The finance Act 1985 provides considerable reduction in individual tax liability, first, by across the board reduction in tax rates and second, by enlarging and reducing the number of tax brackets. The question investigated in this paper is "Are reliefs given to various income slabs equitable?" analysis of an intertemporal rate structure in real terms shows that while the low and very high income groups have been adequately compensated for inflation via tax rate reduction, the middle income groups (Rs 30,000 to 60,000 income groups in the current year) are substantially more taxes in real terms than what they were paying in 1975-76 assessment year. Was it a conscious choice on the part of policy makers or a failure of tax system to take cognizance of inflationary impact?