| Which of the following statements regarding the financial relations between the union and the states is/are not true? |
| 1. The power to tax is broadly similar to the power to make laws as enumerated in the 7th Schedule. |
| 2. Distribution of taxes between the union and the states from the distributive pool is done on the basis of a fixed formula which has to be specified in the Parent Law. |
| 3. According to the Constitution, union and state properties are exempted from mutual taxation. |
| Select the incorrect answer using the codes given below. |
A) Only 1
B) Only 2
C) 1 and 3
D) All of these
Correct Answer: B
Solution :
[b] Statement 1 is true because the 7th Schedule also provides tor the powers of exclusive taxation which one available to the union and the states within the three lists (Union, State and Concurrent). Statement 2 is incorrect. The distribution of the proceeds of taxation between the union and the states is done on the basis of a formula not from parent law, but from the formula prescribed by the finance commission, which is constituted every 5 years according to the Constitution. Statement 3 is also true because according to Article 285 (1) and 289 (1), union and state properties are exempted from mutual taxation. The right answer is thus, [b].
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