UPSC Prelims Practice Questions — Union Budget FY 2026-27: A Push for India’s Services Exports

Q1. Which authority is statutorily empowered to frame the Safe Harbour Rules for the determination of arm's length price under the Income-tax Act, 1961?

  • A. Central Board of Direct Taxes (CBDT)
  • B. Central Board of Indirect Taxes and Customs (CBIC)
  • C. Directorate General of Foreign Trade (DGFT)
  • D. Financial Intelligence Unit – India (FIU-IND)

Q2. In the context of transfer pricing, the term 'safe harbour' under Section 92CB most precisely means:

  • A. Circumstances in which the income-tax authorities shall accept the transfer price or income declared by the assessee
  • B. A complete and permanent exemption of an exporter's income from all income tax
  • C. A mandatory minimum customs duty levied on imported IT hardware
  • D. A guarantee that no transfer-pricing audit will ever be conducted on any taxpayer

Q3. The statutory framework enabling Advance Pricing Agreements (APAs) in India was first introduced through which one of the following?

  • A. The Finance Act, 2012
  • B. The Finance Act, 2009
  • C. The Finance Act, 2001
  • D. The Finance Act, 2017

Q4. With reference to the Advance Pricing Agreement (APA) framework in India, consider the following: 1. APAs were introduced through Sections 92CC and 92CD inserted by the Finance Act, 2012. 2. An APA can be entered into for a maximum period of five years. 3. Bilateral APAs help relieve double taxation across treaty-partner jurisdictions. 4. APAs are entered into by the Securities and Exchange Board of India (SEBI). Which of the above is/are correctly identified?

  1. APAs were introduced through Sections 92CC and 92CD inserted by the Finance Act, 2012.
  2. An APA can be entered into for a maximum period of five years.
  3. Bilateral APAs help relieve double taxation across treaty-partner jurisdictions.
  4. APAs are entered into by the Securities and Exchange Board of India (SEBI).
  • A. 1, 2 and 3
  • B. 1, 2 and 4
  • C. 2, 3 and 4
  • D. 1 and 4 only

Q5. Which single segment accounts for the largest share (over two-thirds) of India's total software services exports?

  • A. Computer services
  • B. Business process outsourcing (BPO) services
  • C. Contract R&D for software development
  • D. Professional and management consulting services

Q6. What was the estimated value of India's services exports during April–January of FY 2025-26?

  • A. USD 348.4 billion
  • B. USD 248.4 billion
  • C. USD 448.4 billion
  • D. USD 308.4 billion

Q7. The flagship tax-holiday provision introduced in the Union Budget 2026-27 for the services sector is targeted primarily at which one of the following?

  • A. Foreign companies providing cloud services to global customers using data-centre services located in India
  • B. Domestic semiconductor fabrication units exporting chips to global clients
  • C. Indian e-commerce marketplaces exporting physical goods
  • D. Resident individual professionals exporting freelance consulting services

Q8. Under the Union Budget 2026-27, the tax holiday for foreign companies delivering cloud services via India-located data-centre infrastructure is available till which year?

  • A. 2047
  • B. 2035
  • C. 2040
  • D. 2030

Q9. With over 1,700 such centres as of FY24, India is described as the world's largest hub for which one of the following?

  • A. Global Capability Centres (captive global operations)
  • B. Knowledge Process Outsourcing (KPO) units
  • C. Special Economic Zones (SEZs)
  • D. Third-party Business Process Outsourcing (BPO) vendors

Q10. Besides the Ministry of Finance/CBDT (handling tax measures), which ministry is the key nodal body consulted for Global Capability Centre and IT-services facilitation under the services-exports push?

  • A. Ministry of Electronics and Information Technology (MeitY)
  • B. Ministry of Corporate Affairs
  • C. Ministry of Skill Development and Entrepreneurship
  • D. Ministry of Heavy Industries

Q11. Consider the following statements comparing the Safe Harbour and Advance Pricing Agreement (APA) mechanisms in India: 1. Both mechanisms aim to reduce transfer-pricing litigation by giving certainty on the arm's length price. 2. Safe Harbour Rules derive from Section 92CB, whereas APAs derive from Sections 92CC/92CD of the Income-tax Act, 1961. 3. Unlike Safe Harbour, an APA involves a negotiated agreement between the taxpayer and the CBDT rather than purely rule-driven acceptance of a declared margin. Which of the statements given above is/are correct?

  1. Both mechanisms aim to reduce transfer-pricing litigation by giving certainty on the arm's length price.
  2. Safe Harbour Rules derive from Section 92CB, whereas APAs derive from Sections 92CC/92CD of the Income-tax Act, 1961.
  3. Unlike Safe Harbour, an APA involves a negotiated agreement between the taxpayer and the CBDT rather than purely rule-driven acceptance of a declared margin.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q12. In the context of India's balance of payments, the 'current account' records which of the following?

  • A. Trade in goods and services together with primary income (e.g., investment income) and secondary income (current transfers such as remittances)
  • B. Only merchandise (goods) trade between India and the rest of the world
  • C. Foreign direct investment, portfolio flows and external commercial borrowings
  • D. The stock of India's foreign exchange reserves held by the RBI