Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): Since 1991, there has been a continuous reduction in the taxes on individual incomes in India.
Reason (R): Efforts have been made to reform the indirect taxes to help set up a common national market.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Both statements are tax reforms of the reform period. But they deal with two different kinds of taxes.
Assertion (A): Since 1991, there has been a continuous reduction in the taxes on individual incomes in India. — True. Income tax is a direct tax. Its rates have been cut step by step since 1991.
Reason (R): Efforts have been made to reform the indirect taxes to help set up a common national market. — True. Indirect taxes are taxes on goods and services. They were reformed to build a common national market.
Why R does not explain A?
R is about taxes on goods and services. It says nothing about why taxes on incomes were cut. The real reason is that high rates of income tax were an important reason for tax evasion. Moderate rates encourage savings and voluntary disclosure of income.
NCERT (2026-27): “Tax Reforms: Tax reforms are concerned with the reforms in the government’s taxation and public expenditure policies, which are collectively known as its fiscal policy. There are two types of taxes: direct and indirect. Direct taxes consist of taxes on incomes of individuals, as well as, profits of business enterprises. Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that high rates of income tax were an important reason for tax evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclosure of income. The rate of corporation tax, which was very high earlier, has been gradually reduced. Efforts have also been made to reform the indirect taxes, taxes levied on goods and services to facilitate the establishment of a common national market. …” |