Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): GVA at basic prices includes net product taxes.
Reason (R): Production taxes, such as land revenue and stamp and registration fee, are independent of the volume of production.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) is false but (R) is true.
Basic prices include production taxes but not product taxes. So A is false and R is true.
Assertion (A): GVA at basic prices includes net product taxes. — False. GVA at basic prices includes net production taxes only. Net product taxes are added to it to reach GDP at market prices.
Reason (R): Production taxes, such as land revenue and stamp and registration fee, are independent of the volume of production. — True. They are paid in relation to production, not per unit. Product taxes, like excise tax, are paid per unit.
NCERT (2026-27): “2.2.4 Factor Cost, Basic Prices and Market Prices … Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production such as land revenues, stamp and registration fee. Product taxes and subsidies, on the other hand, are paid or received per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor cost includes only the payment to factors of production, it does not include any tax. In order to arrive at the market prices, we have to add to the factor cost the total indirect taxes less total subsidies. The basic prices lie in between: they include the production taxes (less production subsidies) but not product taxes (less product subsidies). Therefore in order to arrive at market prices we have to add product taxes (less product subsidies) to the basic prices.” |