CA Foundation · Business Economics · Public Finance
A tax is levied at a flat 10% on every taxpayer's income, whatever the income size. Mr. Iyer earns Rs 5,00,000 and Ms. Rao earns Rs 10,00,000. Which statement is correct?
Ms. Rao pays Rs 1,00,000 and Mr. Iyer pays Rs 50,000, so she pays Rs 50,000 more. Because the average rate stays constant at 10% for both incomes, the tax is proportional rather than progressive or regressive.
- ABoth pay the same amount of tax, since the rate is the same
- BMs. Rao pays Rs 50,000 more tax than Mr. Iyer, and the tax is proportionalCorrect
- CMs. Rao pays a higher average rate than Mr. Iyer, so the tax is progressive
- DMr. Iyer pays Rs 50,000 and Ms. Rao pays Rs 1,50,000
Explanation
Iyer pays 10% of 5,00,000 = Rs 50,000; Rao pays 10% of 10,00,000 = Rs 1,00,000. The difference is Rs 50,000. Both have an average rate of 10%, so the tax is proportional, not progressive.
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