UPSC Prelims Practice Questions — Industry seeks LTCG, STT cuts in 2027 Budget; MSME relief also on wish list

Q1. With reference to the Securities Transaction Tax (STT) and the capital gains tax on listed shares in India, consider the following statements: Which of the statements given above is/are correct?

  1. STT is charged on the value of a securities transaction entered into on a recognised stock exchange, whether the trade results in a profit or a loss.
  2. Capital gains tax on listed shares is computed on the excess of the sale consideration over the cost of acquisition, so a transfer made at a loss gives rise to no such tax.
  3. A trader whose exchange-traded gains and losses for the year net out to zero pays neither STT nor capital gains tax on those trades.
  • A. 1, 2 and 3
  • B. 1 only
  • C. 1 and 2 only
  • D. 2 and 3 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Parliament has the power to levy the Securities Transaction Tax even though STT is not a tax on income.
  2. Taxes on income other than agricultural income are a subject in the Union List of the Seventh Schedule.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. With reference to the taxation of capital gains on listed equity shares in India as of 2026, consider the following statements: Which of the statements given above is/are correct?

  1. Whether a gain is classified as long-term or short-term depends on how long the shares were held before transfer, not on the size of the gain.
  2. Under the annual exemption for long-term gains, tax is charged only on the portion of such gains exceeding the threshold, not on the whole amount once the threshold is crossed.
  3. The concessional rates applicable to gains on listed equity shares are tied to Securities Transaction Tax having been paid on the relevant transactions.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 1 only
  • D. 2 and 3 only

Q4. Suppose the Union Government raises the rate of Securities Transaction Tax on futures and options while leaving all other taxes unchanged. Which of the following statements is/are correct?

  1. Total STT collections from the derivatives segment would necessarily rise, since more tax is collected on each trade.
  2. An options trader would need a larger favourable price movement than before for a trade to turn profitable after costs.
  3. The rate at which long-term capital gains on listed equity shares are taxed would rise in step with the higher STT.
  • A. 1, 2 and 3
  • B. 2 only
  • C. 1 and 2 only
  • D. 2 and 3 only

Q5. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. The increase in Securities Transaction Tax on futures and options in the Union Budget 2026-27 was an exercise of SEBI's regulatory powers to curb speculative trading.
  2. A levy charged on the value of every transaction raises the cost of frequent trading more than that of infrequent, long-term holding.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q6. With reference to taxes on transactions in securities in India, consider the following statements: Which of the statements given above is/are correct?

  1. A private off-market sale of listed shares between two individuals attracts Securities Transaction Tax in the same way as a sale on a recognised stock exchange.
  2. Since the Union List covers taxes on transactions in stock exchanges and futures markets, stamp duty on such transactions is also levied under that same entry.
  • A. 1 only
  • B. 2 only
  • C. Both 1 and 2
  • D. Neither 1 nor 2

Q7. Suppose the Union Budget 2027 proposes to abolish the tax on long-term capital gains from listed equity through the Finance Bill. With reference to the passage of such a Bill, consider the following statements: Which of the statements given above is/are correct?

  1. The Rajya Sabha could make recommendations on the Bill but could not amend it.
  2. The Bill would ordinarily be referred to a Departmentally Related Standing Committee for detailed scrutiny before it is passed.
  3. If the Lok Sabha accepts none of the Rajya Sabha's recommendations, the Bill must be taken up at a joint sitting of both Houses.
  • A. 2 and 3 only
  • B. 1 and 2 only
  • C. 1, 2 and 3
  • D. 1 only

Q8. A tax system is progressive when the share of income paid as tax rises as income rises. Assume that capital gains on listed equity accrue disproportionately to higher-income households. Which of the following changes would make India's income tax system less progressive?

  1. Abolishing the tax on long-term capital gains from listed equity.
  2. Taxing gains on listed equity at the investor's applicable slab rates instead of at flat special rates.
  3. Replacing the graduated slab rates on salary income with a single flat rate for all income levels.
  • A. 2 and 3 only
  • B. 1 only
  • C. 1, 2 and 3
  • D. 1 and 3 only