ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The correct answer is Tax rate increases as income increases. In progressive taxation, the tax liability increases with individual or entity income. This is based on the principle of ability to pay. Under this system, the lowest income people are generally exempted while the highest income people pay the highest taxes.

Detailed explanation-2: -An increase in the rate of tax with an increase in income is called proportional tax.

Detailed explanation-3: -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.

Detailed explanation-4: -According to Dalton, “In proportional taxation all the tax payers pay their taxes according to the equal proportion of this income”. Progressive Tax-Progressive tax system is a system in which not only the income increases as well as the rate of tax. Its principle is, “More income, more rate of tax”.

Detailed explanation-5: -Difference between progressive tax and regressive tax Progressive tax signifies a taxation policy wherein the rates of tax increase with an increase in the amount being taxed. Regressive tax on the other hand refers to a taxation system wherein the rate of tax reduces with an increase in the taxable amount.