Income tax

Income tax is a direct tax imposed by governments on individuals and entities based on their income or profits. It is typically collected annually and is a significant source of revenue for most countries. Income taxes are usually progressive, meaning that higher income levels are taxed at higher rates. The income subject to tax can come from various sources such as wages, salaries, business earnings, dividends, interest, and capital gains. Taxpayers are often allowed deductions, exemptions, or credits to reduce their taxable income, helping to encourage certain behaviors like homeownership or charitable giving. The funds raised through income taxes are used to finance public services such as education, healthcare, infrastructure, defense, and welfare programs.