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Q. Need to make Income taxes equitable: Discuss why there is need to make income taxes more equitable.
Jan 05, 2017 Related to : GS Paper-3

Ans :

Introduction-

In India income taxes are levied on the basis of progressive tax, i.e. tax rate increases as the taxable income increases. Successive Indian governments have tried to get the wealthy to pay a fair and appropriate share of income taxes. But existence various deductions and exemptions have crested distortions in progressive tax system in India. 

Issues-

  • Exemptions and deductions are generally enjoyed by the wealthy class, as these are unfair to those with low income and little or no surplus to invest in the tax saving schemes and social security instruments.
  • People falling in same income slab are subject equal rate of income tax, but those opts for deductions and exemptions under various schemes will helps then in reducing the net tax liability compared to those does not opt.
  • Hence it creates disparity in the tax liability between people falling under same income group as well among different income groups. 

What can be done-?

  • There is an urgent need to reduce the number of deductions and exemptions and weed out those that are more distortionary than others.
  • Some important deductions and exemptions like incentive for savings, medical expenses are must for society but other distortionary incentives must be lowered as much as possible.   

Conclusion-

India like most of the countries across globe fallows progressive method of taxing income tax, which ensures equity among tax players. But existence of various deductions and exemptions have created disparity among tax payers, hence it must be addressed as soon as possible by reducing number of these concessions. 


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