ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A progressive tax is characterized by a more than proportional rise in the tax liability relative to the increase in income, and a regressive tax is characterized by a less than proportional rise in the relative burden.

Detailed explanation-2: -Definition: Progressive tax is the taxing mechanism in which the taxing authority charges more taxes as the income of the taxpayer increases. A higher tax is collected from the taxpayers who earn more and lower taxes from taxpayers earning less. The government uses a progressive tax mechanism.

Detailed explanation-3: -While direct taxes are progressive, indirect taxes are regressive in nature.

Detailed explanation-4: -Progressive and regressive tax A progressive tax is a tax where the tax rate increases with increase in the taxpayer’s income. Here, individual who get high income pay higher proportion of there income as tax. On the other hand, in the case of regressive tax, tax rate decreases with increase in income.

Detailed explanation-5: -If one tax code has a low rate of 10% and a high rate of 30%, and another tax code has tax rates ranging from 10% to 80%, the latter is more progressive. Income Tax, Luxury Sales Tax, Estate tax and surcharge on net income beyond Rs 50 Lakhs are a few examples of Progressive tax.