Income Tax is a type of tax levied and collected on the Income of an individual, companies, and other entities like trusts and associations. The rate of income tax may be flat or progressive - mostly, it is progressive. Under a flat system, income tax is charged at a flat rate of the income. Thus, if your income is USD 25,000 per annum and the rate of income tax is 10% flat, you shall have to pay an income tax of USD 2,500. On the other hand, a progressive rate of Income Tax entails taxing higher levels of Income at higher rates. This may be understood by an example: if your annual income is USD 25,000 and the tax structure requires you to pay income taxes @ 10% for first slab of income of USD 10,000 and on the next slab of USD 10,000 # 20%, and over that @ 30%, your income tax liability shall be USD 4,500 (USD 1,000 + USD 2,000 + USD 1,500 = USD 4,500).
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