप�ीय �नवेश समझौतों के अंतगर्त यिद �वदेशी �नवेशक भारत ने नाराज़ है तो वो �नवेशक
�वदेश म� उसके बारे म� के स कर सकता है. वोडाफ़ोन कं पनी ने भारत के �ख़लाफ़ नीदरल�ड म� के स दायर िकया.)
⇒ The then Gujarat chief Minister had Modi called it “Congress/UPA’s Tax Terrorism on
Companies” (उस समय के गुजरात मु�मं त्री मोदी ने इसे कांग्रेस सरकार का कर-आतं कवाद बताया था)
24.5.1 (🍋🍋🍋🍋🍋🍋:⌛) � Retrospective Tax: Cairn Energy

Cairn Energy Company’s case is also similar to Vodafone Hutch case. Income tax dept was
demanding Capital Gains Tax. Cairn complained to Netherland Arbitration Court under the
provisions of India Britain bilateral investment Treaty. (Such treaties allow the aggrieved investor to
complain in the specialised international tribunals at Singapore, Netherland, etc.)
⇒ 2020-21: Netherland Arbitration Court had ordered Indian govt to pay $1.2 billion to Cairn
Energy for tax harassment. (नीदरल�ड क� कोटर् ने भारत सरकार पर एक �ब�लयन डॉलर से �ादा का जुमार्ना डाला)
⇒ To recover this $1.2 billion compensation, Cairn company was trying to seize Indian Govt's
assets in foreign countries e.g. Air India planes parked on USA Airport, Indian Govt’s embassy
office/properties in Paris etc. (कं पनी मुआवज़े क� वसूली के �लए भारत सरकार क� �वदेशों म� ��त सं प��यों पर
क़�ा/नीलामी चाहती है)
⇒ 2021-Aug: Finance Ministry introduced a Taxation Laws (Amendment) Bill, 2021 to put an end
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to retrospective tax rule-( �वत् मं त्रालय का कराधान क़ानून सं शोधन अ�ध�नयम २०२१- �जसम� पूवर्प्रभावी/भूतल�ी कराधान
को रद्द िकया)
⇒ “If indirect transfer of Indian assets occurred before May 28, 2012, then Indian government will
not demand taxes on it. (2012 से पहले �ए इस प्रकार के लेन देन पर कोई भूतल�ी कराधान नहीं माँगा जाएगा।)
⇒ If income tax authorities had collected any taxes from such companies, then Indian government
will be refund the money to the victim-company (with 0% interest). (यिद आयकर �वभाग ऐसा भूतल�ी
कर/टे� ले चुका है तो उस पीिड़त क�नी को वो रक़म वापस करेगी। िक�ु उस रक़म पर सरकार उ�� ाज नहीं देगी।)
⇒ however it requires that company need to drop the cases against Indian tax authorities, filed in
the Indian and foreign courts. (हालाँिक इस �रयायत म� शतर् ये है, िक कं पनी ने भारतीय सरकार के �ख़लाफ़ जो जो मुक़दमे
भारतीय और �वदेशी अदालतों म� दायर िकए ह�, उ�� वापस लेना होगा।)
⇒ 2021-Sept: Cairn agrees to drop cases filed against India in France, Netherland, USA etc. And
government of India agreed to drop the (retrospective) tax demand against Cairn. Vodafone also
planning to do similar.
24.5.2 (🍋🍋🍋🍋🍋🍋:⌛) � Retrospective Tax: Conclusion

⇒ While the retrospective tax demand was raised to deal with the problem of tax avoidance by
foreign companies who engaged in the indirect transfer of Indian assets through sale/purchase of
Shell Companies in Tax Havens. (�वदेशी कं प�नयों द्वारा भारतीय स��यों क� परो� �प से ख़रीद/�बक्र�/ह�ांतरण द्वारा
कर-प�रहार/ कर-टालने क� प्रवृ�त पर रोक लगाने के �लए भारत सरकार ने पूवर्प्रभावी/भूतल�ी कराधान क� माँग थी।)
⇒ But, after the ruling of international tribunal in Cairn Case, this was creating more problems
than the benefits for the Government. (िक�ु अंतररा�ी� य िट��ूनल के फ़ै सले के बाद यह पूरा मसला, भारत सरकार के
�लए फ़ायदे से �ादा नुक़सान वाला सा�बत हो रहा है।)
⇒ So, Govt has decided to undo the past amendments of 2021. As per our Hon’ble Prime Minister,
"We undid a mistake of the past by removing retrospective tax. It will increase trust between the
government and the industry.” (इस�लए भारत सरकार ने पूवर्प्रभावी/भूतल�ी कराधान रद्द िकया है और माननीय
प्रधानमं त्री के अनुसार इस से उद्योग जगत और सरकार के बीच �व�ास सं पादन बढ़ेगा)
⇒ Need of the hour is to pass the global minimum tax regime at earliest to put an end to such tax-
avoidance practice of Multinational Corporations (MNC) ( वै��क �ूनतम कर प्रणाली को अग्रता क्रम से
िक्रया��त करना ज़�री है तािक ब�रा��ीय कं प�नयों द्वारा इस कर प�रहार िक वृ��यों को रोका जा सके .)
24.6 🍋🍋🍋🍋🌐🌐:🤵🤵 GLOBAL MINIMUM TAX (वै��क �ूनतम कर)
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⇒ (Introduction: Origin) Tax Haven/Low Tax nations such as Luxembourg (Corporation Tax:
1.39%), British Virgin Island 0.07%, Cayman Islands 0.2 %. These countries are geographically
small, & without a viable economy. So they offer such a mechanism to attract foreign investors
and foreign tourists. (कर �गर् ऐसे देश ह� जहां पर प्र�� करों क� दर ब�त कम होती है तािक �वदेशी �नवेश और �वदेशी
पयर्टकों को आक�षत िकया जा सके )
⇒ Multinational corporations register their company here to transfer their profits/avoid paying
taxes to normal countries where they are operating. India is losing annually $100 cr, while USA
is loosing annually $500 cr by this. (ब�रा��ीय कं प�नयां ऐसे कर �गर् क� मदद से कर-प�रहार/करो को टालती है.)
⇒ USA: Former President Donald Trump ⏬decreased corporation tax from 35% to 21%. New
President Joe Biden aims to ⏫taxes for Corona-welfare schemes for Americans. Biden also
urged G20 group of countries to keep minimum level of Corporation taxes. (Given in next topic)
24.6.1 🍋🍋🍋🍋🌐🌐:🤵🤵 Global Minimum Tax: G7 Framework
G7 Summit-2021: The theme is ‘Build Back Better’. Venue: Cornwall, England. Members: US, UK,
France, Germany, Italy, Canada and Japan- with following outcomes:
⇒ Companies need to pay in the countries where they do business.(कं पनी �जस देश म� धं धा �ापार कर रही है
वहां उसने कर देने होंगे)
⇒ G7 framework/agreement for global minimum tax framework of 15%. (ब�रा��ीय क��नयों पर �ूनतम 15
प्र�तशत कर/टे�)
⇒ In the past, countries engaged in a tax-reduction race, to attract FDI investments. This needs to
be discouraged. (�वदेशी �नवेश को आक�षत करने के च�र म� अलग अलग देश अपने करो क� दरे कम िकये जा रहे थे. इस
�धार् को रोकना होगा)
⇒ Later such treaty may be used for imposing sanction / international lawsuits /armtwist tax
havens to increase their taxes. Then it'll become difficult for companies to avoid paying taxes.
(भ�व� म� इस प्रकार क� सं �ध द्वारा छू ट-भै�े कर-�गर् देशों पर प्र�तबं ध /दंड/अंतररा��ीय मुकदमे चलाए जाएं गे। तािक वे भी अपने
करो क� दर� बढ़ा द�. अंतत: ब�रा��ीय कं प�नयों के �लए कर-प�रहार मु��ल होगा।)
⇒ 2021-Jul: India supported the idea. Further discussions to be held in 2021-Oct.
24.6.2 🍋🍋🍋🍋🌐🌐:🤵🤵 G7-OECD “Two” Pillar Solution for Global Minimum Tax
For implementation of above G7 15% Global Minimum Tax Framework → OECD has given “Two-
Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.“
- Pillar1- Applies to ~100 biggest and most profitable multinational enterprises (MNEs).
o They need to re-allocates “X%” of their profit to the countries where they sell their
goods/services. (So, such govt can count that profit & demand Corporation Tax on it.)
o All member-nations to remove all Digital Services Taxes. (e.g. India will have to remove
equalisation levy/google tax. REF: Handout Pillar#2A)
- Pillar2: Applies to any company with over 750 million EURO annual revenue. They would be
subject to an minimum 15% tax (on their profit).
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24.6.3 🍋🍋🍋🍋🌐🌐:🤵🤵 Conclusion- Global Minimum Tax: �न�षर्
- indeed this is a positive development/step to combat the problem of tax avoidance via base
erosion and profit shifting by the multinational corporation.
- India along with 130+ countries have supported/joined the OECD/G-20 statement.
- This will help channelising the profits and taxes from the multinational corporations for the
development/welfare of poor living in the developing nations. (वाक़ई एक प्रसं श�नय कदम, ब�रा�ी� य
कं पनीयो के कर प�रहार को रोकने, उनके मुनाफ़े मे से टे� द्वारा �वक�सत देशों मे गरीब क�ाण योजनाएँ चलानेम� मदद होगी)
24.7 🍋🍋🍋🍋🍋🍋🍋: � REFORMS TO REDUCE TAX TERRORISM / HARASSMENT
We learned about the reforms to fight “Tax evasion” → ban on cash transaction of ₹ 2 lakh / >, -
Operation Clean Money etc. So, on one hand, Income Tax Department has to become 😡😡😡😡strict /
coercive to fight against Tax evasion. At the same time, IT dept. also needs to become more
🤝🤝🤝🤝friendly towards honest taxpayers, So, following measures taken→ (कर आतं कवाद उ�ीड़न)
24.7.1 🍋🍋🍋🍋🍋🍋🍋: �: � Cash Transaction Limit Relaxed for Corona

⇒ Previously, Govt banned cash transactions beyond ₹2 lakh to discourage scope of tax evasion &
black money. करचोरी व कालेधन पर रोकथाम के �लए दो लाख से अ�धक रकम के नगदी लेनदेन पर प्र�तबं ध था.
⇒ But coronavirus wave 2.0= CBDT allowed hospitals to accept cash payments in excess of Rs 2
lakh from patients or relatives. Although hospitals will have to keep a transaction record with
PAN/Aadhaar. हालाक� कोरोना महामारी म� हॉ��टलों को इस मात्रा से अ�धक नगदी लेने क� क� छू ट दी गयी.
⇒ 2021-June: if employer/anyone gave upto Rs.10 lakh money for worker/patient’s corona
treatment= it’ll not be counted as taxable income of that worker/patient
24.7.2 🍋🍋🍋🍋🍋🍋🍋:🧾🧾 Pre-filled online forms for Tax Payers

Income Tax dept extract your financial data from Banks, NBFCs , Stock exchanges, Mutual Funds,
EPFO, Employers’ TDS submissions etc. → provides you with a Pre-filled tax returns containing
your salary income, capital gains from share/bond, bank interests, etc. (पहले से भरा �आ फॉमर् आपको दे द�गे)
1) 🤩🤩Income tax payers’ time and energy saved. He’ll not have to consult Chartered Accountant
for every small matter on how to fill form.
2) 🤩🤩Accuracy of reporting income and paying taxes.
24.7.3 🍋🍋🍋🍋🍋🍋🍋:🧾🧾 Faceless interaction between Tax payers and Tax official
Personal interaction between the assessee and Income Tax official = more chances of harassment /
bribery. So, Government launched following reforms:
1) Cases will be allotted in random computerized lottery basis to IT officials without disclosing the
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name, designation or location of the Officer.
Table 3: कर अ�धकारी और करदाता के �ब� मुलाकात/सं पकर् �बना आकलन और अपील कारर्वाई
Year Scheme Nodal Body

2019 Faceless  Example, taxpayer/assessee received a notice about discrepancy in
Assessment his reported income vs TDS submitted by his banker, then at initial
stage assessee need not visit IT-office, simply give clarification in
web-portal. (फे सलेस: �बना प्र��/�ब� मुलाकात के �नधार्रण)
2020 Faceless  So, even in appeal stage, assessee need not physically visit IT
Appeals commissioner / tribunal. It’ll be done online.
Scheme  all Income Tax appeals will be finalised in a faceless manner. Except
those related to serious frauds, major tax evasion, sensitive matters,
International tax etc. के वल बड़े और सं गीन मामलों म� ही �ब� सुनवाई होगी
24.7.4 🍋🍋🍋🍋🍋🍋🍋:🧾🧾⏰ Time limit on opening of past cases

Before After 💼💼Budget-2021
(ordinary) Tax 6 years 3 years (=No need to live in fear for very long time) e.g.
assessment case can mismatch in TDS submitted by buyer/employer vs income tax
be re-opened up to _ return form filed by the individual etc. सामा� िक� के कर �नधार्रण/कर
_ years �वसं ग�तयों के मामले �सफर् �पछले 3 साल तक खोला जा सकता है.
Serious tax fraud 10 10 years BUT ONLY IF two conditions are MET
case गं भीर कर धोखाधड़ी के years ⇒ A) If only the matter is worth ₹50 lakh or more (=Small
मामले taxpayers will be saved from tax terrorism/ harassment)
AND
⇒ B) Approval of the Principal Chief Commissioner required
24.7.5 🍋🍋🍋🍋🍋🍋🍋:🧾🧾 Document Identification Number (DIN: द�ावेज़ पहचान सं �ाक)
Whenever Tax official sends letters to taxpayers regarding search authorisation, summons, arrest
memo, inspection notices etc. All such documents will have computer generated ‘Document
Identification Number’ (DIN).
 2019: Both Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes and
Custom (CBIC) started this practice.
DIN system benefits?
 It’ll create a digital directory of communication between tax authorities and taxpayers.
Transparency, accountability, efficient and faster clearance of cases, because all the information
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available at the click of a mouse. (पारद�शता, जवाब देही, कायर् द�ता, के सों का ��रत �नपटान)
 If a document doesn’t have DIN number, it’ll be treated invalid. Thus, DIN system will prevent
the corrupt tax officials from sending fake notices to harass/blackmail taxpayers for bribes.
Sidenote: Director Identification Number (DIN): Director of every company is required to obtain
this number from the Ministry of Corporate Affairs under the provisions of Companies Act. It helps
monitoring the company act provisions related to “1 person can’t be director in more than ‘x’ number
of companies” etc.
24.7.6 🍋🍋🍋🍋🍋🍋🍋:🧾🧾⏰ Reducing Tax Terrorism: Misc. Committees

Rajaswa Gyan Sangam Organised by CBDT & CBIC for idea exchange between policy makers
2016 & 2017 and senior tax officers. (�वचार/सुझावों के आदान प्रदान के �लए)
2016: Modi gave them RAPID Mantra: R for Revenue, A for
Accountability, P for Probity, I for Information and D for Digitization.
Direct Tax Code 2010 This bill aimed to replace the Income Tax Act, 1961 with simpler
provisions. But, lapsed with 15th LokSabha dissolution in 2014.
Easwar Panel on Direct To simplify the provisions of IT Act, 1961, to remove ambiguities that
Taxes 2015 cause unnecessary litigations & hardships to Taxpayers.
Direct Tax Code - 2017: Setup by CBDT to draft New Direct Tax Legislation (Law) to
Taskforce 2017 replace IT Act 1961. → 2019: submitted report (📑📑Ref: Pillar#2A)
(Akhilesh Ranjan)
24.8 📯📯🍋🍋📜📜 TAXPAYERS’ CHARTER IN 💼💼 BUDGET-2020 (करदाताओ का अ�धकारपत्र)
A citizens’ charter (नाग�रक अ�धकारपत्र) is a document of commitments made by a government agency

to the citizens in respect of the services being provided to them.
⇒ e.g Dept of Post's citizen charter reads, "we'll deliver speed post anywhere in India by 4-5 days
→ELSE complain online to this website & we'll solve it → if not solved in 90 days then complain
to Postmaster General → then to Chief Postmaster General.”
⇒ Traditionally tax administrations paid limited attention to taxpayer service. पुराने जमाने म�/पारंप�रक �प
से कर-अ�धकारी "करदाता को अ�� सेवा देना" अपनी �ज�ेदारी नहीं समझते थे. घमं ड और बे�ख़ी से काम करते थे
⇒ However, Modern times → ⏫demand for better services to the taxpayers → Govts across the
world, started framing charters and bill of rights for the taxpayers. हालांिक आधु�नक �व� म� इस प्रकार के
अ�धकार पत्र और कानून बनाए गए ह�
1986 UK charters for taxpayers (करदाताओं का अ�धकार पत्र) → more updated 2009
1991  1991: citizen charter system started in UK by PM John Major
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 1997: citizen charter introduced in Indian union ministries/departments.
(नाग�रकों का अ�धकार पत्र)
1988 USA Taxpayers’ Bill of Rights (करदाताओं के अ�धकारों का �वधेयक/कानून)
2007 Canadian taxpayers’ Bill of Rights
2020 💼💼 Indian Budget-2020: CBDT will declare a Taxpayers’ Charter. So, Tax payer
will easily know what services / complaint redressal mechanisms (�शकायत �नवारणतं त्र)
are available to him= ⬇taxpayer’s harassment (करदाता का उ�ीड़न)
24.8.1 📯📯🍋🍋📜📜 (Indian) Tax Payers' Charter released in 2020-Aug
It promises following things to taxpayers: करदाताओं को वादा करता है
1. You'll be treated in an impartial,courteous, professional manner. �न��, �वनम्र और पेशेवर तरीके से �वहार
2. You'll be treated/ presumed to be honest, unless there is a reason to believe otherwise. आपको
ईमानदार माना जाएगा।
3. We will provide complete and accurate information about rules & complaint mechanism etc a
timely fashion.�नयम/�शकायत दजर् कराने स��ी जानकारी
4. We will collect only correct amount of tax. (के वल सही रा�श ली जाएगी। ज़बरन �ादा रा�श नहीं ली जाएगी।)
5. We will respect your privacy and confidentiality �नजता व् गोपनीयता का स�ान
6. We will hold our officers accountable for their wrongful actions. अ�धका�रओ को गलत काय� क� सजा द�गे
7. You can appoint a representative / tax lawyer to file replies/complaints//cases on your behalf.
मामले दजर् करने के �लए एक प्र�त�न�ध / कर वक�ल �नयु� कर सकते ह�।
8. We'll reduce cost of compliance (e.g. number of forms to be filled, photocopies to be submitted
etc) अनुपालन क� लागत कम कर�गे- फ़ालतू म� द�ावेज़ो क� दजर्नों कॉपी �नकालके फ़ॉमर् के साथ जोड़ने पड़े- एसे तमाशे बं द कर�गे.
9. +many other points but we have sufficient content for 250 words
It expects following things from taxpayers: Be honest, Pay taxes in time, Keep accurate records, be
informed, respond to notices in time when notices are given. (करदाताओं से �न� अपे�ा करता है क� वे ईमानदार
रह�, समय म� करों का भुगतान कर�, सटीक �रकॉडर् रख�, सू�चत रह�, समयसर नोिटस का जवाब द�)
24.8.2 ✍ 📯📯🍋🍋📜📜 Conclusion: Tax Payers' Charter
Thus, taxpayers' charter will help in building trust between a tax payer and the tax administration
while reducing harassment and litigation. (करदाताओं का चाटर्र/अ�धकारपत्र आने वाले समय मे करदाता और कर प्रशासन
के बीच �व�ास/सौहादर् बढ़ाने मे तथा, उ�ीड़न और मुकदमेबाजी को कम करने मे मदद करेगा)
24.9 🍋🍋🍋: �� TAX OMBUDSMAN IN 📔📔📔📔 ECONOMIC SURVEY 2021

‘Ombud’ is a Swedish term and refers to a person who acts as the representative or spokesman of
another person. 1809: The institution of Ombudsman was first created in Sweden- to look into
citizens grievances (लोकपाल/लोक प्रहरी- नाग�रकों क� �शकायतों के �नवारण के �लए)
✅Homework: Laxmikant chapter 61 on Lokpal and Lokayukta
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24.9.1 🍋🍋🍋: ��Tax ombudsman: Indian experience
2003 Direct Tax Ombudsman In India Started (प्र�� करों के �लए कर-लोकप्रहरी/�शकायत �नवारण अ�धकारी)
2011 Indirect Tax Ombudsman In India Started (अप्र�� करों के �लए)
2019 Above posts were abolished (दोनों पदों को समा� कर िदया)
24.9.2 😰😰problems in previous Ombudsman system (2003-19)?

⇒ Above ombudsmen were tax officers, Who were given additional responsibility by the
government to inquire into grievances/ complaints against other tax officers. They did not have
independence from Senior officers/ministers. There was no separate law to empower them. (वे
�यं भी कर-अ�धकारी थे, कानूनन �प से कोई सता नहीं दी गई थी, इस�लए अ� अ�धका�रयों के �खलाफ �न�� प से जांच या
सजा कर नहीं पाते)
⇒ They could only settle the complaint through advice/mediation between the citizens and tax
officials. (मात्र सलाह/सुलह द्वारा �नपटान)
⇒ They could only offer a token compensation upto ₹5,000 to victim (पीिड़त को मुआवजे म� ब�त मामूली
रकम दे पाते) Thus, failed to deliver any result and both the posts were abolished in 2019.
At present, Direct Tax Payer can complain to
Mode Organisation 😰😰Challenges?

Physical Aaykar Sewa Kendras Under Income It falls within the Income Tax Department so
Tax Department difficult to ensure impartiality. (यह इकाइयां आयकर
Online e-nivaran portal Under Income Tax �वभाग के अंदर ही है, इस�लए �न��ता मु��ल)
Department
Online CPGRAMS Portals (Central Public It looks into Complaints against all types of
Grievance Redress and Monitoring ministries and departments so long delay in
System) Under Ministry of resolution. (सभी मं त्रालयों क� सभी िक� क� �शकायत� देखता
personnel and training. है इस�लए काफ� देरी से जांच होगी)
24.9.3 🍋🍋🍋: ��Tax Ombudsman: Global experience

USA, Canada, Australia, Canada, UK, France, Brazil, South Africa etc Countries have separate
laws/mechanisms for setting up a tax ombudsman. So they can function independently without
undue pressure & without conflict of interest. (e.g. If the tax ombudsman's promotion/salary bonus
depends on the whims of IRS officer/Finance Minister then he'll not act impartially.) �बना िकसी के दबाव
म� या �बना िकसी िहतों के टकराव म� �न�� प से अपना कायर् कर सक� ऐसे कानूनी प्रावधान/सुर�ा दी गई
24.9.4 🍋🍋🍋: �� Tax Ombudsman: Conclusion / way forward (�न�षर्/आगे का रा�ा)

⇒ Tax Terrorism / Non-resolution of tax grievances discourage the taxpayers from being honest in
future. This encourages tax evasion, black money and parallel economy.
⇒ International experience suggests a tax ombudsman, with powers to investigate, punish &
compensate, is necessary for enforcing taxpayers' charter. (अंतररा��ीय अनुभव से प्रतीत होता है िक करदाता के
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अ�धकार पत्र का अनुपालन वा��वक �प से करने के �लए एक कर-लोक प्रहरी होना चािहए- �जसके पास जांच, सजा और मुआवजा
देने क� सता हो)
⇒ Need of the hour is to set up this institution through a separate law, punitive powers, so as to
ensure its impartiality and independence and effectiveness. (अग्रता क्रम से सरकार ने एक अलग कानून द्वारा
इसे बनाना चािहए तािक �न�� तं त्र और प्रभावी �प से कायर् हो सके .)
24.9.5 🍋🍋🍋: Reducing Tax Terrorism / Harassment: online portals/Apps

Aaykar Setu - 2017: CBDT’s mobile app for Income Tax, TDS refunds etc.
Ease in paying Customs 1. Indian Customs Electronic Gateway (ICEGATE) webportal for e-
Duty services related to the Customs duty.
: 2. ICEDASH webportal: public can view daily data on customs
Portals/Apps by CBIC
clearance at seaports and airports. (launched 2019-Nov)
3. ATITHI mobile app: for international travelers to file the customs
declaration in advance (e.g. ‘we are leaving or coming with “x” gms of
gold/diamonds/electronics etc on which y% customs duty is
applicable/exempted’). So, they don’t have to waste time at airport
queues in filing such declarations. (launched 2019-Nov)
Transparent Taxation - 2020-Aug: PM Modi launched this webportal/online platform with
Honouring the Honest following components:
पारदश� कराधान- ईमानदार का ⇒ Taxpayers’ Charter.
स�ान करना
⇒ Automated Random/lottery allocation of investigation cases.
⇒ Faceless assessment & Faceless appeal. No requirement of physical
interface between taxpayers and the Income Tax department.
Turant Customs ⇒ By Central Board of Indirect Taxes and Customs (CBIC)
⇒ Turant Customs initiatives= Faceless, Paperless, and Contactless
Processes / Application Forms, Assessment, Appeal etc for importers
and exporters
⇒ It is to be implemented phase wise across India by 2021.
24.10🍋🍋🍋🍋🍋🍋TAXATION → GLOBAL TREATIES, AGREEMENTS & INDEXES

24.10.1 🍋🍋🍋🍋🍋🍋 Tax Information Exchange Agreement (TIEA: कर सूचना �व�नमय समझौता)
➢ India has signed such agreements with multiple countries. It enables mutual sharing of
information to detect tax avoidance and tax evasion. Example,
➢ 2019: India has notified a tax information exchange agreement (TIEA) with the Marshall Islands.
➢ From Indian side- CBDT is the the nodal agency for such agreements.
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24.10.2 🍋🍋🍋🍋🍋🍋 USA’s Foreign Account Tax Compliance Act (FATCA-2010)
�वदेशी खाता कर अनुपालन अ�ध�नयम
➢ USA’s FATCA Act requires foreign financial Institutions (such as Indian Banks, Pakistani
Insurance Companies, Chinese Mutual Funds etc) to report the assets held by Americans.
➢ This helps US Tax authorities to detect tax avoidance / evasion by Americans
24.10.3 🍋🍋🌐🌐🌐🌐 Global Financial Secrecy Index (वै��क �व�ीय गोपनीयता सूचकांक)
➢ Prepared by London based Think Tank ‘Tax Justice Network (TJN)’.
➢ It uses 20 indicators to measure the countries on their financial secrecy, opportunities for Tax
Avoidance, BEPS etc. 2020 Ranking: 1st rank Cayman Islands>USA> Switzerland,….India (47).
➢ Its report says India is losing over $10 billion in taxes each year due to MNC’s tax abuse.
24.11💸💸BLACK MONEY → DEMONETISATION (�वमुद्रीकरण)
Definition? Demonetization is the wholesale withdrawal of currency notes from circulation. (मुद्रा-
चलन म� से कु छ खास िक� क� नोटों को हटा देना)
 RBI Act 1934: Every banknote is a legal tender. However, RBI Central Board can recommend
the Government of India to notify specific currency note(s) should no longer be treated as legal
tenders. Then FinMin → Department of Economic Affairs makes official gazette notification.
 1946: ₹ 500 Notes demonetized; 1978: ₹ 1000, ₹ 5000, ₹10000 Notes demonetized.
 2016-Nov-8th: Public was ordered to deposit the (old) Mahatma Gandhi series currency notes ₹
500 and ₹ 1,000 (henceforth called “Specified Bank Notes: SBN”) into Banks and post-offices
latest by 30th December 2016. And all the banks and post offices where ordered to deposit such
SBN into RBI.
 Specified Bank Notes (Cessation of Liabilities) Ordinance:
- From 31st December 2016, RBI Governor not required to honour “I promise to pay…”
or exchange the SBN. Except for NRIs: deadline little bit relaxed, with certain caveats.
- Public prohibited from keeping SBN, except for research or numismatics or museum-
and that too in limited amount. This ordinance became Act in 2017.
 India is not the only country in the world to do demonetisation. Sweden ( 2013), European
Union ( 2016) and even Pakistan (2015) has done it for their currency notes.
24.11.1 💸💸Why Demonetise ₹ 500 & 1000?
 Demonetization is usually done in the aftermath of hyperinflation, war & regime-change.
 India did it to combat Corruption, Black money, Counterfeiting and Terror finance .
भ्र�ाचार, काला धन, जाली नॉट,आतं क का �व�पोषण
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 We had 12.04% Cash to GDP ratio, one of the highest in the world. Currency printing &
transportation cost alone was 1.7% of GDP.
 “Soil rate” is the rate at which notes are considered to be too damaged to use and returned to the
RBI. (�बगड़े/फटे �ए नोटों को �रजवर् ब�क म� बदलवाना)
 For ₹ 500 & 1000 SBN-notes, soil rate was much lower than the currency notes of ₹ 10 to 100.
(implying that 500-1000 SBN were used more for ‘storing black money’, rather than using in
transactions.)
 So, experts made mathematical comparison of the foreign countries’ economic development,
soil rates of their foreign currency notes etc. and arrived at a figure ₹ 3 lakh crores of Indian
black money is stored in SBN (=2% of GDP).
 So if SBN were demonetised, the black money holders will not return their currency notes into
banks (fearing IT-RAIDS) and thus black money will be destroyed. (काला धन �यं तबाह हो जाएगा)
 But in reality, ~99.30% of the SBN were returned back into the banking system, so hardly ₹
10,720 crore of black money was destroyed by the demonetisation of 2016.
24.11.2 💸💸How did 99.30% SBN returned into banking system?
If the mathematical modelling was correct, then only 80% of the SBN should have returned back, &
20% SBN (presumed to be Black Money) should not have returned. But, Black money owners used
following tricks to deposit their SBN in bank accounts:
1. Businessmen / Politicians used their drivers, cooks, gardeners, personal staff members and
relatives as ‘money mules’. This is evident from exponential rise in the deposits in Pradhan
Mantri Jan Dhan bank accounts. (धनं ख�र/टट्ट� के �प म� इ�ेमाल िकया)
2. SBN were given out as “loans” to poor & as advance salaries to workers.
3. Agents who tied up with corrupt bankers who exchanged SBN without KYC verification.
4. SBN deposited in Cooperative Banks as back-dated Fixed Deposits, because Cooperative Banks
didn’t use Core Bank Solution (CBS) so it was possible to temper records.
5. SBN deposited in banks and then shown as income from sale of (fictitious) grain stock etc. So,
IT-dept can’t demand tax on it (and most state governments not levy tax on agricultural income
due to populism/vote bank politics). (फज� तरीके से आए को कृ �ष �ोत से आया �आ बताया)
6. SBN deposited in shell companies & shown as income from (fictitious) sale and invoices.
7. SBN donationed to trust, temples & political parties with backdated receipts (and those entities
are exempted from Income Tax on their income.)…. And so on
24.11.3 💸💸99.30% SBN returned, but Demonetization not failed experiment because:
✓ Those who could not return their SBN, have lost their black money (₹ 10,720 crore)
✓ Those who used poor people are money mules- must have paid some commission to them. So
even if government did not get tax from black money, atleast poor people benefited. Thus,
indirectly demonetization helped in redistribution of wealth.
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✓ Further, Operation Clean money, IT-dept issued notices to the suspicious bank accounts where
large amount of money was deposited. Such shell firms & their benami properties are seized.
✓ With Project Insight & Op. Clean Money: IT dept fetched ₹ 1.30 lakh crore in taxes and penalty,
attached ₹ 7000 crore worth Benami properties, ₹ 1600 crore worth foreign assets & de-
registered ~3.40 lakh shell firms. (says the Int-Budget-2019).
✓ The number of PAN card registration, IT returns, registrations under excise / VAT / GST have
greatly ⏫⏫ in the aftermath of demonetisation which proves that crooked people have
learned lesson. More than 1 cr. new IT assesses added in 2017.
✓ Tax collection ⏫⏫ from ~₹ 6 lakh crores (2013) to ~₹ 12 lakh crores (2018).
24.11.4 💸💸Demonetization: Impact as per Economic survey 2016-17
Area 😢😢 Short Term Challenges 🥰🥰 Long Term Benefits (दीघर् अव�ध के फायदे)
Banking Administrative challenges on Growth in the deposits → more loans can be given
the bankers to exchange the @cheaper interest rate, Less Cash economy &
banned notes, long queues associated benefits.
Real Estate Sale of houses ⏬ (मकानों क� Prices & rents of houses should ⏬.
�बक्र� म� �गरावट) Migrants will benefit.
Economy Job loss in cash-intensive Less-cash economy, digitization and formalization
at large sectors like diamond of economy, Bizmen getting GST registrations →
polishing, farm laborer, further surveillance → forced to show employees
MSME (बेरोजगारी) on paper → EPFO & ESIC benefits to worker.
Growth Slow down (�गरावट) Improvement (आ�थक वृ�द्ध दर म� बढ़ोतरी)
SELF-Study for Mains: Economic survey 2016-17 Vol1ch3, table 2 “impact of demoneti..”
24.12 📘📘📘📘ECONOMIC SURVEY ON TAXATION AND FISCAL CAPACITY (�व�ीय �मता)
The Economic Surveys of 2015, 2016, 2017 have repeatedly observed that
- Democracy is a contract. Taxation is the economic glue that binds government and citizens into
this contract. (लोकतं त्र एक अनुबंध है, कराधान एक आ�थक गोंद)
- But, whenever govt delivers poor quality of service in public schools, hospital etc. → middle
class & rich citizens will “EXIT” towards the pvt school & hospitals → Then they feel ‘moral
right’ to evade / avoid taxes, bcoz, they are no longer using public services.
- Result? hardly 4% of Indian voters are taxpayers (23% is desirable, as per our level of
development against BRICS nations. भारत के के वल 4% मतदाता करदाता है)
- Govt gets less taxes → poor fiscal capacity → poor services → vicious cycle continues and
results in ⏬ of govt’s accountability towards citizens. (सरकार क� जवाबदेही कम होती है)
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24.12.1 🍋🍋🍋🍋 Tax: GDP – why low in India (भारत का कर:जीडीपी अनुपात खराब �ों है?)
1) Lack of civic sense among people that paying taxes is a basic duty. (देश के प्र�त कतर्� क� भावना नहीं)
2) Presence of informal sector, parallel economy, cash based economy provides ample
opportunities of hiding income. (नगदी आधा�रत अनौपचा�रक अथर्तंत्र)
3) Low per capita income, high level of poverty. Concentration of income in the hands of few
people- who are greedy to engage in tax evasion & avoidance. (देश क� �ादातर सं प�� चु�नदं ा लोगों के हाथों
म� क� िद्रत, जो �यं क� लालच म� कर जमा नहीं करते)
4) Election funding → source of corruption → black money. Politician-Builders-Mafia nexus.
5) Due to political considerations, state govts and local bodies do not levy all the taxes authorised
by the constitution e.g. tax on agricultural income. So our (direct) tax base is narrow. [Tax base:
कराधार means the total value of all the persons/income/property, etc. on which tax is charged.]
6) Loopholes in the tax laws encourage tax avoidance (कर कानूनों म� खा�मयां)
7) Direct taxes like wealth tax, gift tax and estate duty suffered from loopholes, lax monitoring and
evasion. They didn’t yield much revenue. Hence even referred as ‘paper taxes’, and had to be
abolished ultimately. (कागजी कर �जनसे वा�व म� नाम मात्र क� आमदनी होती थी)
24.12.2 🍋🍋🍋🍋 Tax: GDP 📘📘📘📘 ES19: “Use Behavioural Economics to improve Tax Compliance”
 Plato said, “What is honoured in a country, is cultivated there.” Indians join military because 1)
salary 2) because serving in the armed forces is considered ‘honourable’. (स�ाननीय)
 So, we should use the principles of Behavioral Economics to enhance tax compliance We’ve to
modify the social norm from “evading taxes is acceptable” to “paying taxes honestly is
honorable.” ((�ावहा�रक अथर्शा� के �सद्धांतों द्वारा कर अनुपालन म� बढ़ोतरी कराएं . कर भरना एक स�ाननीय कतर्� बने)
 Tax Morale: it is the motivation of taxpayers to pay taxes. (कर सं बं धी नै�तक मनोबल)
 When tax morale is ⏬ → motivation for tax evasion ⏫.
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Table 4: Tax Morale is affected by two types of fairness
Fairness Vertical Fairness Horizontal Fairness
�न��ता (उ�ार्धार �न��ता �ै�तज) (�ै�तज �न��ता)
Tax Payer’s What I pay in taxes is commensurate There should not be a great difference
thought to the benefits I receive as services in the taxes paid by the ‘similar’
process → from the Government. sections of society.
His Tax He sees taxpayers' money wasted in If a salaried employee and a
morale is public expenditure (like Mayawati’s shopkeeper are earning ₹8 lakhs per
lowered when elephant statutes) instead of better annum, still the salaried employee is
→ quality of water, road, education or forced to pay more taxes than this
electricity. shopkeeper, because
- TDS on salary whereas shopkeeper
underreports his sales in cash
payment.
- Shopkeeper shows less profit
through fictitious business
expenditures.
Solution(s)  under-constructions projects  SMS, billboards highlighting self-
should show signboards “Your tax employed individuals who pay
money at work” good amount of tax.
 Reminding tax payers that public  Public shaming of individuals who
goods can only be provided in don’t pay taxes. It’ll scare other
return for tax compliance. Most tax-evaders that the probability of
people in your local community their detection has increased.
pay their taxes on time.  Avoid Tax Amnesties. Give
stringent punishment to tax
evaders.
Further, CEA Subramanian K. suggested:
 Top 10 highest taxpayers within a district → They should be given VIP-treatment such as faster
boarding privileges at airports, special “diplomatic” type lanes at immigration counters, fast-lane
on roads and toll booths, etc.
 Highest taxpayers over a decade → Important places should be named after them e.g. roads,
trains, schools, universities, hospitals and airports.
 In Hinduism, Islam and Christianity - unpaid debt is considered a sin. So, advertisements should
highlight how tax evasion is a violation of such “spiritual/religious norms”.
 Ease in Paying Taxes: Pre-populated Income Tax forms with easy to understand terms. Even if a
person’s tax liability is ZERO, he should be required to fill Income Tax form.
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 Automated TDS as and where possible and timely release of Tax refunds.
@Hindi-Medium-Mains candidates: refer ES2018-19 Vol1 Ch.2 page52’s bullet
2.33 upto page 55’s box 5 to get the clean & formal vocabulary
24.12.3 🍋🍋🍋🍋 Tax: GDP: 15th Finance Commission on how to improve it?
⇒ Expand the scope of TDS/TCS to cover more number of transactions and find the tax
evaders. (�व�वध प्रकार के लेनदेन को टीडीएस/टीसीएस के दायरे म� लाया जाए तािक कर चोरी पर �नगरानी रखी जा सके )
⇒ 40% of the people who filed Income Tax forms in 2019-20 did not pay any income tax. Because
either: आयकर का फॉमर् भरने वाले 40% लोग असल म� आयकर नहीं जमा करते �ोंिक.
o the taxable income was very low (आयकर यो� आय ब�त कम है)
o they are hiding / underreporting some of the income (आयकर फॉमर् म� कु छ आमदनी को छु पाया जा
रहा है)
o because of tax-deduction & tax rebates. (वह �व�वध प्रकार के टै� िडड�न, टै� �रबेट का लाभ लेकर
अपने आयकर दा�य� 0 कर देते ह�)
o So, Government needs to address this. इस�लए �व�ा म� सुधार ज�री
Income Tax Rate Minimum Maximum Income Tax Rate Minimum Maximum
UK 20 45 Brazil 7.5 27.5

USA 10 40 Japan 5 45
Sweden 20 25 China 3 45
Australia 19 45 India, Indonesia 5 30
⇒ Article 276: Presently Constitution does not allow the state government to demand more than
₹2500 rupees per year as professional tax. Union government should amend the constitution to
increase the limit. 14th FC recommended ₹12,000 per year. (रा� सरकारों को �वसाय कर वसूलने क�
सं �वधान म� जो सीमा दी गई है उसे ढाई हजार से बढ़ाकर 12000 प्र�त वषर् िकया जाए)
⇒ Presently GST has four slabs 5-12-18-28. Rationalize it into just three slabs for more efficient
administration & relief to taxpayers (जीएसटी क� दरों क� सं �ा को कम िकया जाए)
o Merit rate (5%)
o Standard rate (by merging 12-18% slabs into a single figure may be 15-17%)
o Demerit rate (28-30%)
⇒ Govt should ⏬ the overreliance on indirect taxes (e.g. raising excise/VAT on petrol-diesel).
Increase the coverage of direct taxes of Union and State. (सरकार ने �व� प्रबं धन के �लए परो� करो पर अपनी
�नभर्रता को थोड़ा कम करना चािहए, प्र�� करो का �ाप बढ़ाना चािहए)
🔠🔠❓MCQ. Which of the following effects of creation of black money in India has been the main
cause of worry to the Govt of India? [काला धन भारत सरकार के �लए �चंता का �वषय �ों है] (Prelims-2021)
A. Diversion of resources to the purchase of real estate and investment in luxury housing [सं साधनों को
आलीशान बं गले खरीदने के �लए मोड़ िदया जाता है]
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B. Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.[क�मती
जवाहरात सोने और गैरउ�ादक प्रवृ��यों म� �नवेश होता है]
C. Large donations to political parties and growth of regionalism [राजनी�तक प�ों को बड़ा चं दा िदया जाता है
और प्रांतवाद क� वृ�द्ध होती है]
D. Loss of revenue to the State Exchequer due to tax evasion [कर चोरी के चलते राज� आमदनी कम होती है]
24.13 🍋🍋TAXATION: MISC. TERMS
Laffer Curve - American economist Arthur Laffer: if (direct) tax rates are ⏫ above a
(लफ़र वक्र): certain level, then tax revenue collection will ⏬ because higher tax rates
discourage people from working and/or encourage them to evade tax.
- So, tax-cuts could lead to ⏫tax revenue collections.
- 💼💼Modi Budgets from 2017 onwards: The lowest Income Tax slab was cut
from 10% to 5%; The corporation tax on small sized companies was also
brought down from 30 % to 25% in a phased manner.
- 💼💼Budget-2020: new optional Income tax slabs.
- 💼💼USA Budget-2017: Corporation tax cut down from 35 % to 15%
Tax buoyancy - If GDP grew by x%, then how much % Income tax collection will grow?
(कर उ�ावकता): - E.g. if income tax collection growth rate is 11% when GDP growth rate is
10%, then Income Tax’s tax buoyancy is 1.1
Tax elasticity If first income tax slab increased from say 5% to 15%, then in absolute terms how
(कर ल�चलाता): much more IT-revenue will be generated?
24.13.1 🍋🍋 Net Tax Revenue of the Govt (शुद्ध कर राज�)
Sr. Budget → Revenue Receipts → Tax 💼💼Budget 2020-21 💼💼Budget 2021-22
Receipts (Approx.)
A Union’s Direct taxes, incl. cess and ~ 13 lakh crores 11.08 Lakh Cr
surcharge
B Union’s Indirect taxes incl. cess and ~ 11 lakh crores 11.02 Lakh Cr
surcharge.
- For Union: direct taxes
income is >> indirect taxes.
- But if we summed all the taxes
of union, state and local
bodies then indirect taxes
income >> direct taxes.
C Union territories without legislature: ~7500 crores 7000 cr
their direct and indirect taxes:
�वधानमं डल रिहत सं घ रा� �ेत्र
D Gross Tax Revenue (=A+B+C) सकल कर ~24 lakh crores 22 Lcr
राज�
E Minus the Tax devolution to States (कर (-)~8 lakh crores (-) 6.65 Lakh Cr
ह�ांतरण) as per the Finance
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Commission
F Minus Contributions to National (-)~3000 crores (-) 6100 cr
Disaster Response Fund in Home
ministry**
D-E- Net Tax Revenue of Union (शुद्ध कर ~ 16 lakh crores 15 Lakh Cr
F राज�) +D-E-F=
**Public Account → National Disaster Response Fund (रा��ीय आपदा प्र�तिक्रया कोष) is a statutory fund under Disaster Management Act,
2005. Previously, called National Calamity Contingency Fund (NCCF).
24.13.2 🍋🍋 Revenue Shortfall (राज� म� कमी)

Budget Estimates: बजट अनुमान BE-2020-21 Presented RE-2020-21 Shortfall: BE Minus RE
Revised Estimates सं शो�धत अनुमान on 1/2/2020 Presented on 1/2/2021 Amount in Crores
Corporation Tax (�नगम कर) 681000 446000 😰😰235000
Income Tax (आयकर) 638000 459000 😰😰179000
Customs Duty (सीमा शु�) 138000 112000 😰😰26000
Excise Duty (उ�ाद शु�) 267000 361000 😰😰No Shortfall, excess
collection of 94kCr
GST 690500 515100 😰😰175400
Total = Gross Tax Revenue 2423020 1900280 😰😰522740
इतना कमाने क� उ�ीद थी वा�व म� इसके आसपास इतना �आ राज� घाटा
⇒ Budget 2020 is presented on 1/2/2020 for the next financial year starting from 1st April 2020 to
31st March 2021. So, FinMin could have only made projections /estimations about how much
taxes will be collected during 1/4/20 to 31/3/21.
⇒ But throughout the year, based on the advance tax-collection figures & monthly GST collection
figures, FinMin will have to re-adjust the estimates.
⇒ 1/2/2021: Budget 2021 is presented for next FY-2021-22. Along with that, Govt will present
revised estimates for previous Financial Year (2020-21).
⇒ From the table we can see Gross Tax collection is less than expected (24 MINUS 19) = ~5.## lakh
crore is ‘Revenue Shortfall’, mainly because GST & Corporation Tax collection are much less
than expected due to slowdown in economy.
24.13.3 � Mock Questions for UPSC Mains (250 words each)

1. (Asked in GSM3-2013) Money laundering poses a serious threat to country’s economic
sovereignty. What steps are required to be taken to control this menace? मनी लॉ��गं देश क� आ�थक
सं प्रभुता के �लए एक गं भीर खतरा है। इस खतरे को �नयं �त्रत करने के �लए �ा कदम उठाए जाने क� आव�कता है?
2. What is retrospective taxation? Discuss the provisions in Taxation Laws (Amendment) Act,
2021 in this regard. (पूवर्प्रभावी/भूतल�ी कराधान �ा है? इस सं बंध म� कराधान सं शोधन क़ानून 2021 म� �ा प्रावधान िकए
गए ह�?)
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3. Despite being a trillion dollar economy, India's tax to GDP is quite low. Suggest ways to remedy
this contrast. (िट��लयन डॉलर क� अथर्�व�ा होने के बावजूद, भारत का कर:जीडीपी अनुपात काफ� कम। इस �वषमता को हल
करने के उपाय सुझाए).
4. Discuss the significance of taxpayers charter & tax ombudsman in the tax administration of
India. (भारत के कर-प्रबं धन म� करदाताओं के अ�धकार पत्र और कर-लोकप्रहरी/�शकायत �नवारण अ�धकारी के मह� क� चचार्)
5. Discuss the rationale behind introduction of a global minimum tax. How will it help countries
like India? (वै��क �ूनतम कर क� शु�आत के पीछे तकर् पर चचार् कर� । यह भारत जैसे देशों क� कै से मदद करेगा?)
24.14 📥📥📥📥📥📥 BUDGET → REVENUE PART → RECEIPTS → NON-TAX RECEIPTS
🚆🚆🚆🚆 Notable sources of Non-Tax revenue 2021-22

✓ Interest receipts (�ाज प्रा��यां received on Union’s loans to states, railways, CPSE, ~1.1 lakh cr.
foreign countries.) is a revenue receipt. [Had those borrowers repaid loan-
principal, then that portion is ‘Capital Receipt.]
✓ Dividends and profits received from CPSE, PSBs, RBI. [Had Union sold its
shares to a third party (disinvestment / privatization) → that’s ‘Capital Receipt’].
Union’s income from (Dividend & Profits) >> from Interests.
Income from selling various goods & services such as railways, postal services, selling ~1.2 lakh cr.
of India Yearbook-, Yojana-Kurukshetra magazines, fees that CISF charges for giving
protection to Private Airports, auction of spectrum & mining rights, selling of
commemorative coins etc.
Grant in Aid (अनुदान)/ Donations received by Union. 747 cr.
[Had Union received ‘loan’, it’ll be ‘Capital Receipt’.]
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Similar Non-tax revenue earned by UT without Legislature ~ 2500 cr.
Sum of Above= Total Non-Tax Revenue Receipts कर-�भ� प्रा��यां ~2.## lakh cr.
Total Revenue Receipts= NET Tax receipts (~15.## lcr) + Non-Tax receipts (~2.## lcr)= ~17.##lcr.
✋Figures are not important, but the fact is important that revenue budget: tax receipts >> non-tax
25 📤📤⏰ BUDGET → REVENUE EXPENDITURE (राज� खचर्/ �य)

- Expenditures spent on day to day functioning of the organs of the state =
- salaries & pensions, stationery, electricity bill, phone bill etc.
- in Executive, Judiciary, Legislature, Constitutional & Statutory bodies.
- Expenditures that do not create income generating assets or permanent assets or financial assets.
- Thus, money SPENT on loan-interests, subsidies, scholarships, grants etc. counted here
Notable Revenue Expenditures 2021-22
Interest to be paid on previous loans is Revenue Expenditure. [Whereas Union repays 8.1 Lcr
loan-principal, its ‘Capital Expenditure’]
- Grant-in-Aid (अनुदान) to States & Local Bodies for Disaster Management, 5.5 Lcr
Panchayati Raj Development etc. as per Finance Commission recommendations.
Additionally, Govt also gives grants to poor foreign countries for improving
diplomatic relations. (अंतररा��ीय �र�ो को के �लए अनुदान)
- Grant = Amt doesn’t have to be returned with Interest. (Whereas If Govt gave
‘loans’ to States/CPSE/Foreign Countries then it’s an income generating financial
asset = counted under Capital Expenditure).
Subsidies: Approx. Figures for 2021-22 3.7 Lcr
1. 🌽🌽Food subsidies: ₹ 2.4 lakh cr.
2. 🌽🌽🌽Fertilizer (Urea > Others): ₹ 80,000 cr
3. ⛽Fuel (LPG > Kerosene): ₹ 13,000 cr
4. Interest Subsidies on loans: Farmers (highest), MSME, Affordable Housing, LIC
Vay Vandana Yojana etc.: ₹26,000 cr.
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5. Other (Price stabilization fund, Cotton & Jute etc.): 7000 cr.
�Defence revenue expenditure (e.g. soldier salaries, fuel for tanks) 2.2 Lcr
�Pension to retired employees (zigzag in last 3 years) 2.1 Lcr
➢ Economic services related revenue expenditure (Agriculture, energy, transport, --some
communication, Science technology) figures
Not imp
➢ Social services’ revenue expenditure ( health, education, social security):
➢ Expenditure on Administrative machinery (Police, Jail, External Affairs etc.),
Elections, Parliament, Judiciary:
➢ Revenue expenditures of UT without Legislature:
Total Revenue Expenditure कु ल राज� �य (approx.) 29.##Lcr
Total Revenue Receipts (Tax + Non Tax Receipts) कु ल राज� प्रा��यां (approx.) 17.##Lcr
⚠ Revenue Deficit = Revenue Receipt MINUS Expenditure 11.40Lcr
Estimated nominal GDP for 2021-22 is ₹ 222 lakh crores. So Revenue Deficit as a 5.1%
percentage of GDP = (11.40 divided by 222) x 100=
🔠🔠❓ As per the Budget 2019-20, the maximum subsidy expenditure was likely to be on _ _ _ (UPSC-CDS-2020-ii)
(a) urea subsidy (b) petroleum subsidy (c) food subsidy (d) fertilizer subsidy
25.1 📤📤⏰(🌽🌽⛽) REVENUE EXPENDITURE → SUBSIDIES

Tax (₹ ~15 lakh crores in Budget 2021) Subsidies (₹ ~ 3.7 lakh cr in Budget 2020)
Tax is a compulsory contribution imposed by A subsidy is a benefit given to an individual or
State. Refusal to pay the tax is punishable. firm by the government to reduce some type of
कर= रा� द्वारा लगाया जाने वाला कर एक अ�नवायर् योगदान है। burden. A person may refuse to accept the
करचोरी एक दंडनीय अपराध subsidy, he will not be punished.
Tax doesn’t promise specific and direct A specific benefit is promised e.g. 6000 to
goods/services to the taxpayer. (Mukesh farmers, idli@₹ 1 rupee in Amma Canteen
Ambani’s car will still suffer from potholes) (Tamilnadu).
25.1.1 📤📤⏰(🌽🌽⛽) Types of subsidies with selected examples

1. Given in direct cash (or bank transfer): PM KISSAN 6k for farmers, LPG Pahal ~200 per
cylinder. नगद म�.
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2. Given in kind: free school bags, uniform and books to the poor children, free medicines in
public hospitals, free insurance. मु� व�ु या सेवा के �प म�
3. Indirect subsidies (परो�): cheap fees in government colleges, cheap kerosene, cheap urea, cheap
crop insurance premium etc. Here govt. is paying some money to an organization so they may
provide goods/services @cheap rate to the beneficiary.
4. Implicit Subsidies (अंत�निहत): Govt supresses the supply so to ⏫ the prices to help a sector. E.g.
Indian govt banned import of American chicken/poultry/eggs. So, shortage of chicken helps
local Indian poultry industry to demand high prices from public. Here Indian poultry receiving
‘implicit subsidy’ (from public), even though Govt is not paying them money. (More in
📑📑Pillar#3B -> WTO)
5. Cross-Subsidization (क्रॉस सहा�यक�करण): To keep rail travel cheap for the poor people, Railways
keeps the passenger tickets lower than its input cost. To compensate this loss, Railways keeps
freight (goods transport) prices higher. This is called “Cross subsidization” (More in 📑📑Pillar#5
Infra → Railways)
6. Regulatory (�नयामक) subsidies: e.g. if State Electricity Regulatory Commission directs companies-
that electricity to farmers must NOT to be beyond ₹ “x” per unit.
7. Procurement (खरीद) subsidies: e.g. FCI purchasing at food grains from farmers at minimum
support price (MSP). (More in 📑📑Pillar#4A -> AGRO)
8. Interest (�ाज) subsidies / subvention: govt pays “x%” interest on agriculture, MSME, affordable
housing loans.
25.1.2 � � Impact of Subsidies (स��डी का प्रभाव: सकारा�क एवं नकारा�क)
 � Merit Goods (लाभदायक व�ुऐ)ं : Healthcare, education, scientific research, LPG, solar panels,
wind mills etc. Here subsidies can increase the positive externalities. (Cheap LPG → poors don’t
use firewood → more trees & less indoor pollution.)
 � But subsidies on diesel, kerosene =negative externalities (नकारा�क बाह्यता) on environment.
 � Urea subsidies to industries → cheap urea to farmers → excessive consumption → soil &
water pollution, algae-blooms. (यू�रया उवर्रक का अ�ा�धक उपयोग जमीन पानी म� प्रदू षण)
 � Subsidy leakage: When ghost beneficiaries (non-existent persons propped up by corrupt
officials), and ineligible (rich) people are receiving subsidy. (स��डी �रसाव, धांधली और गबन)
25.1.3 📘📘📘📘 Past Economic Surveys on subsidy delivery (आ�थक सव��णों के उपाय)
📘📘📘📘 Economic survey 2014-15:
✓ We should use Jandhan Aadhar Mobile (JAM) trinity to reduce the subsidy leakage.
✓ Direct benefit transfer (DBT: प्र�� लाभ ह�ांतरण) can’t be a panacea in every case, because
males of the house may waste DBT-money on liquor & tobacco. So, in some cases,
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Biometrically Authenticated Physical Uptake (BAPU) mechanism will be better i.e.
beneficiary goes to a grain / fertilizer shop and uses his Aadhaar & fingerprint to purchase
subsidized goods. (बॉयोमीिट�क �प से प्रमा�णत करके लाभाथ� को व�ु देना)
➢ The present subsidy delivery mechanism suffers from two errors:
○ Inclusion Error (समावेश त्रुिट): Non-poor (=affluent) are receiving ~40% of subsidies.
○ Exclusion Error (बिह�रण त्रुिट): real poor are not getting subsidies due to corruption
✓ So better to abolish all type of subsidies and directly deposit a specific sum of money into
beneficiary’s bank account to help him buy goods/services from open market = Universal
Basic Income (सावर्�त्रक बु�नयादी आय) (UBI): 📑📑More in Pillar#6.
25.1.4 📘📘📘📘 ES19: Use ‘Behavioural economics (�वहार अथर्शा�)’ to ↓ subsidy bill
To ⏬Govt’s subsidy burden: Above Poverty Line (APL: गरीबी रेखा से ऊपर) households shd be
encouraged to voluntarily surrender LPG subsidies using following tools of Behavioral economics:
 People have a strong tendency to go with the status quo. So, ‘Default ticked option’ in LPG
registration forms should be ‘I wish to give up the subsidy’, so a person will be ‘forced’ to untick
the option to avail the subsidy benefit.
 Similarly, income tax forms should contain extra-fields with pre-ticked options like ‘I want to
give up LPG subsidy’.
 The online /SMS-based ‘subsidy giving up process’ should be quick and hassle-free. It should
not take more than a few minutes. Because every additional minute required to complete the
formalities= increases the chances that person will drop out in the middle of the process.
 People act positively when they see others act positively, and particularly when they can relate to
such individuals. So, online “scroll of honour” should show name/photos/social media-profiles
of others in their area who gave up subsidies.
 Advertisements to highlight that “Rich people are helping in poverty removal by giving up
subsidies.“
 When people are watching a movie with social message (such as Padman, Toilet Ek Premkatha
etc), it should contain ad asking people to give up full / partial subsidy.
 Once a person gives up subsidy, he should be shown the photos of poor people benefitting from
his act / or a video with a beneficiary saying ‘thank you’.
@Hindi-Medium-Mains candidates refer ES2018-19 Vol1 Ch.2 bullet 2.26 to

2.31 to get clean & formal vocabulary for answer writing.
25.1.5 ��🕵🕵National Recruitment Agency (NRA: रा��ीय भत� एज�सी)

 Present: multiple recruitment exams conducted by multiple agencies at different points of time
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throughout the year..
 Future: NRA will conduct Common Eligibility Test for recruitment to Non-Gazetted personnel
in Government and PSBs. → SSC and IBPS will conduct Mains exams for respective posts →
time and cost saved for both candidate and recruiting agencies.
 💼💼Budget-2020: we’ll set up NRA & open a (computerized) test centre in every district.
 ✋Self-Study-Topics for GSM2/GSM4: 1) Lateral entry in IAS. 2) Three years tour of duty in
Army. Source? Internet / Current Affairs PDF/Lectures.
25.2 📤📤⏰🥳🥳 REVENUE XPDR → SALARIES→ 7TH PAY COMMISSION (वेतन आयोग)
Setup by Finmin → Dept of Expenditure. 1st: Srinivasa Varadachariar (1946). 7th: (Retd) Justice
AK Mathur (2014). Its recommendations became effective from 1/1/2016. Major highlights were:
✓ New system of “Pay Matrix” instead of previous system of pay band and grade pay.
✓ Regulatory bodies salaries increased: Chairman ₹ 4.50 lakh / month, members ₹ 4l.
✓ Minimum pay in Central service increased to ₹ 18k / per month (Group-D).
✓ Maximum pay: ₹ 2.25 lakh per month for Apex scale (e.g. Secretary of a Dept.), and ₹ 2.50l (for
Cabinet Secretary)
✓ It adopted Dr. Aykroyd formula to compute wages at periodic interval (formula tracks the
changes prices of the commodities used by a common man).
✓ So, critiques believe there will not be an 8th Pay Commission because salaries will be updated
automatically at regular interval, using this formula.
✓ It abolished various type of ‘interest free allowances’ e.g. Purchase of bicycle etc.
✓ It continued ‘interest-bearing advances’ for purchase of computer, house building (upto ₹ 25
lakhs). [= employee can borrow money from dept but he will have to return it with interest.]
✓ Various reforms for defence and CAPF services. (सश� सेना /क� द्रीय पु�लस बल के �लए सुधार)
✓ stronger rules in Modified Assured Career Progression (MACP) system so lazy officials don’t
get promoted. (आलसी और �नक�े अफसरों क� पदो��त को रोका जाए)
25.2.1 🥳🥳 Pay Commission: Dearness Allowance (DA: महंगाई भ�ा)

- Dearness Allowance (DA): It is an allowance given by government to (serving/non-Retired)
central government employees to protect them against the inflation. (नौकरीशुदा कम�यो को)
- Dearness Relief (DR): It is an allowance given by government to RETIRED central government
employees to protect them against the inflation. (�नवृत कम�ऑ को)
- In 2020- Union govt had frozen DA&DR because Govt was struggling with money for Corona
relief. 2021-July: Govt resumed paying & ⏫ DA&DR from 17% to 28%. कोरोना-वषर् म� सरकार ने
सरकारी कमर्चा�रयों को महँ गाई भ�ा नहीं िदया, �ोंिक सरकार को खुद ही पैसों क� िक़�त थी, लेिकन अब वापस शु� कर रही है.
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25.2.2 🥳🥳 Pay Commission: Misc. terms
- It’s given by an employer to protect the employees against rise in inflation. In government
services, both working employees and retired pensioners are given dearness allowance.
- House Rent Allowance (HRA: मकान िकराया भ�ा): rent allotted by the employer for employee's
accommodation (house).
- Gratuity (ग्रे�ुटी): It’s a lump sum amount “x” given by an employer to the employee for
rendering services continuously for “y” number of years. Usually given at retirement. Norms
governed under Payment of Gratuity Act, 1972
- One Rank One Pension (OROP): 2015- Modi govt. promised equal pension to military
personnel retiring in the same rank with the same length of service, regardless of the date of
retirement. Some, Ex-servicemen unhappy about the base year & calculation formula.
25.3 👻👻📤📤⏰�🥳🥳 SALARY REFORMS IN ATMANIRBHARAT 2.0 (OCT 2020)

To ⏫shopping/market demand during the festival season, FinMin launched two schemes:
25.3.1 👻👻⏰�🥳🥳 Atma-Nirbhar 2.0: Festival Advance Scheme (�ोहारों म� एडवांस रकम)
 Govt will give ₹10,000 as interest-free advance to govt employees. Employee need to repay it
back in maximum 10 instalments. (िक�ों म� रक़म वापस चुकानी होगी हालाँिक �ाज नहीं लगेगा.)
 Govt will not give this ₹₹ in cash form. but in form of a prepaid SBI Rupay Card known as "SBI
Utsav Card". This card can be used like a debit card, for making purchases e.g. billpayment,
ECommerce websites etc. (📑📑Ref: HDT-Pillar#1A1)
25.3.2 👻👻⏰�🥳🥳 Atma-Nirbhar 2.0: LTC Cash Voucher Scheme

 Basically gives tax-free allowance, if employees do shopping instead of travel.
 Leave Travel Concession (LTC: छु ट्टी यात्रा �रयायत)= Govt pays ₹₹ to Govt employees for vacation
travelling, subject to certain limits e.g. ₹"X" every "Y" years etc. (e.g. a senior officer may be
eligible for ₹36,000 LTC every four years)
 BEFORE Corona? If he show the travel bills, he'll get ₹ from govt. if he doesn't travel, he'll get ₹0.
Post-Corona Economic Revival =Govt gives him another option →
 If you (govt employee) do not want to travel, then
 Do shopping of goods/services which attract 12% or higher GST (e.g. TV, fridge, mixer etc).
 Then submit the bills/invoice of purchase → Govt will pay employee ₹"X (भले यात्रा न क�, िकंतु शॉ�पंग
िकया तो एलटीसी का पैसा द�गे)
 🤩🤩Benefit? It will ⏫the demand/consumption = Economic Revival.
 ✋Further technical norms and rules not important for the scope of the exam.
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25.4 (📥📥<📤📤)⏰⚠ REVENUE DEFICIT (राज� घाटा: 5.1% OF GDP)
⇒ When govt spends more than its income in revenue account, it incurs …
⇒ Revenue deficit = Revenue expenditure – Revenue receipts. (�य �ादा आमदनी कम)
⇒ Since most of revenue expenditure is ‘committed’ (like Interest repayment on previous loans,
staff-salaries & pensions which Govt can’t ‘avoid’), so difficult to ⬇ the revenue deficit.
⇒ So, when revenue deficit ⬆, govt forced to borrow more money or ⏬ expenditure in the
capital part (= less new schools, bridges and hospitals) → ⏬ human dev, and lower economic
growth (less new bridges → ⬇ demand of steel/cements → ⬇ growth in those sectors).
25.5 (📥📥<📤📤)⏰⚠ EFFECTIVE REVENUE DEFICIT (प्रभावी राज� घाटा: 4.1% OF GDP)
- We’ve counted Grant-in-Aid to States / Local Bodies as ‘Revenue Expenditure’, but some
portion of that ₹₹ may have been spent by the States / Local Bodies for building Panchayat-
Bhavans, Disaster Management Training Institutes, Cranes & Bulldozers for Disaster rescue
operations etc. which are actually “Capital Assets”. (पूंजीगत सं प��यां)
- Therefore, Budget 2011 (Chidambaram) introduced a new concept:
- Effective Revenue Deficit = Revenue Deficit (~₹11 lakh cr) MINUS Grants to various bodies
which were spent for creation of Capital Assets (₹2 lakh cr)
- ERD= ~9 lakh crores (4.1% of GDP) for 2021
NEXT 📥📥📥📥 BUDGET → CAPITAL → RECEIPTS & Expenditure
- To be continued…. Next Handouts
2A) ✅ Direct Taxes [✅2A2-Indirect Taxes & GST 2B) ✅ Black Money, 15th FC
2C) ✅ Subsidies, Salaries, Revenue Expenditure 2D) Disinvestment, Deficit, FRBM Act,
Fiscal Council, Budgeting-Railway budget, plan-non plan budget, & scheme types etc.
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Pillar#2D: Disinvestment to Deficit to Budget & Scheme Types
Table of Contents
26 📥📥📥📥 Budget → Capital → Receipts ...............................................................................................350
26.1.1 💼💼💼💼💼💼 Foreign Borrowing in Foreign Currency ......................................................350
26.1.2 💼💼💼💼💼💼Budget-2021: Foreign Borrowing ...................................................................351
26.2 🧔🧔🧔🧔 ♐ 🤵🤵 Budget → Capital Receipts → Disinvestment: �व�नवेश.................................352
26.2.1 🥉🥉Ratna Companies = freedom to govt companies based on performing.................353
26.2.2 🧔🧔🧔🧔 ♐ 🤵🤵 Government policy towards disinvestment before 2021.....................354
26.2.3 🧔🧔🧔🧔 ♐ 🤵🤵 Disinvestment & Privatization in the Modi Raj (2014-19) .................355
26.2.4 🧔🧔🧔🧔🧔🧔 ♐ 🤵🤵 Strategic Disinvestment in Modi Raj ...............................................355
26.3 👻👻👻👻👻👻 → � Disinvestment in budget 2021 .....................................................................356
26.3.1 🚿🚿🚿🚿National Monetisation Pipeline (NMP 2021) ......................................................357
26.3.2 📞📞 ☎: BSNL MTNL Merger & VRS (�वलीनीकरण) ...........................................................357
26.4 📔📔📔📔ES20 Vol1 Ch9 Privatization and Wealth Creation ......................................................357
26.4.1 📔📔📔📔 Strategic Disinvestment (=privatisation) → ⏫profitability ...........................357
26.4.2 📔📔📔📔Strategic Disinvestment (=Privatisation) → Adopt Singapore Model .............358
26.5 🗓🗓🗓🗓Budget → Capital Part → Expenditure (पूंजीगत �य) ..................................................358
26.5.1 👻👻👻👻👻👻👻🏗🏗Atmanirbharar 2.0 (2020-Oct) → State CAPEX Loans ..................358
27 💼💼💼Types of deficits: घाटे के प्रकार ......................................................................................................359
27.1 💼💼💼Fiscal Deficit: राजकोषीय घाटा ..............................................................................................360
27.2 💼💼💼Primary Deficit: प्राथ�मक घाटा .............................................................................................361
27.3 💼💼💼Debt Composition: Amount-wise ..................................................................................361
27.3.1 💼💼💼Debt Composition: Type-wise ...............................................................................361
27.4 💼💼💼👜👜👜 Extra-Budgetary Resources (बजटेतर सं साधन) .....................................................362
27.5 💼💼💼 Financing the deficit: its negative consequences on economy: ................................363
27.5.1 💼💼💼 ⏫:🛒🛒⏬ Financing the Deficit: Ricardian Equivalence ...............................363
27.5.2 💼💼💼 ⏫:🛒🛒⏬Ricardian Equivalence invalid for India says ES21 .......................363
27.5.3 💼💼💼 Financing the deficit: “Crowding Out” of private borrowers ..........................364
27.5.4 💼💼💼 Crowding out of private investment? 📔📔📔📔ES21 Observations.....................364
27.5.5 💼💼💼 Financing the deficit: Printing More Money ......................................................365
27.5.6 💼💼💼 Fiscal Deficit ⏫= India sovereign rating ⭐⭐⏬ ......................................365
27.5.7 ⭐⭐Rating downgrade⏬: Don’t worry says ES21 ...................................................366
27.5.8 ⭐⭐Rating downgrade: conclusion or way forward...................................................367
27.6 💼💼💼💼💼💼💼💼Countercyclical policy (प्र�तचक्र�य राजकोषीय नी�त) ..................................................367
27.6.1 💼💼💼💼💼💼💼💼Countercyclical: IRGD & Debt Sustainability..........................................368
(Batch:PCB5) Mrunal’s Economy Pillar#2D: Budget → Disinvestment & Deficits → Page 348
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27.6.2 💼💼💼💼💼💼💼💼 Countercyclical: Domar Condition of Debt Sustainability ...................368
27.6.3 💼💼💼💼💼💼💼💼Countercyclical: Conclusion/Way forward? (�न�षर्) ..............................368
27.7 🔀🔀🔀🔀Side Note: Automatic Stabilizers (�चा�लत-��रीकारी) .....................................................369
27.8 💼💼💼 Misc Terms related to Deficit Financing ......................................................................370
27.9 💼💼💼💼💼💼 Fiscal Consolidation / Prudence: राजकोषीय एकत्रीकरण / �ववेक ..................................370
27.10 💼💼💼💼 Fiscal stimulus (राज� प्रो�ाहन पेकेज) ............................................................................371
27.10.1 💼💼💼💼 👳👳 Manmohan’s Fiscal Stimulus (2008-) ..........................................................371
27.10.2 💼💼💼💼 🧔🧔 Modi’s Fiscal Stimulus (2019) .......................................................................372
27.10.3 👻👻💼💼💼💼 🧔🧔 Modi’s Atma-Nirbhar Bharat Economic Stimulus Package (2020) ..372
27.11 💼💼💼🔨🔨 Fiscal Responsibility & Budget Management Act, 2003 .................................373
27.12 🙌🙌 FRBM: Trigger Mechanism (to) Escape (Deficit control) Clause ..............................374
27.12.1 💼💼💼🔨🔨 FRBM: Misc. Concepts ....................................................................................375
27.12.2 💼💼💼🔨🔨 🗂🗂 FRBM Act: Documents (द�ावेज़) ............................................................375
27.13 👻👻👻👻👻👻👻Fiscal Federalism: Helping the States in ATMANIRBHAR ......................376
27.13.1 🧔🧔🧔🧔🧔Helping States → Tax devolution and grants ...............................................376
27.13.2 🧔🧔🧔🧔🧔Helping States → States’ Fiscal deficit limits ⏫ ........................................376
27.14 🧔🧔🧔🧔🧔Fiscal Deficit target for States by 15th FC & Budget-2021 ...............................377
27.15 💼💼💼🔨🔨🔨 Fiscal Responsibility: NK Singh FRBM Review Panel..............................377
27.15.1 💼💼💼🔨🔨 FRBM Panel’s Notable recommendations: उ�ेखनीय �सफा�रश�? ....................377
27.16 💼💼💼🔨🔨🔨 Fiscal Responsibility: NK Singh’s 15th Finance Commission ..................378
27.16.1 💼💼💼🔨🔨🔨 :🎯🎯 Budget marksmanship is Poor, says 15th FC.................................379
27.17 💼💼💼🔨🔨🔨 Fiscal Responsibility: Misc Bodies ................................................................380
27.17.1 💼💼💼🔨🔨 Expenditure Management Commission (2014) ..........................................380
27.17.2 💼💼💼🔨🔨🔨 Public Debt Management Agency (PDMA): सावर्ज�नक ऋण प्रबं धन एज�सी..380
27.17.3 💼💼💼🔨🔨🔨 Fiscal Council (राजकोषीय प�रषद) ..................................................................380
27.18 🎺🎺 (MAINS) Public Expenditure Management: Challenges.............................................381
27.18.1 ⚰ 😰😰Public finance challenges: Corona ex-gratia Yojana ..........................................383
28 💼💼 Types of budget: बजट के प्रकार ..........................................................................................................384
28.1 Revenue versus Capital budget: राज� बनाम पूंजीगत बजट ..............................................................384
28.2 💼💼💼💼General budget versus Railway budget (आम बजट बनाम रेलवे बजट) ................................384
28.3 💼💼💼💼 Plan vs non plan expenditure budget: ...........................................................................385
28.4 💼💼💼💼Budgeting (बजट �नमार्ण क� प्रिक्रया/ रणनी�त) ...........................................................................385
28.5 💼💼💼💼💼💼Tribal sub plan & SCSP..............................................................................................386
28.6 💼💼💼💼💼💼Output Outcome Framework for Schemes:............................................................386
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28.7 💼💼💼💼Cash vs Accrual Budgeting: नगदी बनाम उपचय बजट ...........................................................387
28.8 💼💼💼💼💼💼Lapsable Funds & March Rush: �पगत �न�ध और माचर् ��ता .....................................387
28.9 💼💼💼💼💼💼 Non lapsable funds & No Rush: �बन�पगत �नधी .......................................................387
28.10 📯📯📯📯Types of schemes (योजनाओं के प्रकार) .............................................................................388
28.10.1 📯📯📯📯Ministry-wise Highest Allocation in Budget-2021 .............................................388
28.11 �Mock Questions for UPSC Mains GSM3 (250 words each) ........................................388
26 📥📥📥📥 BUDGET → CAPITAL → RECEIPTS

Note: Refer to the Budget classification chart in previous handout to see ‘where we are in the parts of budget’. I could paste
it here again but don’t want to increase no. of pages & printer ink usage.
Table 1: बजट → पूंजी भाग → प्रा��यां: Sub-classified into two parts (Figures from Budget-2021)
Capital Debt Receipts Capital Non-Debt Receipts:
पूंजीगत ऋण प्रा��याँ (~15 lakh cr) गैर-ऋण पूंजी प्रा��यां (~1.88 lakh cr)
💼💼💼💼💼💼~₹ 15 lakh cr from Internal ~₹ 13,000 cr Loan Principal recovered (i.e.
Borrowing: आंत�रक ऋण Union government would have given loans to
- 🐯🐯From RBI, state governments, foreign countries, public
- From market (Banks, NBFCs) sector companies etc.) so when they return
- From small savings (Post-Office Savings Principal amount back that is counted here.
Accounts, Kisan Vikas Patra, etc), (मूलधन क� बरामदगी)
- From Provident Funds (EPFO, PPF)
💼💼💼💼💼💼~₹ 1500 cr External borrowing: from ₹1.75 Lcr Disinvestment (�व�नवेश) i.e. Union
foreign countries & international institutions like selling its shares from Public Sector Undertakings
IMF World Bank, BRICS bank etc. बाह्य।/ �वदेशी ऋण (PSUs) / Central Public Sector Enterprises
(CPSEs).
Bigger portion of Capital Receipts from this side Smaller portion
🔠🔠❓MCQ. Which of following is not a component of ‘Capital Receipts’? (IEnggS-2018)
(a) Market borrowings including special bonds
(b) External loans raised by the Central Government from abroad
(c) Receipts from taxes on property and capital transactions
(d) Provident Funds (State Provident Funds and Public Provident Fund)
26.1.1 💼💼💼💼💼💼 Foreign Borrowing in Foreign Currency
क� द्र सरकार के �वदेशी ऋण को �वदेशी मुद्रा म� जुटाने का मसला

Introduction (Origin): In the (Full) Budget-2019, FM Nirmala S. announced, "India’s sovereign
external debt to GDP is among the lowest (~5%). The Govt would start raising a part of its borrowing
programme in external markets in external currencies."
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🙂🙂Arguments in favor (समथर्न) 😥😥Against (प्र�ाव के �व�द्ध)
1. In domestic market, the 'crowding 1. Exchange Rate Risk (�व�नमय दर का जो�खम): If rupee
out of private corporate borrowers' weakens against the dollar during the bond’s tenure
will decline. (📑📑more in 2D:Fiscal ($1: ₹ 60 → ₹ 70), the government would have to
Deficit) return more rupees to pay back the same amount of
2. Corporates will be able to mobilize dollars. Then the loan may turn out to be 'more
more funds from local market → expensive' than originally anticipated.
factory expansion, jobs, GDP 2. It's true that presently Indian Govt's external
growth⏫ borrowing is very low, but once this 'door' is opened,
3. In the advanced economies such as subsequent govts may get tempted to borrow more
USA, EU: the loan interest rates and more from the foreign sources to finance their
are very low, so our Indian govt (populist) welfare schemes, ultimately it can result
may be able to get cheaper loans. into crisis when rupee gets weaker. लोकलुभावन योजनाओं
स�े �ाज पर के �लए �वदेशी ऋण लेने क� सरकार को लत लग सकती है
4. If we borrow a little more from 3. Better to ⏫the foreigners' investment limit in G-
external sources it won't harm. थोड़ा Sec (in ₹ currency) and attract them to come to
सा ऋण अगर �वदेशों से �वदेशी मुद्रा म� ले �लया India, rather than we going 'abroad' to get their
तो कु छ जो�खम नहीं money in $ currency.
Conclusion: whether we should borrow in foreign currency or not?
⇒ 👎👎 (Against) From the aforementioned analysis, it's evident that challenges outweigh the
potential benefits. Noted economists such as Dr. Raghuram Rajan are apprehensive about
sovereign borrowing from external markets in foreign currency. Therefore, this idea, though
well-intended, requires more deliberation. (इस प्र�ाव म� फायदे कम नुकसान �ादा िदख रहे ह� इस�लए इरादा नेक
है लेिकन इस पर �ादा �वमशर् क� आव�कता है)
⇒ 💼💼💼💼💼💼=👌👌👌👌 (In favor) Considering above points, sovereign borrowing from external
markets in foreign currency may not be a bad idea, provided that it's done in a judicious and
prudential manner. (यह प्र�ाव बुरा नहीं है, �ववेक पूणर् �प से लागू करना चािहए)
26.1.2 💼💼💼💼💼💼💼💼Budget-2021: Foreign Borrowing
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⇒ Govt borrowed large amount borrowed (54,522 cr) World Bank, Asian Development Bank etc
from abroad due to Corona. But most of our foreign debt denominated in ₹₹ Currency. So need
not worry much.
26.2 🧔🧔🧔🧔 ♐ 🤵🤵 BUDGET → CAPITAL RECEIPTS → DISINVESTMENT: �व�नवेश
There are THREE types of Commercial or industrial undertaking owned by the govt:
🚝🚝 ✉ Departmental 🐯🐯Statutory Corporations ⛽Govt. Companies
Undertakings �वभागीय उपक्रम वैधा�नक �नगम सरकारी कं प�नया
Directly part of a ministry e.g. Created by an act of Parliament Registered under the
Postal, Railways, Ordnance or state legislature. E.g. RBI Act, Companies Act, Govt’s
Factories (ह�थयार गोला बा�द). SBI Act, LIC Act, FCI Act, shareholding is 51% or
They can be created easily EPFO Act. etc, SIDBI, more.Coal India ltd, GAIL,
because, no laws required, no NABARD, NHB, EXIM etc. SAIL, NTPC, IOCL, BHEL &
Companies Act registration various Public Sector Banks and
required NBFCs which are not statutory
corporations.
👺👺 High level of ministerial 🤘🤘 Middle of both sides More operational flexibility, less
interference (मं त्री क� दख़ल �ादा) interference by Ministers
CAG will audit directly [भारत के Some of these Acts provide for Companies Act requires them
�नयं त्रक और महालेखा परी�क �यं internal audit & exclude CAG to produce audited reports.
�वभागीय उपक्रम के िहसाब िकताब का लेखा from auditing the Corporation. CAG will empanel the (private)
परी�ण कर�ग]े E.g. RBI, LIC. auditors for them.
Their earning will go directly in Their earning → profit → dividend goes to shareholders.
Public Account / CFI
All three types of org are Answerable under the Right to Information Act, 2005
सूचना अ�धकार कानून/ अ�ध�नयम के अंतगर्त इन सभी सं �ानों ने जानकारी देनी होगी
Their employees are considered Not considered govt employees. Their service / discipline
government employee- conditions are governed by the respective organizations’ internal
subjected to service and manuals. सरकारी क�मयों वाले सेवा और अनुशासन/�श� के �नयम इनके कम�यो को
discipline rules framed by the लागू नहीं होते.
government.
⇒ Objective: Public interest & welfare through affordable services, Development of infrastructure,
regional balance, prevent concentration of economic power in the hands of Corporates /MNCs.
(उदे�: जन िहत म� स�ी सेवाएं , बु�नयादी ढांचा, �वकास म� �ेत्रीय सं तुलन, ब�रा��ीय कं प�नयों के हाथों म� आ�थक श�� क�
के �ीकरण रोकना)
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⇒ 😭😭Challenges? Political interference, lack of innovation & consumer responsiveness, employee
unions, loss making business. (राजनी�तक ह��ेप, नवाचार क� कमी, उपभो�ा के प्र�त जवाबदेही कम, कमर्चारीओ को
काम से �ादा यू�नयनों-बाजी और हड़ताल म� �ल� रहेना, घाटे म� चलना)
Terms:
⇒ Central Public Sector Enterprises (CPSEs: क� द्रीय सावर्ज�नक �ेत्र के उपक्रम): Registered in Companies
act & Union Government has 51%/> shareholding. Commonly known as ‘Govt companies’. The
word CPSE is mainly used to denote “govt companies other than Public Sector Banks, Public
Sector Insurance Companies and Public Sector NBFCs”.
⇒ Public sector Undertaking (PSU: सावर्ज�नक �ेत्र के उपक्रम) = collective term for all the govt
companies owned by Union/State/Local Bodies.
✋ Note: Some book/internet may differ in this definition. But we need not loose sleep over pedantry.
श�भेद म� पांिड� वाली बाल क� खाल �नकालने क� कोई ज�रत नहीं है।
26.2.1 🥉🥉Ratna Companies = freedom to govt companies based on performing

⇒ Ministry of Heavy Industries & Public Enterprises-> its Department of Public Enterprises (DPE)
decided Ratna Status. 2021: DPE shifted to Finance Ministry (REF: Handout #2A for more).
⇒ ✋This is NOT for private owned companies like Tata, Infosys or Adani.
⇒ “Ratna” status-walli Govt Companies are given for the flexibility in their operations e.g. hiring
more professionals, acquisition of other companies etc. without requiring government approval
for every small decision. (अ�ा प्रदशर्न करने वाली सरकारी कं प�नयों को अपनी कायर् री�त के �लए �तं त्रता देना. हर छोटी
चीज के �लए सरकार से अनुम�त लेना ज�री नहीं)
Category Condition and examples
🥉🥉 ✓ made profits in the last 3 years continuously, further subdivision in Category-I &
Miniratna Category-II depending on how much profit is generated.
Cat-I and ✓ Examples: National Film Development Corporation ltd, Mazagaon Dock ltd,
Cat-II Airports Authority of India, Mishra Dhatu Nigam ltd, NHPC ltd, WAPCOS ltd,
ONGC Videsh ltd, Rail Vikas Nigam ltd,
🥈🥈 ✓ A Mini Ratna company fulfilling “x” conditions OR
Navratna ✓ Non-Mini Ratna Govt companies fulfilling “y” conditions such as Manpower cost
to total cost of production etc.
✓ Examples: Rashtriya Ispat Nigam ltd, Rural Electrification Corporation ltd,
Shipping Corporation of India ltd, Oil India ltd, National Aluminum Company
ltd, Neyveli Lignite Corporation ltd, Mahanagar Telephone Nigam ltd, Hindustan
Aeronautics ltd, Container Corporation of India ltd, Bharat Electronics ltd,
🥇🥇 ✓ Already a Navratna Company+ fulfilling “z” conditions such as min. ₹ 5000 crore
Maharatna profit per year in last 3 yrs, listed at a Stock exchange, significant global presence
✓ Very few here: 1)Bharat Heavy Electricals, 2)Bharat Petroleum Corporation,
3)Coal India , 4)GAIL (India) , 5)Hindustan Petroleum , 6)Indian Oil
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Category Condition and examples
Corporation, 7)NTPC , 8)Oil & Natural Gas Corporation (ONGC), 9)Power Grid
Corporation, 10) Steel Authority of India (SAIL)
✋ Above Ratna examples are taken on 1/1/2020. List may change afterwards. We need not lose sleep over
it too much, unless preparing for their specific recruitment exam.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
🔠🔠❓MCQ. Which among the following is designated with ‘Navratna’ status? (CDS-2021-i)
(a) Indian Oil Corporation Limited (b) Gas Authority of India Limited
(c) Bharat Petroleum Corporation Limited (d) Bharat Electronics Limited
26.2.2 🧔🧔🧔🧔 ♐ 🤵🤵 Government policy towards disinvestment before 2021
⇒ Disinvestment: ⏬ govt shareholding in a Government company but govt keeps atleast 51%
shareholding with itself.
⇒ Privatization / Divestment / Strategic Disinvestment (�नजीकरण/रणनी�तक �व�नवेश): Reducing the
government shareholding below 50%
⇒ ✅Arguments in favour: ⏬govt shareholding → Private investors will enter in the board of
directors → ⏫ efficiency, innovation and autonomy. द�ता, नवाचार �ाय�ता
⇒ Disinvestment proceeds can be used for welfare schemes, and ⏬ fiscal deficit.
⇒ ✋ Argument Against: MNC monopolies, exploitation of worker, job loss.
Year Disinvestment Policy
1991’s Industrial Reduce shareholding in all Govt Companies
Policy
1998’s Vajpayee - In strategic sector (Railways, Defense, Atomic Energy)- we’ll not do
disinvestment
- In Non-strategic sector = we’ll do disinvestment in a phased manner (गैर-
रणनी�तक �ेत्र म� चरणबद्ध तरीके से �व�नवेश कर�गे ).
UPA-1 (2004-09) Due to pressure from Leftist/Marxist coalition parties = No Disinvestment
from any government companies. If a government company is sick, we will
try to revive it. वामपं थी / मा�र्वादी गठबं धन दल के चलते �व�नवेश नहीं
UPA-2 (2009-14)  All Govt Companies can be disinvested upto 49% = Govt will keep 51%
minimum and sell remaining shares.
 ₹₹ will goto National Investment Fund (NIF, in Public Account) → used
for Bank recapitalization, metro rail, nuke energy, EXIM-NABARD-RRB
etc. रा��ीय �नवेश कोष
 Also launched CPSE-Exchange Traded funds (ETF): 📑📑Ref Pill#1C:SEBI
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26.2.3 🧔🧔🧔🧔 ♐ 🤵🤵 Disinvestment & Privatization in the Modi Raj (2014-19)
✓ Various methods of Disinvestment, depending on the Company
1. Converting Private Limited Company to public limited company and issuing Initial
Public Offers (IPOs) e.g. Indian Railway Catering and Tourism Corporation (IRCTC)
and Rail Vikas Nigam Ltd (RVNL)
2. Exchange Traded Funds (ETFs): CPSE-ETF, Bharat-22-ETF (Ref: Pillar#1C)
3. Institutional placement Programme (IPP): offer shares only to non-retail investors.
4. Offer for sale (OFS): offer shares to both retail and non-retail investors
5. Share Buyback i.e. Government company itself buys the shares owned by Government,
thereby decreasing Government's shareholding portion viz a viz private sector's
shareholding.
✓ Modi govt shut down many sick Govt companies such as HMT watches, Hindustan Photo Film
etc. (�जसे कोई �नजी �ेत्र का उद्योगप�त खरीद कर चलाना नहीं चाहता था उन बीमार सरकारी कं प�नयों को बं द कर िदया.)
✓ Budget-2016 renamed FinMin’s Dept of Disinvestment into Dept. of Investment & Public Asset
Management (DIPAM: �नवेश और सावर्ज�नक सं प�� प्रबं धन �वभाग).
*💼💼Budget-2019: Govt planned to earn ₹1.05 lakh cr from disinvestment but hardy 65,000 cr
earned, because investors’ response lukewarm, due to slowdown in economy. (�नवेशको ने सरकारी कं प�नयों
के शेयर ऊंची दामों पर खरीदने म� उदासीनता िदखाई)
26.2.4 🧔🧔🧔🧔🧔🧔 ♐ 🤵🤵 Strategic Disinvestment in Modi Raj
⇒ Strategic Disinvestment (रणनी�तक �व�नवेश): it means selling a substantial portion of Government
shareholding in a CPSEs along with transfer of management control to a private party.
⇒ Practically, it means 51% or higher shareholding with private players and 49% or lower with
Govt. For this action, NITI Aayog prefers to use the term ‘strategic disinvestment’, ‘strategic
sale’ instead of ‘privatization’, lest the opposition parties create uproar about it.
⇒ Sometimes, press statement also uses the word “Divestment” for it.
⇒ NITI Aayog has identified Air India, Pawan Hans, Dredging Corporation, Scooters India, Bharat
Pumps Compressors, Hindustan Fluorocarbon, Hindustan Newsprint, Cement Corporation of
India etc. for strategic disinvestment →
✓ NITI Aayog makes the list → approval by cabinet committee on economic affairs headed by PM
(CCEA: आ�थक मामलों क� कै �बनेट स�म�त).
 PM Modi setup a Ministerial panel called Alternative Mechanism (AM: वैक��क �व�ा) headed by
Finance Minister – to clear the NITI list in a faster manner. So, only very important cases/files
will be referred to CCEA.
⇒ 2018: (1) Started process to sell-off majority shareholding from Air India → 2021 ultimately sold
to Tata Sons for approx 18,000 crores . (2) IDBI sold to LIC.
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⇒ 💼💼Budget-2019, Nirmala S. announced:We’ll relax foreign investment limits in the CPSEs. →
2020-July: even simplified FDI rules to encourage NRIs to buy Air India (more in Pillar#3: FDI)
⇒ 2019-Nov: Govt announced strategic disinvestment (privatization) of some more companies
such as ,
o 1) Bharat Petroleum Corp Ltd (BPCL). Big international oil companies including Saudi
Aramco are keen to buy BPCL, given its strong presence in fuel retail outlets.
o 2) Shipping Corporation of India. 3) Container Corporation of India (Concor)
⇒ 2020-Jul: NITI Aayog recommended govt privatize 3 public sector banks – 1) Punjab & Sind
Bank, 2) UCO Bank and 3) Bank of Maharashtra.
26.3 👻👻👻👻👻👻 → � DISINVESTMENT IN BUDGET 2021
⇒ We will privatise 2 Public Sector Banks and 1 Public Sector General Insurance company in 2021-
22 (सावर्ज�नक �ेत्र के दो ब�क और एक सामा� बीमा कं पनी)
⇒ We will launch the initial public offer (IPO) of LIC. (जीवन बीमा �नगम म� �व�नवेश)
Strategic sectors (मह�पूणर् �ेत्रो) Non strategic sectors
Example 1) Atomic energy, Space, Defence (परमाणु ऊजार्, All the other sectors. (बाक�
अवकाश,र�ा,) तमाम �ेत्रों= गैर-मह�पूणर् �ेत्रो= म�
2) Transport, Telecom (प�रवहन, दू रसं चार) �जतने भी सरकारी कं प�नयां है उन सब
3) Power, Petroleum, Coal, other minerals को या तो �नजीकरण कर द�गे या बं द कर
(ऊजार्, पेट�ो�लयम, कोयला, ख�नज,) द�गे)
4) iv) Banking, Insurance and financial
services ( ब�िकंग बीमा �व�ीय सेवाएं )
Will there be a Minimum one government company will be No government company will
government kept. Remaining will be merged/ be kept. All the Existing
company privatized/shutdown (मह�पूणर् �ेत्रो म� �सफर् एक government companies will
here? सरकारी कं पनी को रखा जाएगा, बाक� सभी अ� सरकारी कं प�नयों be privatized/shutdown.
को उस म� �वलीन/�नजीकरण/बं द कर िदया जाए)
Note: above (strategic vs non-strategic) principle was also announced in Atma-Nirbhar Bharat
announcement (2020-May)
✓ Disinvestment targets previous budgets:

Budget 2017 2018 2019 2020 2021
Target (Lakh cr) 1 0.80 1.05 lakh crore 2.10 lcr 1.75 lcr
Target Achieved? ✅ ✅ 😰😰65,000 cr* 😷😷32000 Cr ?? wait & Watch
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26.3.1 🚿🚿🚿🚿National Monetisation Pipeline (NMP 2021)
⇒ Govt initiative for selling/renting/leasing the land/building/machine/assets of CPSE/National
Highways/Railways to mobilise ₹6 lakh crore by 2025. (रा�ी� य मौिद्रकरण पाइपलाइन = इस मुिहम के अंतगर्त
सरकारी कं पनी/हाईवे/रेलवे क� सं प��यों को बेचना/िकराये पर देना- इसक� मदद से ६ लाख करोड़ �पये बटोरने ह�)
⇒ More about this topic in 📑📑Pillar#5- along with other associated topics like 1) National
Investment and Infrastructure Fund (NIIF) 2) National Infrastructure Pipeline / GATI Shakti
initiative etc.
🔠🔠❓MCQ. Why is Govt disinvesting its equity in the Central Public Sector Enterprises (Pre’11)
1. The Government intends to use the revenue earned from the disinvestment mainly to pay
back the external debt.
2. The Government no longer intends to retain the management control of the CPSEs.
Ans Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
26.3.2 📞📞 ☎: BSNL MTNL Merger & VRS (�वलीनीकरण)
⇒ Bharat Sanchar Nigam Ltd (BSNL, 2000, HQ Delhi)
⇒ Mahanagar Telephone Nigam Ltd (MTNL, 1986, HQ Delhi) to provide services in Delhi,
Mumbai; later also providing services in Mauritius.
⇒ But both of them suffering from heavy losses, unable to compete against the private telecom
sector. (�नजी �ेत्र क� टेलीफोन कं प�नयों के साथ भारी �धार् के चलते घाटे म�)
⇒ 2019: Telecom Ministry decided to merge MTNL with BSNL. Existing employees are offered
voluntary retirement scheme (VRS: �ै��क सेवा�नवृ�� योजना) to reduce the staff cost.
⇒ VRS package= basically employee allowed to retired early, yet he’ll be given large ₹₹ package +
pension when he crosses retirement age + training to start his own business/private sector job.
26.4 📔📔📔📔ES20 VOL1 CH9 PRIVATIZATION AND WEALTH CREATION

26.4.1 📔📔📔📔 Strategic Disinvestment (=privatisation) → ⏫profitability
⇒ In 1980s, UK PM Mrs. Margaret Thatcher started privatization of the Govt companies such as
British Telecom, British Airways, water and electricity companies etc. → ⏫ profitability &
wealth creation for those companies. (�नजी करण द्वारा धन सृजन)
⇒ 📔📔📔📔ES20 analysed 11 Indian Govt companies that were privatized during BJP/NDA PM Atal
Bihari Vajpayee tenure (1998-2004) such as Hindustan Zinc, Bharat Aluminum Company Ltd.
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(BALCO), Maruti Suzuki, Indian Petrochemicals Corporation Ltd. (IPCL), Modern Food India
Ltd. (MFIL) etc. (वाजपेयी के ज़माने म� कु छ सरकारी कं प�नयों का �नजीकरण �आ था)
⇒ After strategic disinvestment (=privatization) these Indian companies’ sales, profitability etc.
greatly ⏫ because of: (�ब्रक� व मुनाफे मे अप्र�तम बढ़ोतरी)
o Technology Up-gradation (प्रौद्यो�गक� उ�यन)
o Efficient management practices by Private professionals. (कु शल प्रबं धन)
✅Thus, privatized PSUs help in economic growth & employment generation. (सरकारी कं प�नयों का
�नजीकरण करने से आ�थक वृ�द्ध और रोजगार �नमार्ण)
26.4.2 📔📔📔📔Strategic Disinvestment (=Privatisation) → Adopt Singapore Model
1974: Singapore Govt set up a holding company “Temasek Holdings Company” (THC). Then the
Govt transferred its shares of PSUs to THC → THC sold them in market → privatization complete.
⇒ Government of India has 264 CPSEs under 38 different Ministries/Departments.
⇒ 📔📔📔📔ES20 suggested, we should also create a Holding Company (�नयं त्रक कं पनी) just like
Singapore, for our / strategic disinvestment (=privatization) drive.
⇒ Benefits of Singapore Model? Professionalism and autonomy (पेशेवर कु शलता और �ाय�ा) to the
disinvestment programme. Because If an individual ministry tried individual company’s
privatization then
o Ministry's (IAS) officers may not have network/experience for selling the shares
@highest price. (सरकारी कं पनी के शेयसर् को सरकारी अफसर ऊँ चे दाम पर को बेचने के �लए �नवेशकों के पास गए
तो असफल हो सकते ह� �ोंिक नेटवकर् और अनुभव क� कमी)
o Internal resistance by employee unions. (कमर्चारी यू�नयन का आंत�रक प्र�तरोध)
⇒ So, better let a separate holding-company look after this process.
26.5 🗓🗓📤📤BUDGET → CAPITAL PART → EXPENDITURE (पूंजीगत �य)

बजट → पूंजीगत भाग → �य: Its notable components in decreasing order are:
1. Capital assets for various schemes, ministries, departments (Building, vehicles..)
2. Giving debt/equity finance to PSUs & foreign institutes, giving loans to State Govt & Foreign
Govt.
a. Sidenote: FinMin: Dept of Economic Affairs (DEA)’s Indian Development and
Economic Assistance Scheme (IDEAS) gives such ₹₹ to foreign nations.
3. Union repaying loan principal for Internal Debts (आंत�रक ऋण का मूलधन वापस देना)
4. Union repaying loan principal for External Debts (बाह्यऋण का मूलधन वापस देना)
26.5.1 👻👻👻👻👻👻👻🏗🏗Atmanirbharar 2.0 (2020-Oct) → State CAPEX Loans
⇒ Special Assistance to States for Capital Expenditure’/CAPEX scheme
⇒ Union to loan interest-free 50-year loan to states (total approx. ₹12kcr) for capital expenditure
like, health, rural development, water supply, irrigation, power, transport, education, urban
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development. (�ा�, ग्रामीण- शहरी �वकास, जल आपू�त, �संचाई, �बजली, प�रवहन, �श�ा के पूंजीगत ख़च� के �लए क� द्र
द्वारा रा� सरकारों को �बना �ाज के लोन)
27 💼💼💼TYPES OF DEFICITS: घाटे के प्रकार

- If government’s income >> its expenditure it will have a surplus budget/ अ�धशेष बजट
- If government’s expenditure == its income, it will be a balanced budget/ सं तु�लत बजट
- If government’s expenditure >> its income, it’ll be a deficit budget/ घाटे का बजट
Deficit Formula (amt in approx. ₹ lakh cr)
Revenue Deficit राज� घाटा Revenue expenditure – Revenue receipts जब राज� खचर् राज� आय से �ादा
Effective Revenue Deficit Revenue Deficit minus Grants for creation of capital assets
प्रभावी राज� घाटा
Budget Deficit बजट घाटा Budget expenditure minus Budget receipt
Fiscal Deficit Budget Deficit plus Borrowing बजट घाटे क� भरपाई के �लए �लया गया ऋण
राजकोषीय घाटा
Primary Deficit Fiscal Deficit minus interest to be paid on previous loans राजकोषीय
प्राथ�मक घाटा घाटे म� से पुराने ऋण/कजर् पर जो �ाज चुकाना है उसे हटा दी�जए
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🔠🔠❓MCQ. Find Correct Statement(s) (Asked in UPSC-Pre-2017)
1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
🔠🔠❓MCQ. The excess of total expenditure of Government over its total receipts, excluding borrowings, is known as _ _
_ (CDS-2021-i) (a) Primary deficit (b) Fiscal deficit (c) Current deficit (d) Capital deficit
27.1 💼💼💼FISCAL DEFICIT: राजकोषीय घाटा

- Fiscal Deficit= Budget Deficit + Borrowing. This borrowing includes internal borrowing [such as
through Small Savings Scheme, and the G-Secs subscribed by Banks/NBFCs) + Borrowing from
RBI] + External Borrowing.
- 1997-98: it was implemented as per Sukhmoy Chakravarti Committee report.
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27.2 💼💼💼PRIMARY DEFICIT: प्राथ�मक घाटा
⇒ 1993: Finance Minister Manmohan Singh’s budget speech mentioned:
⇒ If the government continues to borrow year after year, it leads to accumulation of debt and the
government has to pay more and more interest. These interest payments themselves add more
burden to borrow next year. (पुरानी लोन पर जो �ाज चुकाना है उस रकम को घाटे क� �गनती म� नहीं लेना चािहए)
⇒ So, to get a clearer picture of how much is the government borrowing for new programs, they
look at another indicator: (तािक नए वषर् म� �वकास के काम के �लए इतना वा��वक कजर् �लया जा रहा है उसका पता चले)
Primary Deficit = Fiscal deficit minus the interest to be paid on the previous loans.
27.3 💼💼💼DEBT COMPOSITION: AMOUNT-WISE

Table 2: Definition & DATA as per 📔📔📔📔ES21 Vol2Ch2. And 2019-20’s Data is Provisional (not final)
Amt in lakh Crore 2018-19 2019-20(P)
i) Internal Debt (आंत�रक ऋण)- all the pending loans total 71 Lcr 80.20 Lcr
ii) External Debt (बाह्य ऋण) 5 Lcr 5.85 Lcr
 Borrowed from other nations and multilateral institutions
such as IMF, World Bank, ADB etc.
 At present Govt of India doesn’t borrow directly from the
International Capital Market.
A) Public Debt (सावर्ज�नक ऋण)= (i) + (ii) 76 Lcr 86.## Lcr
B) (Public Accounts): Other Liabilities such as Post Office Savings, 9 Lcr 9.89 Lcr
Postal Insurance, Provident Fund etc. small savings schemes (लघु बचत
योजना) (More in 📑📑Pillar#1D3)
C) Extra Budgetary Resources (बजेटेतर सं साधन) 88,000 cr Over1Lcr
Total Liability (कु ल देयता) = A+B+C 86.## Lcr 97.## Lcr
27.3.1 💼💼💼Debt Composition: Type-wise

Out of loans majority (अ�धकतर कज़र् इस प्रकार के ह�) minority(ब�त ही कम कज़र् इस प्रकार के ह�)
Total Public Debt State Govt (70%) Union (30%)
Union Debt → Internal (94%) external/foreign (6%)
(Source)
Repayment Rupee Foreign Currency (जो कजर् �वदेशी मुद्रा म�
Currency वापस करने ह�)
Union Debt → 🔨🔨Fixed Interest (�न��त �ाज दर) 🎈🎈Hardly 5% of Govt loans are 'floating
(Type of Interest interest rate' (e.g. may be tied with
Rate) LIBOR etc REF#1C). So there are no
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Out of loans majority (अ�धकतर कज़र् इस प्रकार के ह�) minority(ब�त ही कम कज़र् इस प्रकार के ह�)
risks about interest rate volatility.
(चलायमान �ाज दर वाले लोन ब�त कम है)
Tenure (अव�ध के 📆📆Long Term (दीघर् अव�ध) ⏰Short Term (लघु अव�ध)
िहसाब से)
⇒ Ratio of (External debt: GDP) = <3% (less than three percent)
⇒ India's "debt to GDP" ratio is lowest among following group of countries: 1) G20 2) OECD 3)
BRICS(📑📑Ref: HDT-Pillar#3B: International Organisations)
⇒ Moreover, public debt for India has declined since 2003 and has been stable since 2011.
27.4 💼💼💼👜👜👜 EXTRA-BUDGETARY RESOURCES (बजटेतर सं साधन)
‘Extra Budgetary Resources’ (EBR) or ‘Off-budget resources’ are loans taken by public sector
undertakings and Government organizations. (सरकारी �नगम सं �ानों द्वारा कजर् �लया जाना)For example,
 Govt not releasing food subsidy to Food Corporation of India (FCI) & (thereby forcing) FCI to
borrow money from National Small Savings Fund (NSSF) for its food schemes. [Although
💼💼Budget-2021 announced to stop this practice].
 Ministry of Housing and Urban Affairs → (Autonomous body) Building Materials and
Technology Promotion Council → they borrowed ₹ 60,000 crores in next 4 years to finance the
PM Awas Yojana (Urban, more in Pill#5 Infra).
⇒ Here repayment of the entire principal and interest is done from the Central Government Budget
eventually, behind the curtains. (पद� के पीछे सरकार देरी से पैसा देगी)
 EBR measures are announced after passing of budget so, they may escape the same general level
of media-reporting, parliament debate or audit = bad for financial transparency &
accountability. मीिडया-�रपो�टग, सं सद बहस या ऑिडट से �छपना = �व�ीय पारद�शता और जवाबदेही के �लए बुरा।
 15th FC has termed “EBR” as ‘off-budget borrowings through para-statal entities’ and asked
Government to avoid it. (15व� �व� आयोग ने भी इन हरकतों को बं द करने क� सलाह दी है)
 📔📔📔📔ES20 also criticised this practice (आ�थक सव��ण ने इन हरकतों क� आलोचना/�नंदा क� है)
⇒ These EBRs are not taken into account while calculating the Fiscal Deficit but they’re counted
while calculating Government debt or public debt.
Year 2019-20 2020-21 2021-22
EBR Amount 1.48 Lcr 1.86 Lcr 30,000 Cr
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27.5 💼💼💼 FINANCING THE DEFICIT: ITS NEGATIVE CONSEQUENCES ON ECONOMY:
घाटे का �व�पोषण: अथर्�व�ा पे उसके नकारा�क प�रणाम
How to fill deficit? 😰😰Why problematic / impractical? �ा सम�ाएं /�ावहा�रक �ों नहीं है
🍋🍋 🍋🍋1) Demanding ⇒ Taxes can’t be ⏫ beyond a point because it may force people to
more taxes जनता पर evade taxes / discourage their motivation to work. (recall Laffer
�ादा कर लादे जाएं Curve). करो का �र ब�त बड़ा िदया तो लोग करचोरी कर�गे
� � 2) Borrowing ⇒ Ricardian Equivalence: ⏫ Government borrowing → ⏬public
more money सरकार द्वारा shopping = bad for economy. Although 📔📔📔📔ES21 says this will not
�ादा पैसा कजर् म� �लया जाए happen in India.
⇒ Crowding out of the private borrowers Although 📔📔📔📔ES21 says
this will not happen in India.
⇒ Fall in the sovereign credit rating. Although 📔📔📔📔ES21 says this will
not happen in India.
🖨🖨 🖨🖨3) Printing ⇒ Although known as Monetising the deficit- it results in
More money hyperinflation (दे दना दन नोट छाप िदया जाए तो महंगाई ब�त बढ़ जाएगी)
Above aspects are covered in detail in following sections:
27.5.1 💼💼💼 ⏫:🛒🛒⏬ Financing the Deficit: Ricardian Equivalence

 ⏫ deficit → Government borrows ⏫ money → @Maturity (also called ‘Redemption’) of G-
Sec, Govt will have to return the principal and interest to the lenders.
 At that time, Govt may greatly increase taxes on people to arrange that amount.
 So, Economist David Ricardo argued that during high deficits, people save more, because they
become precautious about future hike in taxes.
 It’s called “Ricardian equivalence: �रका�डयन तु�ता” [& if people begin to spend less and save more,
then companies will face unsold inventories = new problems for economy]
27.5.2 💼💼💼 ⏫:🛒🛒⏬Ricardian Equivalence invalid for India says 📔📔📔📔ES21

📔📔📔📔ES21 cited multiple Research about Indian Economy (1950s-80s) & found REP to be NOT
valid for India Because...
Ricardian Equivalence Proposition (REP) Assumes Why invalid for India? भारत म� यह �सद्धांत गलत
that (�न� धारणाएं आव�क है) �ों सा�बत �आ?
Citizens are perfectly rational and perfectly capable Shopping decisions also depend on
to think about Future income, future tax liability, emotional urges and psychological whims
fiscal deficit when making their consumption e.g. Marriage-DJ/iPhone/Foreign vacation.
decisions.डे�वड �रकाड� क� तु�ता �सद्धांत सही सा�बत होने के �लए ग्राहक सभी �नणर्य तकर् सं गत बनकर नहीं लेते. भावना�क
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सभी नाग�रकों का तकर् सं गत और बु�द्धम�ा से सोच �वचार के �लए स�म आग्रह और मनोवै�ा�नक सनक भी आप को खरीदारी के
होना ज�री- िक भ�व� म� उनक� आमदनी, कर-दा�य�, राजकोषीय �लए उ�े�जत करती है
खाध, उपभो�ा मांग िकतनी होगी.
All citizens are paying taxes. डे�वड �रकाड� क� तु�ता �सद्धांत Tax Evasion, Black money, parallel
सही सा�बत होने के �लए सभी नाग�रकों का करदाता होना ज�री economy. भरपूर मात्रा म� कर चोरी, काला धन
27.5.3 💼💼💼 Financing the deficit: “Crowding Out” of private borrowers

 If govt borrows ⏫ money from households & financial intermediaries (LIC, EPFO, Banks via
SLR), then that much less money will be available for loans to private corporate borrowers. = “
Crowding Out Effect” on the private borrowers= harms factory expansion and job creation.
(कॉरपोरेट उधारकतार्ओ को ऋण बाजार से बाहर धके ल देना)
 If Govt forces SBI, LIC, EPFO to buy its G-sec using public deposits → depriving households of
the optimal return (Had the same money been invested in the corporate sector) = “ Financial
Repression of the households.” (घरों/ कु टु�ों का �व�ीय दमन”.)
 Govt (forced) NABARD to buy its ₹ 15,000 crore Swachh Bharat Mission (Gramin) Bonds with
maturity period of 10 years. Govt (forcing) RBI and others to pay higher dividend. →
operational freedom of those organization is affected.
27.5.4 💼💼💼 Crowding out of private investment? 📔📔📔📔ES21 Observations

📔📔📔📔ES21 found some evidence of "crowding out" of private companies in India during 1950s to
1990s. Mainly because (50 से 90 के दशक म� �नजी �ेत्र क� कं प�नयों को �ण-बाजार से बाहर धके ले जाने के सबूत �मले �ोंिक:)
⇒ [1) CRR and SLR were very high therefore PSB banks loanable funds supply was very limited
& due to politicized boards, they may have channeled most of the savings towards the govt.
(िडपॉ�जट म� से सीआरआर एसएलआर को हटाने के बाद कजर् म� देने यो� रकम वैसे भी ब�त कम रहती थी)
⇒ [2) Absence of large private sector banks (�नजी �ेत्र के बड़े ब�कों का आगमन अभी बाक� था)
⇒ [3) Publics' earnings and savings were low. (लोगों के पास भी आमदनी और बचत कम ही थी)
⇒ [4) Capital market / share-bond Market was underdeveloped. (पूंजी बाजार, शेयर/बांड बाजार �वक�सत
नहीं �आ था → �नजी कं प�नयों के �लए पूंजी हा�सल करना मु��ल)
📔📔📔📔ES21 find no evidence of crowding out in India from 1990-2019. Because
1. the above factors have gradually faded. (90 के दशक म� उ� बाधाएं कमजोर हो गई थी)
2. if Govt borrows money for Infra-development (Health, Education, Transport, electricity,
Irrigation etc) → jobs & GDP ⏫ → citizens' income ⏫ → savings ⏫ → more ₹₹ in banks,
NBFC, mutual fund, shares/bonds etc. So, "crowding out" may not happen because 'size of dish'
will become larger. (�श�ा �ा� प�रवहन �बजली �संचाई जैसी बु�नयादी अवसं रचना के �लए अगर सरकार कजार् लेती है →
रोजगार और आ�थक वृ�द्ध म� बढ़ोतरी → नाग�रक क� आमदनी बढ़ेगी → उसक� बचत बढ़ेगी → अपने आप ही ब�क-बचत शेयर
बांड द्वारा कं प�नयों को ढेर सारा �नवेश �मल जाएगा. अतः �ण बाजार से कं प�नयों को बाहर नहीं धके ला जाएगा)
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3. 1990-2019: ⏫in the population of youth / working age people ( demographic dividend)→
income & savings & banking habits ⏫ → Loanable funds ⏫ so "Crowding out" chances ⏬
(आबादी म� नौजवानों क� मात्रा बढ़ी → आमदनी और बचत क� भावना भी बढ़ी → कजर् म� देने के �लए रकम भी बढ़ी है)
"Crowding out" assumes that the supply of savings is fixed. But in reality, economic growth⏫ →
the size/quantity of savings⏫ (धारणा से �वपरीत वा��वकता म� बचत क� रकम का ज�ा ��र नहीं होता. आ�थक वृ�द्ध के
साथ-साथ बचत-ज�े म� भी बढ़ोतरी होती है)
27.5.5 💼💼💼 Financing the deficit: Printing More Money
 High level of fiscal deficit → International Credit Rating Agencies will ⏬ the sovereign rating
for India → investors will demand ⏫ interest from government for buying new G-Sec→ G-sec
remains unsold → RBI forced to buy it (and print more money to give to Govt)
 it’s called “Monetizing the Deficit”. It can result in hyperinflation and ⏬ the purchasing power
of currency (if there is not sufficient increase in the supply of onion, tomatoes & goods in the
market. e.g. Germany, after Treaty of Versailles in 1919. (मुद्रीकृ त घाटा: सरकारी कजर् के �लए �रजवर् ब�क द्वारा
दे दना दन नोट छापे जाने पर महंगाई दर/मुद्रा��त को अप्र�ा�शत �प से बढ़ जाएगी)
27.5.6 💼💼💼 Fiscal Deficit ⏫= India sovereign rating ⭐⭐⏬

Table 3: classification not important, sufficient to know AAA=best.
Rating → Moody's sovereign rating (सरकारी प्र�तभू�तयों का रे�टंग/श्रेणीकरण )
Prime अ�ग्रम/उ�तम दज� Aaa (e.g. US Treasury Bonds)
High grade / उ� Aa1 to 3
investment grade: Upper A1
medium / म�म
investment grade: Lower medium Baa1 to Baa3. 2020-June: India rating reduced to Baa3.
because of weak fiscal position, rising fiscal deficit
Non investment grade (junk / रद्दी) BA1 to lower ranks like “C”.
So, now if India’s sovereign rating⏬ any step further= junk status= Implications?😰😰
⇒ Govt will have to offer more interest to investors to lure them into buying g-sec
⇒ Flight of Foreign Capital from India (भारत से �वदेशी पूंजी का उड्डयन/�नगर्म):
⇒ Foreign investors may fear Indian govt will default in payment of previous G-Sec
⇒ So they’ll dump it to other investors and run away from India.
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⇒ =Flight of capital from India = $ strengthen, rupee weakens. (Why? Ref: pillar3)
⇒ However, 📔📔📔📔ES21 suggested we need not worry about it. मत डरो इनसे और दे दना दन कजार् ले लो
27.5.7 ⭐⭐Rating downgrade⏬: Don’t worry says 📔📔📔📔ES21
⇒ Sovereign credit rating is a quantitative measure to identify the govt's ability/risk to repay its
loans. (सं प्रभु ऋण रेिटगं = सरकार के अपने ऋणों को चुकाने क� �मता / जो�खम क� पहचान करने के �लए मात्रा�क माप)
⇒ How good rating help? Attracts foreign investment. Reduces the future cost of borrowing
(Interest rate), Makes it easier to obtain loans from the World Bank, IMF and other International
organisations. (अ�� रेिटगं हम� �वदेशी �नवेश आक�षत करने म� तथा वै��क �व�ीय सं गठनों से स�े �ाज दर पर कजार् लेने म�
मदद करती है)
⇒ India is stable on GDP growth rate, inflation, Public Debt to GDP, Current account Deficit,
Foreign Exchange Reserves, Political stability, rule of law, control of corruption, investor
protection, ease of doing business. (भारत सभी म� ��रता है- आ�थक वृ�द्ध दर, महंगाई दर, सावर्ज�नक �ण का जीडीपी
से अनुपात, चालू खाता घाटा, �वदेशी मुद्रा क� आर��त �न�ध, राजनी�तक ��रता, कानून का शासन, भ्र�ाचार �नयम, �नवेशक क�
सुर�ा, �ापार म� सुगमता)
⇒ Indian Govt's external debt is also very low. Zero history of sovereign default. (भारत सरकार का �वदेशी
�ण ब�त ही कम है, इ�तहास म� कभी िदवा�लयापन नहीं िदखाया है.)
⇒ Yet, Poor ratings given by Credit rating agencies Standard and Poor's, Fitch Moody. They are
biased against India (& China) -says 📔📔📔📔ES21 (हालांिक इन सब के बावजूद भी प��मी देशों क� क्रेिडट रेिटंग
एज�सी भारत चीन के प्र�त भेदभाव करती है)
⇒ 1998: after Pokhran nuclear test → India faced international sanctions → Credit rating was
downgraded. But at a later stage it was upgraded again. (पोखरण परमाणु परी�ण के बाद भारत पर अंतररा��ीय
प्र�तबं ध, �जसके चलते रेिटगं म� �गरावट)
⇒ Economic survey has observed following impact of the rating downgrade
Whenever India's rating ⏳Short Term (रे�टंग म� 📆📆Long Term from
degraded (1998) �गरावट का अ�का�लक असर) 1998-2018 (दीघर्का�लक)
No strong relation (कोई
Sensex (शेयर बाजार सूचकांक) No strong relation
मजबूत �र�ा नहीं िदखा)
Rupee dollar currency exchange
No strong relation No strong relation
rate (मुद्रा �व�नमय दर)
G-Sec Yield No strong relation No strong relation
GDP growth rate No strong relation No strong relation
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Foreign Portfolio Investors in (Shares
⏬fallen😰😰 (�गरावट देखी गई) ⏬fallen 😰😰
and Bonds)�वदेशी पोटर्फो�लयो �नवेशक
27.5.8 ⭐⭐Rating downgrade: conclusion or way forward

⇒ Noisy, Opaque And Biased credit ratings damage FPI flows. (क्रेिडट रे िटंग एज�सी का काम ककर् श, अधर्
पारदश�, भेदभाव यु� है, उनसे भारत म� आने वाले �वदेशी पोटर्फो�लयो �नवेशक को पर नकारा�क असर)
⇒ But overall they do not have a long-term significant impact on India's GDP growth
rate, currency exchange rate, share market performance. (िकंतु दीघर् अव�ध म� क्रेिडट रेिटगं एज�सी के भेदभाव
पूणर् रवैये के बावजूद भी भारत के आ�थक वृ�द्ध दर, मुद्रा �व�नमय दर और शेयर बाजार के प्रदशर्न पर कोई असर नहीं हो पाया है.)
⇒ So, India’s fiscal policy must not remain beholden / hostage to such a noisy/biased sovereign
credit rating by Foreign organisations. (अतः भारत सरकार क� राजकोषीय नी�त ने क्रेिडट रेिटगं एज�सीओ का बं धक
नहीं बनना चािहए, उनसे �बना डरे, (दे-धना-धन) कजार् लेना चािहए और प्र�त-चक्र�य राजकोषीय नी�त को अपनाना चािहए)
⇒ India’s fiscal policy should be guided by considerations of growth and development. (i.e. If
Government borrows ⏫ → ⏫Fiscal deficit → ⏬Credit rating → We need not fear that it
will harm our economy merely on account of fall in credit rating.)
27.6 💼💼💼💼💼💼💼💼COUNTERCYCLICAL POLICY (प्र�तचक्र�य राजकोषीय नी�त)

(Introduction: Origin) Indian Kings used to build palaces, temples, mosques etc during famines to
provide employment. Thus, during an economic slowdown, the Govt must spend more ₹₹ to achieve
a similar objective. (अकाल के िदनों म� राजा महाराजा महल मं िदर और म��द बनवाते, तािक लोगों को रोजगार �मले. आ�थक मं दी
के समय म� सरकार ने भी कु छ ऐसा ही करना चािहए)
Counter ⇒ During economic slowdown → ⏫ Increase Fiscal expenditure to boost

cyclical Fiscal employment & GDP.
policy
⇒ It helps in “Crowding in” i.e. When govt spending ⏫ increased → private
प्र�तचक्र�य
investment ⏫ e.g. Govt building highway in Arunachal → Private
राजकोषीय नी�त
entrepreneurs building petrol pumps & hotels → jobs GDP. आ�थक मं दी के दौरान
सरकारी खचर् को बढ़ाया जाए-तािक �नजी �ेत्र �नवेश रोजगार आ�थक वृ�द्ध म� मदद.
⇒ During economic boost: ⏬Decrease govt spending (So as to build reserves
for future emergency/future slowdown) आ�थक तेजी म� सरकारी खचर् को कम िकया जाए
तािक सरकार भ�व� क� मं दी के दौरान इ�ेमाल करने यो� रकम को आर��त रख सके /जमा कर सक� .
⇒ USA, UK, Chile have done this in the past, but India has not done it.
📔📔📔📔ES21 Suggested India to pursue this.
Pro-Cyclical ⇒ During economic Boom, ⏫Fiscal expenditure
fiscal policy
⇒ चक्र�य-समथर्क राजकोषीय नी�त ⏫ आ�थक तेजी के दौरान सरकार �ादा पैसा खचर् कर�
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🔠🔠❓MCQ. The increase in private investment spending induced by the increase in Government
spending is known as (CDS-2021-i)
(a) Crowding in (b) Deficit financing (c) Crowding out (d) Pumping out
27.6.1 💼💼💼💼💼💼💼💼Countercyclical: IRGD & Debt Sustainability

⇒ Interest Rate Growth Rate Differential (IRGD: �ण-�ाज-दर वृ�द्ध-दर के बीच अंतर): It is the difference
between (loan) interest rate (paid by Govt) and the GDP growth rate in an economy.
⇒ so if loan interest 6% - minus growth rate 9% = (-3)% negative IRGD figure basically hints that if
GDP Growth rate is higher than the loan interest rate paid by the govt, then Govt need not worry
much, because GDP⏫ → Tax collection ⏫ → Enough ₹₹ to repay those loans. यिद सरकार ने �जस
�ाज दर पर कजार् �लया है उसे आ�थक वृ�द्ध दर �ादा हो तब तक सरकार ने �चतं ा करने क� ज�रत नहीं �ोंिक आ�थक वृ�द्ध के
चलते कर-आमदनी म� बढ़ोतरी होगी → कजार् चुकाने के �लए सरकार के पास रकम आती रहेगी.
⇒ Meaning, GDP growth → leads to Debt sustainability/debt affordability. For India, above
situation is valid in past & will remain valid for the next 10 years, even in the worst case scenario.
(आ�थक वृ�द्ध कज� को वह�नय बनाती है खराब से खराब कम प�र��त म� भी अगले 10 साल तक हमारे पास यह अवसर मौजूद है ,
यानी िक दे-धनाधन कजार् लेकर सरकार ने अथर्तंत्र को पुनज��वत करना चािहए)
27.6.2 💼💼💼💼💼💼💼💼 Countercyclical: Domar Condition of Debt Sustainability

Economist Evsey Domar (1944) stated that, “Public debt of a country will be sustainable, IF GDP
growth is greater than the public debt growth rate. Otherwise government may default on loan-
repayment.” (यिद देश का आ�थक वृ�द्धदर, उस देश के सावर्ज�नक कज़र् वृ�द्धदर से �ादा होगा तो सावर्ज�नक क़ज़र् वहनीय हो पाएगा,
वरना तो सरकार िदवा�लयापन िदखा देगी/ कज़र् नहीं चुका पाएगी।)
More on GDP Growth = 📑📑Ref: HDT-Pillar#4C: GDP
27.6.3 💼💼💼💼💼💼💼💼Countercyclical: Conclusion/Way forward? (�न�षर्)

 To revive Indian economy after Corona, Govt should pursue countercyclical fiscal policy,
borrow more money for infrastructure development. (कोरोना महामारी के बाद भारतीय अथर्तंत्र को पुनज��वत
करने के �लए प्र�त चक्र�य राजकोषीय-नी�त आव�क, �वशेष �प से बु�नयादी अवसं रचना �वकास हेतु भारत सरकार बे�झझक बड़ी
मात्रा म� �ण लेना चािहए.)
 Once GDP growth ⏫ → govt should pursue fiscal consolidation. (आ�थक वृ�द्ध दर म� बढ़ोतरी होने पर,
राजकोषीय एकत्रीकरण शु� िकया जाए)
 Simultaneously, the Govt should also reform education, skill development. minimum-wages
Then income & savings⏫, Negative effects associated with Fiscal deficits will ⏬(More in
Pillar4C & #6) (साथ ही साथ �श�ा, कौशल �वकास, �ूनतम वेतन, इ�ािद म� सुधार द्वारा आमदनी और बचत को बढ़ाया जाए तो
अपने आप राजकोषीय खाध के नकारा�क पहलुओ ं को हम कम कर पाएं गे)
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27.7 🔀🔀🔀🔀SIDE NOTE: AUTOMATIC STABILIZERS (�चा�लत-��रीकारी)
⇒ For example: if Mr. Jetha-lal with taxable income of Rs.3 lakhs = He needs to pay income tax in
5% slab. [ignoring tax rebate, deduction etc. for this example]
⇒ During a slowdown in economy → his electronics shop will not make good profit → taxable
income ⏬decreases to ₹2.5 lakh → Jetha-lal now in automatically in 0% income tax slab.
[आ�थक मं दी के दोरान जेठालाल �चा�लत आयकर देयता से मु� हो जाएगा]
⇒ Now, he may even become eligible for some govt schemes meant for poor/lower-middleclass
persons. (e.g. Recall PM Shram Yogi Maan-Dhan Yojana ₹3000 pension from pillar1D:- income
Tax payers were not eligible for that scheme. But now Jethalal will be able to join)
⇒ Thus, during recession/slowdown in Economy: Income tax works as “automatic stabilizer”.
Because it can automatically ⏬reduce a family’s financial stress by [आ�थक मं दी के दौरान प�रवार का
�व�ीय तनाव अपने आप थोड़ा कम करता है]
o A] making the family eligible for government welfare schemes. [प�रवार अपने आप सरकारी
योजना के पात्र बन जाता है]
o B] Automatically decreasing family tax liability [no new voting or law passing required
in Parliament at the stage.]
⇒ This is not possible in GST. Because whether rich or poor person= all have to pay same 18% GST
on a mobile phone. It doesn't matter whether customer’s income has ⏫increased or
⏬decreased during that Financial year.- He’ll have to pay 18% GST, until GST council takes a
vote & decides to reduce the GST tax on mobile.
⇒ Automatic stabilizers are mechanisms built into govt budget to address economic slowdown
automatically- by automatically increasing govt’s spending and/or decrease public’s tax liability.
[“�चा�लत-��रीकारी’ - आ�थक मं दी के दौरान अपने आप सरकारी ख़चर् को बढ़ाता है या जनता क� कर-देयता को कम करता है]
⇒ Automatic stabilizer does not require any change in the existing tax law or voting in the
Parliament- because it starts working automatically during slowdown. [उ�� िक्रया��त करने के �लए
अलग से नया क़ानून/ सं सद क� अनुम�त लेने क� ज़�रत नहीं होती. वो अपने आप ही िक्रया��त हो जाता है]
⇒ Examples of Automatic Stabilisers: Income tax, Corporation tax, unemployment allowance,
food subsidy and other Government schemes that are meant only for poor /lower middle class
people. [आयकर, �नगम कर, गरीब के �लए ल��त खाद्य स��डी और दू सरी क�ाणकारी योजनाएं - “�चा�लत-��रीकारी’ है]
Note: Countercyclical fiscal policy / fiscal stimulus = it requires the government to pass a new
budget / new law / permission of Parliament for some new initiatives. So, they are not automatic
stabilisers. They are discretionary stabilisers. [प्र�त चक्र�य राजकोषीय नी�त तथा राजकोषीय प्रो�ाहन पैकेज के �लए
सरकार ने अलग से �वशेष �प से नए बजट म� �ज़क्र करना होगा कोई क़ानून पास करवाना होगा इस�लए वे �ववेकाधीन ��रीकारी है।]
🔠🔠❓MCQ. Which one of the following functions as an automatic stabilizer in the context of fiscal and monetary
policies of an economy? (UPSC-CAPF-2021)
(a) Personal income tax (b) Reverse repo rate of bank (c) Open market operation (d) Bond price
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27.8 💼💼💼 MISC TERMS RELATED TO DEFICIT FINANCING
Table 4: ✋need not do PHD on it unless Optional Subject=Public Administration
Methods for repaying debt (ऋण चुकाने के अलग अलग तरीके )

Redemption Repay the loan principal and interest at regular interval. Also known as
(भुगतान) Terminal Annuity. अनुशासन पूवर्क मूलधन और �ाज धीरे-धीरे वापस चुकाना
Govt creates a special fund & keeps depositing money in it regularly. So at the
Sinking Fund
time of G-sec maturity, it has enough ‘buffer’ money to honor the loan
(�न�ेप �न�ध)
repayment. First introduced in England.
⇒ पुनगर्ठन : Converting old loan into new loan with modifications in interest /
Conversion / tenure. (पुरानी लोन के �ाज दर या अव�ध म� बदलाव करना)
restructuring ⇒ 2020-Nov: Zambia became Africa’s 1st nation to default on its Euro loans
due to Corona. Experts believe some restructuring may be done.
Evergreening Taking new loan to repay the old loan (पुरानी लोन चुकाने नया कजर् लेना)
Repudiation Govt does not recognize its obligation to repay the loan. E.g. After Russian
(प�र�ाग / बिह�ार) Revolution (1917) Lenin’s Government refused to pay the loans taken by the
कजर् चुकाने से previous Czar regime from Britain & France. Although, in modern times not a
मना कर देना sound strategy because next time, no one will give you loans.
27.9 💼💼💼💼💼💼 FISCAL CONSOLIDATION / PRUDENCE: राजकोषीय एकत्रीकरण / �ववेक
It involves reduction in government expenditure to control its Fiscal Deficit. Such as

1. ⏬ the leakages (�रसाव) by targeted delivery of schemes and subsidies through direct benefit
transfer (DBT) through JanDhan- Aadhar- Mobile (JAM) trinity.
2. ⏬ the quantum (मात्रा) of subsidies: e.g.
a. Deregulation of Petrol prices (2010), Diesel (2013) (दामो को �नयं त्रण मु�)
b. 2016: Oil Ministry began to block LPG-Pahal subsidies to persons with annual taxable
income of ₹ 10 lakh />
c. 2017: Oil Ministry asked oil companies to keep raising prices of subsidised kerosene by
25 paise every fortnight until the subsidy is eliminated.
3. Shutting down loss making PSU. E.g. Hindustan Photo Films, HMT Bearings, HMT Chinar
Watches, Tungbhadra Steel, Hindustan Cable & HMT Watches (2014).
4. Privatization of loss making PSU/PSBs (�नजीकरण) e.g. 2018- IDBI2LIC, 2018- Tried to sell off Air
India, but unable to find any buyer.
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5. 2014-16: Government setup an Expenditure Management Commission (�य प्रबं धन आयोग) under
Bimal Jalan to suggest ways to reduce its Expenditure.
6. Austerity Measures (�मत��यता के उपाय) e.g.
a. 2018- W.Bengal govt issued directives to its departments banning flower bouquets and
mementoes in public functions, banning officials meetings at private hotels, frequent
installation of AC, car purchases, office renovations etc. & restricting the no. of foreign
tours by Ministers / IAS etc., More use of video-conferencing instead of physical travel.
b. 2019: PM’s Cabinet Committee on Investment and Growth (CCIG: �नवेश और �वकास क�
कै �बनेट स�म�त) ordered all Union ministries to reduce wasteful expenditure on travel, food
and conferences by 20% (यात्रा, भोजन और स�ेलन क� िफजूल खच� मे कटौती करो).
c. 2021: Parliament canteen subsidy ended e.g. Masala Dosa will no longer be sold at ₹6 etc.
This will help saving ₹8cr
🔠🔠❓MCQ. There has been a persistent deficit budget year after year. What can be done by by the government to
reduce the deficit? (Asked in UPSC-Pre-2015)
1) Reducing revenue expenditure 2) Introducing new welfare schemes
3) Rationalizing subsidies 4) Expanding industries
Answer Codes: (a) 1 and 3 only (b) 2 and 3 only (c) 1 only (d) 1, 2, 3 and 4
🔠🔠❓MCQ. In India, the price of petroleum products has been deregulated mainly to (UPSC-CDS-2013-II)
(a) reduce the burden of subsidies given to the oil companies
(b) discourage the exploration of oil reserves in the country
(c) discourage the demand for private vehicles
(d) curb the use of black money in the economy
27.10💼💼💼💼 FISCAL STIMULUS (राज� प्रो�ाहन पेकेज)
When govt ⏬taxes and/or ⏫ public procurement (सरकारी खरीद) to ⏫ demand & growth in
economy, it’s called “Fiscal Stimulus” (राज� प्रो�ाहन पेकेज).
27.10.1 💼💼💼💼 👳👳 Manmohan’s Fiscal Stimulus (2008-)
⇒ Post-subprime crisis in USA, PM Manmohan announced Fiscal Stimulus (2008) such as
- (1) ⏬ in the Excise duty & Custom Duty on exports
- (2) Businessman were given additional benefits in Income Tax & Corporation Tax, if
they purchased new commercial vehicles.
- (3) Hiked the Minimum Support Prices (MSP) for farmers. 📑📑More in Pillar#4A
⇒ However, the economic surveys observed that such Fiscal Stimulus create new set of problems by
⏫ fiscal deficit in the subsequent years.
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27.10.2 💼💼💼💼 🧔🧔 Modi’s Fiscal Stimulus (2019)
2019-Aug: Car sales and GDP growth sharply ⏬, Foreign investors exiting on large scale from
India. So, Finance Minister Nirmala.S announced in 2019-September:
1) 🌞🌞Reduced tax burden on companies. (कं प�नयों के मुनाफ़े पर लगने वाले �नगम करों म� कटौती )
⇒ Indian companies corporation tax slabs ⏬ from 25-30% to 15-22%. 📑📑Ref:
Corporation Tax section of Handout for more details.
2) 🌞🌞Reduced tax harassment (कर उ�ीड़न /कर आतं कवाद को कम कर�गे )
⇒ No startups will be subjected to 'angel tax'.
⇒ All tax notices to be issued from centralised system to 'end harassment of taxpayers' by
individual officials.
⇒ GST refunds would be given to entrepreneurs within 30 days.
⇒ Violation of Corporate Social Responsibility (CSR) will be treated as a civil offense and
not a criminal offense.
⇒ (Full) Budget-2019 had hiked surcharge on the income tax paid by Super-rich. As a
result, Foreign investors were exiting from India, fearing extra tax burden. So, we’ll
‘undo’ that budget announcement.
3) 🌞🌞We’ll fix the PSBs (सावर्ज�नक �ेत्र के ब�क को दु�� कर�गे/ पुनपू�जीकरण कर�गे )
⇒ Government will infuse more capital in public sector banks, order them to link loan
interest rates with repo rate or other external benchmarks so, loans may become cheaper
especially for home, auto sector. This will boost sales, revive economy
4) 🌞🌞We’ll encourage car sales & other consumption
⇒ Vehicle Depreciation ⏫ from 15% to 30% (meaning Bizman will get more tax benefits
in Income Tax and Corporation Tax). → businessman encouraged to buy new vehicles.
⇒ Govt departments will buy new petrol/ diesel vehicles.
⇒ GST council ⏬ GST rates on 5 star hotels, outdoor catering, GST compensation cess on
passenger vehicles etc.
Plus many other fragmented reforms to ⏬ taxes, or to ⏫ Government spending on highway
projects etc. are done every now and then. BallbyballNOTIMP.
27.10.3 👻👻💼💼💼💼 🧔🧔 Modi’s Atma-Nirbhar Bharat Economic Stimulus Package (2020)
⇒ (Origin) 2020-March: Government of India initiated nationwide lockdown to prevent the spread
of Corona/COVID-19 pandemic. (कोरोना महामारी के चलते देश�ापी तालाबं दी)
⇒ This lockdown affected the income and livelihood of everyone from corporate companies to
common citizens of India. (सबक� आजी�वका को हानी �ई)
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⇒ Therefore, to revive the economy, Prime Minister of India launched Atma Nirbhar Bharat
stimulus package in 2020-May to revive the Indian economy. (अथर्�व�ा को पुनजीवन / प्रो�ाहन का
आ�थक पेकेज)
⇒ It’s centred on five pillars of – Economy, Infrastructure, System, Demand and Vibrant
Demography (�ू �तली जनसां��क�).
Table 5: (DATA) 👻👻Atma Nirbhar Bharat consists of
Amt in lakh cr As per
DATE 👻👻 Components of Atma Nirbhar Bharat
(Originally) 📔📔📔📔ES21
2020-Mar to May 1) RBI’s monetary policies → (Ref#1A2) ₹8 lakh cr ₹13 Lcr
2) PM GARIB KALYAN (PMGKY): Covid Relief ₹17 Lcr
2020-Mar ₹1.70-1.90 lcr
Package →
3) FM Nirmala.S made new announcements made like
2020-May Credit guarantee for MSME, ⏬TDS rates, PM Matsya ₹11 lakh cr
Samda Yojana, Agri infra fund etc.
= ₹20 lcr approx. ₹30 Lcr = 15%
ATMANI = 1+2+3=Total कु ल �मलाकर जोड़ी गयी रकम
(10% of GDP) of GDP
Note: Salient features of Atma-Nirbhar is spread across 6 pillars of Handout. Its criticism, how useful
in reviving economy & GDP growth, Nehru vs Modi’s ideas of self-reliance etc. = Ref: 📑📑Pillar#4C
🔠🔠❓MCQ. Which one of the following describes the “fiscal stimulus”? (UPSC-Pre-2011)
1) It is a massive investment by the Government in manufacturing sector to ensure the supply of
goods to meet the demand surge caused by rapid economic growth
2) It is an intense affirmative action of the Government to boost economic activity in the country
3) It is Government’s intensive action on financial institutions to ensure disbursement of loans to
agriculture and allied sectors to promote greater food production and contain food inflation
4) It is an extreme affirmative action by the Government to pursue its policy of financial inclusion
27.11💼💼💼🔨🔨 FISCAL RESPONSIBILITY & BUDGET MANAGEMENT ACT, 2003
FRBM Act: राजकोषीय उ�रदा�य� और बजट प्रबं धन अ�ध�नयम, 2003
Originally it required Union and States to control their deficits with following targets:
- By 2008: ⏬ Fiscal Deficit
- 🧔🧔 For Union: 3% of GDP (GROSS DOMESTIC PRODUCT: सकल घरेलू उ�ाद)
- � For States: 3% of GSDP (GROSS STATE DOMESTIC PRODUCT)
- By 2008: Eliminate Revenue deficit (=make it 0%) of their respective GDP or GSDP.
While some of the state govts achieved them, but successive union govts struggled to meet these
targets so they kept amending the act to extend the deadlines and targets. (ल�ों क� समयसीमा को पीछे
धके लते रहे). E.g. Amendment 2012: No need to have 0% Revenue deficit. Instead it required 0%
Effective Revenue Deficit by 2015. These deadlines were extended even further in subsequent
Finance Bills.
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27.12🙌🙌 FRBM: TRIGGER MECHANISM (TO) ESCAPE (DEFICIT CONTROL) CLAUSE
FRBM Act Section 4(2): provides for a trigger mechanism to escape the deficit control related clauses
in the act i.e. Government can overcross the targets in following situations (चु�न�ा 'िट�गर' प�र��तयों मे,
घाटे-�नयं त्रण सं बं धी धाराओं से बच सकते ह�)
1. ⚔ National Security / Act of War (रा��ीय सुर�ा / युद्ध)
2. 🌬🌬🌬🌬 National Calamity (रा��ीय आपदा)
3. 🌽🌽 If agriculture output and farm incomes collapse (कृ �ष उ�ादन, आय मे पतन)
4. 📉📉 Fall in real output/ GDP growth rate beyond x% (�वकास दर म� अ�ा�धक �गरावट)
5. 🍋🍋 Structural reforms in the economy with unanticipated fiscal implications (अथर्�व�ा म�
सं रचना�क सुधारों क� राजकोष पे अप्र�ा�शत असर हो.)
🔫🔫 🙌🙌 During above ‘trigger conditions’ (उ� '�ट�गर' प�र��तयों मे)
⇒ FRBM Act Section 4(2): Govt may overcross/deviate the fiscal deficit target by upto 0.5% of
GDP, as recommended by NK Singh’s FRBM review Committee. (घाटे क� मयार्दा/ल�यांक को लांघ देना).
⇒ Individual State Governments may also do similar (e.g. overcross by 0.5% of GSDP), but they’ve
to amend their state FRBM Act accordingly with this provision.
⇒ 💼💼Budget-2020: FM cited trigger#5 (structural reforms…..) to escape the FRBM targets for
2019-20 and 2020-21.
Table 6: या�न क� घाटा मे कटौती हमसे ना हो पाएगी'
Fiscal deficit → Original target (मूलत:) Overcrossed After Trigger Mechanism
2019-20 3.3% 3.8%⏫
2020-21 3% 3.5%⏫
- Primary deficit target 0% (2020-21): shifted to 2022-23.
- Revenue Deficit and ERD also over crossed but anyways FRBM Act has abandoned targeting
them since 2018’s amendment.
- 📔📔📔📔ES19 had suggested Government to reduce deficit through fiscal prudence. BUT
- 📔📔📔📔ES20 (Vol2Ch2) identified following challenges in 2020-21 in reducing deficit:
- Slowdown in economic growth⏬, trade protectionism⏫, geopolitical situations in
West Asia, Oil price = tax collection will be affected. (मं दी, �ापा�रक सं र�णवाद और भू राजनी�तक
तनावों के चलते करो म� अ�� आमदनी के आसार नहीं िदख रहे थे )
- To revive growth in the Indian economy, the Government should relax fiscal deficit
targets → in other words, give fiscal stimulus → economic growth. (घाटा �नयं त्रण ल�यांक मे
ढील देदो, राज� प्रो�ाहन पेकेज दे दो)
- 2020-Corona crisis: Govt’s income ⏬ and expenses ⏫ so deficit rose to unprecedented level.
💼💼Budget-2021: FRBM amended to provide fiscal deficit 6.8% (2021-22) and 4.5% (2025-26)-
because 4.5% target is recommended by 15th FC.
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27.12.1 💼💼💼🔨🔨 FRBM: Misc. Concepts
1) 🛬🛬 in 2018, instead of immediately reducing the Fiscal deficit to 3.0% FM Jaitley promised to
reduce it to 3% in 2020-21 like a glider gradually descending on its landing target. Hence
subsequent Finance Ministers keep reiterating that we’ll continue on that ‘Fiscal Glide’ (राजकोषीय
सरकाव) path. Although 💼💼Budget-2020 FM Nirmala.S used FRBM-trigger to escape it,
temporarily.
2) Fiscal Profligacy (अंधाधुंध राजकोषीय खचर्/आवारगी/ऐयाशी): This phrase is used to denote reckless
extravagance/wasteful expenditure of public money.
3) 🛵🛵 If government has targeted to keep the fiscal deficit within 3.3% percent of GDP, but if it
crosses that limit, it’s called ‘Fiscal Slippage’ (राजकोषीय िफसलन).
27.12.2 💼💼💼🔨🔨 🗂🗂 FRBM Act: Documents (द�ावेज़)
FRBM Act requires the Union Govt to present following documents along with the budget:
1) Macroeconomic Framework Statement (�ापक आ�थक ढाँचा �ववरण): to show economic data - GDP,
growth rate, import-exports, and government’s receipts,expenditure etc.
2) Medium Term Fiscal Policy Statement (म�म अव�ध क� राजकोषीय नी�त �ववरण)
3) Fiscal Policy Strategy Statement (राजकोषीय नी�त कायर्नी�त �ववरण): To explain how Govt. is controlling
the deficits, and whether there is going to be any deviation from the target. Note: In real life,
Doc#2 and Doc#3 are published together as "Medium Term Fiscal Policy cum Fiscal Policy
Strategy Statement." (दू सरा और तीसरा द�ावेज वा�व म� एक साथ, एक ही फाइल म� दे देते ह�)
4) Medium-term Expenditure Framework (म�म अव�ध �य ढाँचा �ववरण) → 💼💼Budget-2021
Government not presented this document in Parliament, due to Corona.😰😰
Note: above DATA Table from 💼💼Budget-2020. Later in 💼💼Budget-2021, govt not given such table
because Nirmala.S said “we will amend the FRBM Act. Hence, no fiscal projections for the
years 2022-23 and 2023-24 have been presented along with this Statement.”
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🔠🔠❓MCQ. According FRBM Act, the Government is under obligation to present three statements before the
parliament along with the Annual Budget. Which one of the following is not one of them? [UPSC-CDS-2008-I]
(a) Macroeconomic Framework Statement (b) Fiscal Policy Strategy Statement
(c) Medium-term Fiscal Policy Statement (d) Statement showing Short term Fiscal Policy
🔠🔠❓MCQ. Along with the Budget, the Finance Minister also places ‘The Macro Economic Framework Statement’.
The aforesaid document is presented because this is mandated by (UPSC-Prelims-2020)
[a) Long standing parliamentary convention
[b) Article 112 and Article 110(1) of the Constitution of India
[c) Article 113 of the Constitution of India
[d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003
27.13👻👻👻👻👻👻👻FISCAL FEDERALISM: HELPING THE STATES IN ATMANIRBHAR
27.13.1 🧔🧔🧔🧔🧔Helping States → Tax devolution and grants

⇒ Corona = Union’s tax income ⏬⏬ but still Union has given the Tax Devolution and grants
(कर अंतरण व अनुदान) to the states, as per the figures announced in the Budget and Finance
Commission report.
27.13.2 🧔🧔🧔🧔🧔Helping States → States’ Fiscal deficit limits ⏫
⇒ Constitution Article 239: States require union govt permission before borrowing money.
⇒ Before: Union had kept states net borrowing ceiling @3% of Gross State Domestic Product
(GSDP) (रा�ों के सकल घरेलू उ�ाद के 3% से �ादा कजर् रा� सरकार नहीं ले सकती)
⇒ 👻👻After ATMANI: 3% → ⏫to 5% for 2020-21. रा� सरकार क� राजकोषीय घाटे क� मयार्दा को बढ़ाया गया।
if State Government does following State can borrow extra ₹₹ No. of states achieved
Sr
reform upto _ _ % of GSDP this as of 30 Dec 2020
1 No conditions /un-tied (�बना शत� के ) 0.50% ALL
a) One Nation One Ration Card 0.25% 10
2
System(📑📑Ref: HDT-Pillar#)
b) Ease of doing business reform; 0.25% 7
3
(📑📑Ref: HDT-Pillar#)
c) Urban Local body/ utility reforms; 0.25% 2
4 (शहरी �ानीय �नकायों गटर पानी �व�ा इ�ािद म�
सुधार)
d) Power Sector reforms(📑📑Ref: HDT- 0.25% None
5
Pillar#5)
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if any 3 of the above (a-b-c-d) reforms 0.50% --
6
done ***
Total extra borrowing limit (sum of 2% of GSDP. Total for all --
above six rows) States=₹4.27 Lcr
*** However, States who opt for GST compensation Option#1 Back2Backloans, will get
unconditional relaxation. (गैर शत� छू ट) (Ref: More in 📑📑Pillar#2A: GST compensation)
27.14 🧔🧔🧔🧔🧔FISCAL DEFICIT TARGET FOR STATES BY 15TH FC & 💼💼BUDGET-2021

State Govt (रा� सरकारों के �लए) 2020-21 2021-22 2023-24
Fiscal Deficit as % GSDP 3% (increased to 5% as given above) 4%** 3%
⇒ 💼💼Budget-2021: as per 15th FC recommendations, we'll allow this (4%) + extra borrowing upto
0.5% of GSDP subject to some conditions (शत� के अधीन कु छ और अ�त�र� पैसा भी कजर् म� लेने द�गे).
27.15💼💼💼🔨🔨🔨 FISCAL RESPONSIBILITY: NK SINGH FRBM REVIEW PANEL

⇒ Budget-2016: Finance Minister Jaitley felt FRBM Act targets were too rigid and did not allow any
room for the government to address any crisis. (ल� ब�त ही स� थे, उ�� लचीला बनाने क� ज�रत)
⇒ e.g. farm loan waivers during drought period or unemployment allowance during global
financial crisis are not possible if government strictly wants to control fiscal deficit at 3% of GDP.
(अकाल म� िकसानों को ऋण-माफ�, या नौजवानों को बेरोजगारी भ�ा देना असं भव)
⇒ So, FM constituted a panel under NK Singh (ex-IAS, 15th FC chairman) to review the FRBM act.
27.15.1 💼💼💼🔨🔨 FRBM Panel’s Notable recommendations: उ�ेखनीय �सफा�रश�?
- Replace the existing FRBM act with a new act, with an Escape clause i.e. During a war, drought
or economic crisis, the government should be temporarily allowed to cross breach targets. →
Government amended FRBM act for this.
- Set up an independent Fiscal Council for monitoring. → NOT YET Done.
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- Adopt a fiscal road map for the union from 2017 to 2023 gradually reduce Union Debt to GDP,
Fiscal Deficit and Revenue Deficit
So, citing NK Singh report (as an excuse), Budget 2018 amended the FRBM targets →
Indicator (Actual) (TARGET) (TARGET) (TARGET)
as % of GDP 2018-19 2019-20 2020-21 2024-25
Fiscal Deficit 3.4% 3.3% 3.0% 3.0%
(reality 3.8%) (reality 3.5%)
Primary Deficit 0.2% 0.2% 0.0 % 0.0%
(reality 0.7%) (reality 0.4%)
Revenue Deficit & ERD These targets are abandoned in FRBM
Union Debt: GDP reduce it 2017: ~46.5%, 2018: 48.4%; 40%
gradually 2019: 48.0%..(reality: 2019 >50%)
General (=Union+State) Debt Gradually reduce to → 60%
to GDP:
✋Note: most of the above targets not going to be accomplished due to Corona.
27.16💼💼💼🔨🔨🔨 FISCAL RESPONSIBILITY: NK SINGH’S 15TH FINANCE COMMISSION

15th FC expects GDP growth to slowly recover to 7%.
15th FC recommendations / targets for 2021-22 2022- 2023- 2024- 2025-

Fiscal Deficit → → 23 24 25 26
if GDP Growth slower than expected (आ�थक 6.5 (reality 6 5.5 5 4.5**
वृ�द्ध दर य�द उ�ीद से कम) 6.8%)
If our assessment holds (i.e. GDP growth 6 5.5 5 4.5 4
slowly returning to 7%)
if GDP Growth is faster than assessed (आ�थक 6 5.5 5 4 3.5
वृ�द्ध दर उ�ीद से तेज रहे)
**💼💼Budget-2021 has accepted this path (⏬Fiscal Deficit to 4.5% by 2025-26).
⇒ If the state government is undertaking reforms in the power sector (e.g. stopping power theft)
→ Union should allow it to borrow extra money. (�बज�लया/ऊजार् �ेत्र म� सुधार करने वाली रा� सरकारों को क� द्र
सरकार अ�त�र� पैसा कजर् लेने क� अनुम�त द�)
⇒ Evaluation of government schemes → Focus on outcome of the scheme → Department should
be asked to justify why the scheme should be continued if annually it is unable to deliver "X"
outcomes. (सरकारी योजनाओं क� समी�ा करवाई जाए, यिद �नधार्�रत ल� हा�सल नहीं हो रहे तो �वभागों से जवाब तलब िकया
जाए िक �ों इस योजना को रद्द ना िकया जाए?)
⇒ Union Government should set up a High-powered Inter-governmental Group/committee
(उ��रीय अंतर-सरकारी समूह / स�म�त को बनाया जाए)
o to recommend reforms in FRBM Acts of Union and State governments.कानून म� सुधार के �लए
o to Monitor the implementation of Reform the FRBM Act. कानून के अनुपालन क� �नगरानी के �लए
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o to Monitor the implementation of 15 finance commission recommendations. 15 वे �व�
आयोग क� �सफा�रशों के अमल क� �नगरानी के �लए
⇒ State Govts should form Public Debt Management Cells to plan their borrowing programme
efficiently. (रा� सरकार अपने कज़� का प्रभावी �प से आयोजन करने के �लए एक सावर्ज�नक ऋण प्रबं धन सेल नामक इकाइयों
को �ा�पत कर�)
⇒ If a state govt does not set up a State Finance Commission by March 2024 then the union
government should stop giving it grants afterwards. (रा� �व� आयोग क� �ापना न करने वाले रा� सरकारों
का अनुदान बं द िकया जाए)
⇒ Union and State governments should avoid any extra budgetary resources/off-budget borrowing.
(क� द्र और रा� सरकार बजेतेटर सं साधनों के उपयोग से बच�)
⇒ Cess and surcharge amount to nearly 18% of the gross tax revenue of the union government. FC
can't allot cess-surcharge amount to State governments. Need to rationalize this. (क� द्र सरकार को
�व�भ� करो से जो कु ल/सकल आमदनी होती है उसका 18% तो उपकर और अ�धभार से ही आता है �जसम� रा� सरकारों को �व�
आयोग िह�ा नहीं दे सकता, इस पर थोड़ा �नयं त्रण िकया जाए.)
27.16.1 💼💼💼🔨🔨🔨 :🎯🎯 Budget marksmanship is Poor, says 15th FC

⇒ marksman = gunman who is skilled in shooting targets. (�नशानेबाज)
⇒ budget marksmanship = ability to keep income & expense within the budget targets/estimates.
however in reality...
2019-20 Budget estimate revised estimate Actual (finalized
(presented on (presented on after 31/3/2020)
1/2/2019) 1/2/2020)
Receipt → Taxes 16 Lcr 15 Lcr 13 Lcr😰😰
Expenditure → Revenue (subsidies, 24.47 Lcr 23.49 Lcr 23.50 Lcr😰😰
loan interest repayment etc)
⇒ Thus the union government is poor in budget marksmanship. (बजट �नशानेबाजी म� कमजोर). Why?
⇒ Because generally the income is overestimated in budget presentation to show a rosy picture
(मीिडया और �वप� के सामने गुलाबी �चत्र प्र�ुत करने के �लए आमदनी के आंकड़ों को वा��वक प�र��तयों क� अपे�ा �ादा बढ़ा
चढ़ा कर िदखाया जाता है)
⇒ but, when the tax collection target is missed → it results in:
😰😰problem#1) Tax authorities engaging in tax terrorism / litigation (कर आतं कवाद और मुकदमे बाजी)
Year 2012 2020

Direct Tax dispute amount less than 3 lakh cr nearly 10lakh cr
😰😰problem#2) prediction error leads to ad-hoc expenditure management → A) excessive Reliance
on extra budgetary resources B) randomly cutting the scheme expenditure → not paying the
contactors on time → substandard quality of construction. (अनुमान म� ऐसी गल�तयों के चलते �य प्रबं धन
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तदथर्/अ�ाई �प से िकया जाता है, प�रणाम ��प योजनाओं के खचर् म� कटौती कर दी जाती है, ठे केदारों को पैसा व� पर नहीं
चुकाया जाता → वे कमजोर गुणव�ा क� सड़क मकानों का �नमार्ण करते ह� इ�ािद)
27.17💼💼💼🔨🔨🔨 FISCAL RESPONSIBILITY: MISC BODIES
27.17.1 💼💼💼🔨🔨 Expenditure Management Commission (2014)

⇒ FinMin setup under Dr. Bimal Jalan. (�य प्रबं धन आयोग)
⇒ Gave suggestions on how to ⏬ fiscal deficit, how to ⏬ subsidy bill etc.
27.17.2 💼💼💼🔨🔨🔨 Public Debt Management Agency (PDMA): सावर्ज�नक ऋण प्रबं धन एज�सी
⇒ RBI decides repo rate & also undertakes open market operation for buying and selling of G-sec.
⇒ Most of the G-sec are purchased by public sector banks, insurance and pension funds.
⇒ As Banking-regulator, the Reserve Bank can prescribe Statutory Liquidity Ratio (SLR) → which
requires banks to keep a portion of their deposits in liquid assets like cash, gold, G-sec and other
securities approved by RBI. (Ref: 📑📑Pillar#1A2: monetary policy)
⇒ So, this creates a ‘conflict of interest’ for RBI in its role as (1) Banking regulator vs (2) Public
Debt manager. (िहतो का आपस मे टकराव)
⇒ 💼💼Budget-2015 proposed creating an independence Public Debt Management Agency (PDMA)
to takeover these functions of RBI.
⇒ But later plan was put on a back burner due to RBI’s objections.
⇒ 2019: NITI Aayog Vice Chairman Rajiv Kumar again reiterated the need to setup PDMA. But,
afterwards, not much in news limelight. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
27.17.3 💼💼💼🔨🔨🔨 Fiscal Council (राजकोषीय प�रषद)

⇒ (Origin) Fiscal Council is an independent authority, usually setup by a law, to supervises the
fiscal policy in the country. (राजकोषीय नी�त क� �नगरानी हेतु एक �तं त्र सं �ा)
⇒ e.g. Sweden, Hungary, & some other western countries. Its functions include:
 Monitoring Govt's Receipt, Expenditure, Annual Budget.
 Ensure that Govt's borrowing remains within the legally permitted limits.
 Recommend fiscal stimulus and fiscal prudence measures depending on the economic
situation of the country. (समय समय क� ज�रत के िहसाब से �व�ीय प्रो�ाहन और �मत��यता के उपाय देना)
27.17.3.1 💼💼💼🔨🔨🔨 Fiscal Council: Why do we need it in India?

Budgeting process in India suffers from following lacunas. (वतर्मान प्रणाली म� खा�मया)
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⇒ Overestimation of tax receipts, Creative accounting and data dressing in the budget. (आंकड़ों को बढ़ा
चढ़ा कर/ मरहम पट्टी लगाकर िदखाना)
⇒ If not revenue targets not achieved then
o Extra Budgetary Resources (बजेटेतर सं साधन)
o Fiscal repression of the households via LIC. (�व�ीय दमन)
o Frequent changes in the FRBM goalposts. (ल� बदल देना)
⇒ Engaging Practices against the spirit of cooperative federalism (सहकारी सं घवाद):
o Imposition of cess/surcharge on Union taxes, to avoid FC devolution.
o Union irregularly releasing GST & Finance Commission Devolution/grants to State
governments. (अ�नय�मत �प से पैसा रा�ों को देना)
⇒ India's sovereign credit rating also ⏬ because of such mismanagement.
Therefore, NK Singh’s FRBM Review Panel (2017) and successive Finance Commissions have
recommended setting up such an Independent Fiscal Council in India. because:
😰😰Existing Mechanism (वतर्मान ��त /�व�ा /प्रणाली) 🤩🤩Whereas Fiscal Council
Parliamentary Committees such as Public Accounts, Estimates technical experts (तकनीक�
Committee etc. are made up of Members of Parliament, who may �वशेष� होंगे)
not have the technical expertise over economics and public finance.
(सं सद क� लोक लेखा स�म�त, प्रा�लन स�म�त )
Comptroller and Auditor General (CAG) will audit the government continuously strive to keep
Expenditure after the spending has taken place. (�नयं त्रक और महालेखा the fiscal deficit under
परी�क- खचर् हों जाने के बाद वो जांच करता है) control. (अ�वरल �नगरानी)
Finance commission: Constituted every 5 yrs, stops functioning will function continuously
after submitting report. Until new body setup. round the year.
27.17.3.2 💼💼💼🔨🔨🔨 Fiscal Council: conclusion YES we NEED it for INDIA

Considering the aforementioned issues, need of the hour is to set up an independent fiscal council,
(�तं त्र राजकोषीय प�रषद क� �ापना वतर्मान समय क� ज�रतों के िहसाब से अ�त आव�क है)
⇒ To make the Public Finance Management in India more prudent, transparent, accountable and
efficient. (सावर्ज�नक �व�ीय प्रबं धन को �ववेकपूणर्, पारदश�, जवाबदेह और कु शल।)
⇒ To achieve UN SDG Goal #16: Develop effective, accountable and transparent institutions at all
levels of governance. (सतत �वकास ल�: शासन के हर एक �र पर जवाबदेही सं �ानों का �नमार्ण)
27.18🎺🎺 (MAINS) PUBLIC EXPENDITURE MANAGEMENT: CHALLENGES
- (Definition) Public expenditure management deals with allocation of Govt’s economic resources
into three channels : सावर्ज�नक �य प्रबं धन - आ�थक सं साधनों का आवं टन करता है:
- 1) Public Administration (लोक प्रशासन)
- 2) Economic Development (आ�थक �वकास)
- 3) Welfare Schemes (क�ाणकारी योजनाएँ )
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- 1991: Liberalization, Privatization and Globalization (LPG: उदारीकरण, �नजीकरण और वै�ीकरण)
reforms → then following challenges in management of public expenditure:
Sector Pre-LPG Post-LPG-1991 (More in Pillar4: LPG)
Banking: बासेल Nationalisation of banks, Twin balance sheet syndrome, govt required to
मानदंड: पुनः Basel norms less recapitalise the public sector banks because they
पूंजीकरण के �लए ढेरstringent. (More in cannot do it on their own → Financial burden ⏫
सारी रकम चािहए 📑📑Pillar#1B2)
Monetary Policy High level of fiscal - Private Sectors Investment demand,
and Fiscal Policy deficit. consumerism has ⏫ → RBI is forced to cut
RBI’s monetary policy down the SLR to increase the loanable funds.
मौ�द्रक नी�त एवं which mandated high - Since high level of fiscal deficit was one of the
राजकोषीय नी�त level of SLR to finance
reasons for BOP crisis, now Govt has statutory
Government’s
FRBM requirements to control fiscal deficit.
borrowing using bank
- RBI has statutory requirement to control
depositors’ money.
inflation - So rampant borrowing from RBI is
becoming difficult for government.
Private sector Share of private sector in - Drastically ⏫.
India's economic growth - Private sector requires ₹20 lakh crores every
�नजी �ेत्र को �नवेश म� and employment year for sustaining the current level of
लाखों करोड़ों �पए generation was limited Economic Growth & Employment generation
चािहए →सरकार due to the License Quota
- Therefore, if govt does not control fiscal deficit
जनता क� बचत का Inspector Raj. (More in
→ crowding out of the private investment =
सारा पैसा कज� म� ले Pillar4)
लेगी, तो �नजी �ेत्र को ⏬India’s growth (although latest 📔📔📔📔ES21
पूंजी �मलेगी कै से disagrees with this argument)
PSU Loss making public - Difficult to sustain the Public Sector
सावर्जा�नक �ेत्र के sector undertakings were Undertakings against the heavy competition of
उपक्रम, नुकसानी म� supported by the private sector be it Air India or BSNL.
चल रहे ह� तन�ाह देने Government as white - Govt unable to pay salaries, even no buyers for
का भी पैसा नहीं elephant. their privatization
Infrastructure Population was sparse. - Population has ⏫
Most people didn't have
- Aspiration of people have ⏫
बु�नयादी अवसं रचना access to TV, fridge,
- They want clean water, 24/7 electricity, good
के �लए ढेर सारा पैसा mobile, internet or social
quality of roads;
चािहए जो सरकार के media
- Lot of money required for infrastructure
पास नहीं Their demand for
finance,
electricity was low.
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Sector Pre-LPG Post-LPG-1991 (More in Pillar4: LPG)
- Railway alone requires ₹50 lakh crore between
2016-30, Govt can’t spend more than ₹1.6 lakh
crore a year.
Welfare Right to education, right - Now they have become legal rights so the govt
to food, right to work is required to allocate large amount of funds
�श�ा, अ� और (MGNREGA) were not - Post-LPG era, the level of education and
रोजगार क� �व�भ� yet ‘legal rights’. demand for various amenities, and even per
क�ाणकारी capita income has increased, but that has not
योजनाओं के �लए ढेर been a corresponding increase in our tax to
सारा पैसा चािहए जो
GDP (11%, where as countries with similar
सरकार के पास नहीं
growth have >20%).
Public Small size of - Public aspirations have ⏫, number of
Administration Government staff
welfare schemes ⏫, Border Security
लोक प्रशासन और Their salary levels were
challenges ⏫ → employees have ⏫
र�ा के �लए सरकार ने also low.
- 6th pay commission and 7th pay commission
ब�त लोगों को नौकरी
→ वेतन आयोग क� → salaries have ⏫
�सफा�रशों के िहसाब से - 😰😰Challenge? ‘Contracting out of the jobs’ to
मोटी मोटी तन�ाह keep revenue deficit minimal. NPS where
Employee himself is largely responsible for his
pension etc. ⏬vacancies in UPSC/SSC
27.18.1 ⚰ 😰😰Public finance challenges: Corona ex-gratia Yojana

⇒ Disaster Management Act 2005’s Section 12: requires National Disaster Management Authority
(a statutory body headed by PM) to recommend minimum standards of relief to person affected
in a disaster. (आपदा प्रबं धन क़ानून क� धारा 12 म� ये �लखा है िक रा��ीय आपदा प्रबं धन प्रा�धकरण ने आपदा से प्रभा�वत लोगों
के �लए �ूनतम सहायता घो�षत करनी होगी।)
⇒ Home Ministry has notified Corona as a disaster. So, PIL in SC asking Govt to pay compensation
to the family of every dead person. (गृह -मं त्रालय पहले ही कोरोना महामारी को आपदा घो�षत कर चुका है, तो कु छ
लोगों ने सुप्रीम कोटर् म� जनिहत या�चका दायर क� िक कोरोना म� मरे सभी लोगों के प�रजनों को मुआवज़ा िदया जाए)
⇒ 2021-Oct: SC ordered Rs.50,000 for family of every person who died in Corona. This is posing
challenges to Govt’s fiscal capacity.
✍Conclusion: Thus, in the aftermath of LPG reforms, Nation's per capita income has ⏫,
Governments expenditure has ⏫, demands for infrastructure investment ⏫. But not adequate
⏫increase in the tax to GDP levels. As a result, public expenditure management has become a
challenge to the government. (कर राज� म� आमदनी क� कमी के चलते सावर्ज�नक-�य-प्रबं धन, चुनौती बन गया है)
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28 💼💼 TYPES OF BUDGET: बजट के प्रकार
28.1 REVENUE VERSUS CAPITAL BUDGET: राज� बनाम पूंजीगत बजट
👜👜 Revenue budget: राज� बजट 👛👛 Capital Budget पूंजीगत बजट
associated with the income and expenditure that
It is associated with the income and expenditure
are of long term nature and/or results into
that are of temporary in nature (1 year or less),
creation of permanent / capital /financial assets,
and/or do not result into creation of permanent /
such as land, buildings, machinery, equipment,
capital / physical / financial assets.
shares, bonds, G-sec.
Taxation, revenue from selling goods and
services, interest payment on previous loans, Borrowings, disinvestment, and expenditure on
salaries, pension, subsidies and other non- assets creation.
developmental expenditure
🔠🔠❓MCQ. Which is/are included in the capital budget of the Government of India? (Asked in UPSC-Pre-2016)
1. Expenditure on acquisition of assets like roads, buildings, machinery, etc,
2. Loans received from foreign governments
3. Loans and advances granted to the States and Union Territories
Ans Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
28.2 💼💼💼💼GENERAL BUDGET VERSUS RAILWAY BUDGET (आम बजट बनाम रेलवे बजट)
- 1920-21: Acworth Committee recommends separate Railway Budget. This practice continued
even after Independence, first the railway minister would present the Railway budget in
parliament, and after a few days finance minister will present General Budget.
- NITI Aayog’s Bibek Debroy committee recommends its abolition because
- 1) No constitutional requirement (सं वैधा�नक �प से यह अ�नवायर् नहीं है)
- 2) During Coalition Governments, Rail budget was used for populism, cheap fares which eroded
the profitability of Railways. (गठबं धन सरकारों म� लोकलुभावन, भारी घाटा)
- 3) during the British time, railway revenue used to be quite large compared to other sources of
revenue, but after independence, Railway revenue is quite small compared to overall General
budget- So it does not deserve a special presentation.
Therefore, Modi govt merged Railway budget with General budget from 2017 (�वलीनीकरण).
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28.3 💼💼💼💼 PLAN VS NON PLAN EXPENDITURE BUDGET:
योजना बनाम गैर योजना �य बजट: is a method of classifying the expenditure side
Plan (expenditure) budget: योजना Non-Plan (Expenditure) Budget: गैर योजना
⇒ Central Plans (the Five-Year Plans) - Expenditure related to general, economic and
⇒ Central assistance for State Five Year Plans. social services of the government; Interest
⇒ It is further subdivided into payments, defence services, subsidies, salaries
1) revenue expenditure (e.g. teachers and pensions.
salary under Sarva Shiksha Abhiyan) - It is also further subdivided into revenue
2) capital expenditure (e.g. new school expenditure (e.g. soldier salaries) and capital
buildings to be constructed under expenditure (e.g. Building new aircraft
Sarva Shiksha Abhiyan) carrier).
Since Budget-2017, Modi govt stopped the practice of displaying the plan and non plan expenditure
separately because (1) No such constitutional requirement (2) Government had dissolved the
planning commission in 2014-15 (3) 12th Five Year Plan (FYP:2012-17) was ending in 2017 anyways.
(More about PC & FYP in 📑📑Pillar#4C)
28.4 💼💼💼💼BUDGETING (बजट �नमार्ण क� प्रिक्रया/ रणनी�त)
It is the process / strategy with which the budget is created.
🖋🖋Traditional / पारंप�रक / लाइन-आइटम बजट: Simply calculating the income and expenditure without
Line-item measuring the underlying benefit or performance
Budgeting - Allot ₹ 10,000/- to buy a new bed in government hospital
- Allot ₹ 50,000 to buy a new computer in government department
⏱Performance calculating income and expenditure tied with underlying benefit or performance
budgeting प्रदशर्न - Allot ₹ 50,000 to buy a new computer with target that it should result in 30%
बजट the faster clearance of RTI-applications compared to pen and paper
- Such budgeting helps measuring cost:benefit and efficiency.
⭕Zero based - In a traditional budgeting, the approach is “automatic and incremental e.g.
budgeting “Last year we allotted ₹ 50,000 crore to educational schemes, so this year we
शू� आधा�रत बजट should allot 55,000 crores, lest the opposition parties create controversy.”
- Whereas in Zero Based Budgeting the budget is viewed as a fresh exercise
from zero base. So, each department has to justify its budget demands to
finance ministry. E.g. if last year ₹ 50,000 crores given to education schemes
but still 60% of class 5 kids cannot read class 2 books, then we’ll delete /
modify that scheme.
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🌞🌞 Sunset - In a traditional budgeting, once a scheme is launched it runs perpetually, even
Budgeting after regime change e.g. MNREGA, Mid-day Meal.
सूयार्�/ समयसीमा - In a Zero Based Budgeting, schemes are reviewed every year and then they
may get discontinued or continued (with or without modifications).
का बजट
- In Sunset Budgeting, scheme are announced with deadline. e.g. MEITY to give
MDR subsidy for a period of two years starting from 1/1/2018. Thus, this
scheme will self-destruct after deadline just like the sun will set after the sunset.
👜👜 Gender This system was started from Budget-2005.
budgeting It is not a separate budget but rather within the general budget, FinMin will put a
ल��गक बजट separate expenditure docs showing women specific Schemes, Targets,
Commitments- in two parts:
✓ 👩👩Part A = Women Specific Schemes, i.e. which have 100% allocation meant
for women. E.g. Minority Affairs Ministry’s “Nai Roshni” scheme for
Leadership Dev. in Minority Women. (💼💼Budget20: 28kcr. ⏬)
✓ 👩👩👩👩Part B = Pro Women Schemes, i.e. atleast 30% allocation meant for
women. E.g. HRD Ministry → Samagra Shiksha for pre-nursey to Class12
both boys & girls covered.(💼💼Budget-2020: 1.1 Lcr⏫)
Arrow indicates increase / decrease than last budget.
28.5 💼💼💼💼💼💼TRIBAL SUB PLAN & SCSP

From 70s, Govt required individual ministries to earmark funds for SC/ST within their overall funds:
A. “Scheduled Castes Sub-Plan (SCSP: अनुसू�चत जा�त उप-योजना)” → Social Justice Ministry monitors
via e-utthaan.gov.in
B. “Tribal Sub plan (TSP: आ�दवासी उप योजना)” → Tribal Affairs Ministry monitors via stcmis.gov.in
which is not a fancy name so we need not memorize unlike e-utthaan.
Sidenote: Although not required by the Constitution, but Government also tables separate
documents showing 1) allocation for children 2) allocation for NORTH EASTERN AREAs.
28.6 💼💼💼💼💼💼OUTPUT OUTCOME FRAMEWORK FOR SCHEMES:
योजनाओं के �लए उ�ादन प�रणाम ढाँचा

Started from Budget-2017 onwards, the FinMin uploads a document showing outlay output and
outcomes for each ministry and department. These are monitored by NITI Aayog. e.g.
Ministry & Scheme Outlay Output (Deliverables) Outcome
MEITY → Pradhan ₹ 400 Give computer training to Increased number of
Mantri Gramin Digital crores 5 crore persons in rural digitally literate persons in
Saksharta Abhiyan area rural areas
(PMGDISHA)
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28.7 💼💼💼💼CASH VS ACCRUAL BUDGETING: नगदी बनाम उपचय बजट
If Railways transported cargo of Jindal Steel in Jan., & created invoice of ₹ 5 lakh, but Jindal paid
money in Feb. Then, Railways account book can be prepared in 2 ways:
Income Cash based accounting Accrual-based accounting
नकद आधा�रत लेखा उपचय आधा�रत लेखा
January ₹0 ₹ 5 lakhs (it’s deemed as ‘earned’ even though it’s
not ‘paid’ right now)
February ₹ 5 lakhs (i.e. when cash ₹0
actually received / spent).
So? Since colonial times, Govt. ⇒ 12th FC suggested to use this method, for better
preparing accounts and budget estimation of income and expenditure. HOW?
in this manner. #BcomNOTIMP.
⇒ From 2019 Railways planning to adopt this. So,
TheHindu columnists suggesting that all depts
should adopt
28.8 💼💼💼💼💼💼LAPSABLE FUNDS & MARCH RUSH: �पगत �न�ध और माचर् ��ता
Appropriation act allows the government to spend funds from consolidated fund of India for a
period of one year (ending in 31st March).
- If any allotted funds remain unutilised, then by the ‘ rule of lapse ’, they must be returned (&
govt will have to again seek Parliament approval for the next financial year using next
appropriation bill). So, in March, there is a rush among the Govt orgs to spend money (in a
haphazard / reckless manner) lest they’ve to return it back.
- 2017-18: Finance ministry issued directive that in “In the fourth quarter (Jan to March) and in
the March-Month, Govt organizations shall not spend more than “x%” & “y%” of funds”. This
helps controlling the March Rush.
28.9 💼💼💼💼💼💼 NON LAPSABLE FUNDS & NO RUSH: �बन�पगत �नधी
The money in such fund will not lapse on 31st March, so it can be used in future without getting
another approval from parliament. e.g. Dept of Economic Affairs → Nirbhaya fund → women
safety related projects.
- 😰😰Criticism? Since fund is non lapsable, Departments become very lax in utilising it. Budget
2013 started Nirbhaya fund in the aftermath of Dec-2012 Gangrape @Delhi. The successive
budgets kept adding ₹ into it. By 2018: ~3000 crore but not even 50% utilized
- 2018: Defence ministry demands “ non lapsable defence modernization fund”, but Finance
ministry rejected for similar same reason. (money will remain unspent.) Although later 15th FC
has recommended Modernisation Fund for Defence and Internal Security (MFDIS) ₹ 2.38 Lcr
(total for 2021-26). (More in 📑📑Pillar#2B: 15th FC)
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28.10📯📯📯📯TYPES OF SCHEMES (योजनाओं के प्रकार)
Table 7: figures from 💼💼Budget-2021
📯📯📯📯 Central Sector Schemes 📯📯📯📯📯� Centrally Sponsored Schemes
क� द्रीय �ेत्र क� योजनाएं ⏬(₹10 lcr) क� द्र द्वारा प्रायो�जत योजनाएं (₹3.8 lakh cr)
100% funded by Union States may have to bear some cost.
Examples: Further subtypes:
Urea Subsidy, MDR Subsidy, Jan 1. Core of the Core (अ�त मह�पूणर् योजनाऐं): ₹96kcr in Budget21
Aushadhi Scheme, BharatNET, a. Only 6 schemes: MNREGA, NSoAP**, Umbrella
Pradhan Mantri Gramin Digital schemes for SC,ST,Minorities & other vulnerable groups.
Saksharta Abhiyan For these schemes, UPA-era funding pattern will
(PMGDISHA) etc. continue.** NSoAP:100%
b. Those schemes deal with social protection and social
In the union budgets, collectively inclusion are given first priority in the funding for
more ₹₹ allotted for these types of National Development Agenda
schemes. 2. Core Scheme ( मह�पूणर् योजनाऐं): 2.83 Lcr in 💼💼Budget-2021
Within this → a. e.g. PM Gram Sadak, PM Awas, Swachh Bharat, AMRUT
6 Lcr for revenue Expenditure & Smart cities etc. Here funding pattern could be 50:50,
4 Lcr for Capital Expenditure 60:40, 70:30, 75:25, 80:20 or 90:10 depending on a
particular scheme and depending on whether it’s a
general / special cat. state.
⇒ UPA/Congress Raj: hundreds of centrally sponsored schemes (CSS) with overlapping objectives
and duplication of efforts.
⇒ Then Modi-Raj: 2015-16, NITI Aayog forms Shivraj Singh Chouhan Panel for rationalization of
CSS (योजनाओ का सु�व�ीकरण) → Ultimate outcome given in above table.
⇒ In 2016, 3rd category of Centrally Sponsored Schemes was “Optional Schemes” viz. 1) Border
Area Development Programme 2) Shyama Prasad Mukherjee Rurban Mission with funding
pattern (50:50 | 80:20), But over the years they shifted in the Core schemes. So IGNORE
⇒ For any Union Territory without Legislature: 100% funding by Union for any scheme in any
category. ✋We will look at the schemes’ features in the respective pillars.
⇒ To disburse scheme ₹ & monitor it effectively, FinMin →Dept of Expenditure Controller
General of Accounts (CGA) → Public Financial Management System (PFMS) webportal.
28.10.1 📯📯📯📯Ministry-wise Highest Allocation in 💼💼Budget-2021

- Housing And Urban Affairs <Health Family Welfare < Education <Railways <Road Transport
Highway <Agriculture <Rural Development <Home Affairs <Consumer Affairs Food And
Public Distribution <Defence (highest-सबसे �ादा पैसा र�ा मं त्रालय को �मला है)
28.11�MOCK QUESTIONS FOR UPSC MAINS GSM3 (250 WORDS EACH)
1) (Asked in GSM3-2013) What are the reasons for introduction of Fiscal responsibility and Budget
Management (FRBM) act, 2003? Discuss critically its salient features and their effectiveness.
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राजकोषीय उ�रदा�य� और बजट प्रबं धन (FRBM) अ�ध�नयम, 2003 को लागु करने का �ा कारण है? इसक� प्रमुख �वशेषताओं
और उनक� प्रभावशीलता पर गं भीर �प से चचार् कर�.
2) (Asked in GSM3-2016) Discuss the requirements and status of gender budgeting in the Indian
context? भारतीय सं दभर् म� �लगं बजट क� आव�कताएं और ��त चचार् क��जए.
3) (Asked in GSM3-2019) public expenditure management is a challenge to the govt of India in the
context of budget-making during the post-liberalization period. Clarify it. (उ�र-उदारीकरण अव�ध के
दौरान, बजट �नमार्ण के सं दभर् म�, लोक �य प्रबं धन भारत सरकार के सम� एक चुनौती है | इसको �� क��जए)
4) Examine critically the apprehensions surrounding the issue of Union Government’s external
borrowing in external currency. क� द्र सरकार के �वदेशी ऋण को �वदेशी मुद्रा म� जुटाने के मसले के साथ जुडी आशं काओं
क� समी�ा क��जए.
5) Discuss the need of setting up an independent fiscal council in India. (एक �तं त्र राजकोषीय प�रषद
�ा�पत करने क� आव�कता पर चचार् कर�)
6) Discuss the need and significance of Countercyclical Fiscal Policy for reviving India's growth in
the aftermath of coronavirus, And examine critically the potential apprehensions about the
same. (कोरोनावायरस के प�ात भारतीय अथर्तंत्र को पुनज��वत करने के �लए प्र�त चक्र�य राजकोषीय नी�त क� ज�रत और मह�
क� चचार् क��जए और उसी के बारे म� सं भा�वत आशं काओं/�चतं ा/ भय�ानो क� गं भीरता से समी�ा क��जए)
Next Handout: Pillar3A: Balance of Payment
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MRUNAL

(Batch:PCB5) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 183

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16 ⚰INSURANCE (बीमा): MEANING AND SIGNIFICANCE

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16.13⚰💀💀LIFE INSURANCE (जीवन बीमा)

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✋OLD SCHEME DONT LOOSE SLEEP

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Figure 1: शराब पी के मर गए देवदास बाबू तो PM-सुर�ा बीमा योजना मे कु छ नही �मलेगा!

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🔠🔠❓ Consider the following: [Asked in UPSC-Pre-2012]

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16.15.7.1 🧔🧔🧔🧔🧔🧔5⃣L /👪👪/📆📆 PM Jan Arogya Yojana (PMJAY, 2018)?

16.15.8 PM-JAY Sub-schemes

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- 😰😰⚔ Cooperative Federalism spirit is missing. (सहकारी सं घवाद क� भावना क� कमी)

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16.16 ⚰ 💊💊💊💊💊💊 GENERAL INSURANCE → OTHER THAN HEALTH INSURANCE

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16.16.8 💉💉⚖📜📜Clinical Trial Liability Insurance

📑📑Refer Pillar#1C: SEBI-Sharemarket-यह हम पहले ही पढ़ चुके ह�

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16.16.13 💻💻eIA: e-Insurance account

16.17.1 😷😷(🤵🤵🤵🤵🤵🤵)PANDEMIC RISK POOL proposal by IRDAI

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17 � → � (💰💰💰💰) PENSION (प�शन)

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18.12.4 ⚰💀💀📫📫 ��