Question

What is a degressive tax? 

What is meant by digressive tax system?

Answer 1

Under this system, the rate of tax increases slowly (slowly progressive) up to a certain point, and after that point, the tax is charged at a flat rate. Income tax in India is a digressive tax.

Answer 2

• Degressive taxation occurs when the rate of progression in taxation does not increase in proportion to income growth.
• For example, if taxable income grows from 5 lakh to 10 lakh, the tax rate may rise from 5% to 10% (the increase in tax and income is proportional, i.e., 100%). However, raising the tax rate from 10% to 14% as income rises from 10 lakh to 15 lakh (income has increased by 50% while the tax rate has climbed by 40%) is slightly progressive.