A progressive tax is a system where the tax rate increases as income rises. Simply put, people earning more contribute a larger portion of their income toward taxes compared to those with lower earnings.
In India, the income tax system follows this progressive model, with tax slabs designed to reduce income inequality and promote fairness. While higher earners pay more, those in lower income groups are taxed less, creating a balance between contribution and capacity to pay.
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Examples of progressive tax
Progressive taxation is widely implemented across economies, including India. Some common examples include:
Income tax: Individuals are taxed based on income slabs, with higher earners paying a greater percentage.
Corporate tax: Large businesses with higher profits pay more compared to smaller enterprises.
Capital gains tax: Rates may vary depending on the size of investment returns, making it progressive in nature.
Luxury tax: Items like luxury cars, jewellery, and high-value properties attract higher taxes, ensuring wealthier individuals contribute more.
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