Question

Identify the tax system in the following situation.

Kumar earns ₹5 lakh and Rani earns ₹10 lakh. Kumar pays more income tax than Rani.

• A. Proportional taxation system
• B. Regressive taxation system
• C. Progressive taxation system
• D. Flat taxation system

Answer 1

The correct option is B Regressive taxation system

Based on income earned, there are three types of taxation systems:

1. Progressive tax systems: Tax rate increases with an increase in income.
2. Proportional tax systems: Same tax rate applies, irrespective of income.
3. Regressive tax systems: Tax rate decreases with an increase in income.