Q. With reference to the recommendations of the 14th Finance Commission, consider the following statements regarding the divisible pool of central taxes:

1. Direct taxes form a part of the divisible pool of central taxes devolved to the states
2. Indirect taxes form a part of the divisible pool of central taxes devolved to the states
3. Cess collected by the Union government is included in the divisible pool shared with states
4. Surcharges levied by the Union government are part of the divisible pool shared with states

Which of the above statements are correct?
Answer: Only 1 and 2
Notes: Direct and indirect taxes are included in the divisible pool of central taxes, based on which devolution to states occurs as per Finance Commission recommendations. Cess and surcharges, however, are not part of the divisible pool and are retained by the Union government. Therefore, only statements 1 and 2 are correct, while statements 3 and 4 are incorrect.