Question

Which one of the following scenarios correctly represents a Degressive tax system?

Options

• Ruhi paid income tax in three consecutive years at the rate of 10% on her income of ₹ 10,000, 15% on her income of ₹ 20,000 and 15% on her income of ₹ 30,000.

• Goods and Service tax on gold ornaments is 3% and 18% on fine dining in restaurants.

• Roshan was promoted to the position of Senior Manager and received a raise in his income. But he continued paying 10% of his income as tax.

• Suhana paid TDS at a higher rate on her increased interest income in the current year as compared to the previous year.

Answer 1

Ruhi paid income tax in three consecutive years at the rate of 10% on her income of ₹ 10,000, 15% on her income of ₹ 20,000 and 15% on her income of ₹ 30,000.

Explanation:

A degressive tax system combines progressive and proportional taxation, with the tax rate increasing as income grows up to a certain threshold, after which it becomes flat or uniform. In Scenario A, Ruhi’s tax rate rises from 10% to 15% as her income doubles, but remains stable at 15% even after reaching ₹ 30,000.