We consider the relative income of each household, since households of different income levels have different financial resources. The top-income households in the sample have comparatively more than the other income groups, because they tend to earn more than average. The proportion of top-income households is as high as 55 percent in the most generous tax relief measure. In this case, only 20 percent of the households are in the top 5 percent. Therefore, not surprisingly, the percentage of top-income households is much higher in this measure than in the baseline measure.
The number of poor households who are affected by the tax relief declines significantly. The top-income households in the baseline measure contain 38 percent of the poor households. However, the proportion of poor households in the top-income group under the conservative tax relief measure is as high as 62 percent. Moreover, the poor households are affected much more in the conservative measure, as compared with the baseline.
The size of the reduction in poverty differs across the income groups. The poorest and the poor are the most adversely affected by the tax relief measures. The average percent reduction in poverty is higher for the top-income households. These households do not benefit much from the additional tax relief. Households with average income experience a moderate reduction in poverty. These results suggest that the tax relief measures have a larger impact on poor households because they have less financial resources than the richer households.
The number of poor households declines with an increase in income inequality. However, the poverty rate among poor households is higher under the more conservative tax relief measure than under the baseline measure. Because the rich are affected more in the baseline measure than in the tax relief measures, tax relief can reduce income inequality and reduce poverty by a larger extent.
Do you know how the taxation system works? How Taxation System Works?
Before you start thinking about tax evasion, you must learn the basics of taxation system in India. I must say this, Indian Tax System is the best in the world in its simplicity and ease. It is not complicated. A lot of information is available about this. Any business owner knows it perfectly. So tax evasion is an easy thing to do in India. A business person can do it effortlessly. Because we have a transparent and tax efficient tax system in India, any business man can easily do that. Let me explain you with an example. So that you will get an idea about the tax system in India and how it works.
Let me tell you with an example: I am going to pay tax on my income. This is the first question. So this is my income. I am paid daily. So that is my salary. That is my income. What is the mechanism of tax collection? First of all, when I am paid by my employer, I should write a check for the amount to my employer. And then he will deposit that amount in to his tax saving account of Income Tax department. So this is one way. So when I receive this amount in to my account in my income tax saving account, then I will pay the tax on that amount. How Taxation System Works? This is the other way of tax. Another way is to get the TDS from my employer. He gets the TDS on all the tax which he pays. This is the other way. That is also part of the tax in India.
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