Introduction

The subjects economics and taxation are closely interrelated as both dives deep into the development of nations. There are two pivotal  rules that is carried out by the tax policy in financing economic development of the country.

The first one is to maintain the economy at a higher employment level so that the saving capacity of the people Rises with an increase in income per person.

The latter one is to raise the marginal propensity to save of the community as for above the average propensity to maximum extent without bringing down the work effect or violating canons of equity.

There are two ways to generate savings One is by increasing the real output and the other one is by reducing the real consumption.

Taxation helps in generating forced savings which is essential for accelerating the rate of capital formation without which high rate of per capita income can't be achieved.

To be precise ,the  taxation policy in a country like India has a great influence on Savings and investments which are considered to be the most crucial determinant of economic growth.

The primary objective of tax policy in such a country is to transfer the financial resources from the hands of private to public sector.

What is tax? 

Tax in simple terms can be defined as a compulsory payment made to the government by the subjects of the country without any expectation of defined return or benefit to the taxpayer.