Progression

Progression in taxation refers to the use of progressive tax rates, where the tax rate increases as the taxpayer’s income rises. This structure is commonly applied to individual income taxes to ensure that those with higher earnings contribute a larger proportion of their income to taxes.

Key Features Progressive Tax Rates Tax rates are structured in tiers or brackets. Lower income is taxed at a lower rate, while higher income is taxed at a higher rate. Marginal vs. Effective Rate 1.Effective tax rate: The average rate of tax paid on total income. Purpose Promotes equity in taxation by aligning tax burden with the ability to pay. Ensures redistribution of wealth, reducing inequality. Encourages compliance by making tax obligations proportionate to income. Application Commonly used in personal income tax systems worldwide.

Example: Suppose an individual earns ₹10,00,000 and the tax brackets are: ₹0–₹2,50,000: 0% ₹2,50,001–₹5,00,000: 10% ₹5,00,001–₹10,00,000: 20% Tax calculation: 0–2,50,000 → ₹0 2,50,001–5,00,000 → ₹2,50,000 × 10% = ₹25,000 5,00,001–10,00,000 → ₹5,00,000 × 20% = ₹1,00,000 Total tax = ₹1,25,000