Critical Reasoning – Implicit Assumptions Statement: The Union Government will withdraw existing tax relief on various small-savings schemes in a phased manner to augment tax collection. Assumptions: I. People may still keep money in small-savings.

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Solve this multiple-choice question and choose the correct option.

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Introduction / Context:The policy objective is to augment tax revenue by withdrawing reliefs on certain small-savings schemes. We must identify the minimal assumption needed for the policy to make fiscal sense. Given Data / Assumptions: Policy: Withdraw tax relief in phases. Objective: Increase tax collection. Assumption I: Savers will still keep money in those schemes and also pay taxes. Assumption II: The overall tax haul will increase significantly as a result. Concept / Approach:For the decision to be rational, the government must expect higher tax revenue. It does not need the strong behavior in I (that savers continue exactly as before and yet pay more). They might shift funds but still yield more taxable income elsewhere; what matters is the net increase in collection. Step-by-Step Solution: II is necessary: without a reasonable expectation of higher tax receipts, removing relief would not meet the stated aim.I is not necessary: even if some savers reallocate, the policy could still increase overall tax revenue. Verification / Alternative check: Negate II: if total collection will not rise, the policy contradicts its goal. Negate I: the policy can still work through broadened tax base or higher taxable alternatives. Why Other Options Are Wrong: I-only/Both: Overstate investor behavior; the government’s calculus is aggregate revenue, not saver immobility.Neither ignores the fiscal objective embedded in the policy. Common Pitfalls: Assuming government relies on no substitution effects; in reality, net revenue is the driver. Final Answer:Only assumption II is implicit

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