The difference between direct and indirect taxes

The money raised through taxation is used to fund various government expenditures, which include hospitals and construction of infrastructures among others. Direct and indirect taxes comprise some of the taxes that the government charges. However, there exist significant differences between direct and direct taxes as discussed below.

The difference between direct and indirect taxes

The difference between direct and indirect taxes

What is the difference between a direct tax and an indirect tax? Nov 26, 3 days ago Read Time: Taxes are further classified into two categories, depending on whether the taxes are levied on an individual or an entity, or on every supply of goods and services.

The taxation system in our country is demarcated, with specific roles for the central and state governments. LiveMint [1] Types of taxes in India In India, the central government levies taxes such as the income tax, service tax, custom duties and central excise duty, while the state government levies taxes on agricultural income, state excise duty, stamp duty, value added tax, land revenue and professional tax.

The two types of taxations differ based on their implementation. What is a direct tax?

Differences between Direct and Indirect Taxes of India

Direct taxes are directly levied on individuals and corporate entities, and are paid directly to the government. According to the Income Tax Act,every individual or entity, whose earning exceeds the maximum exempt limit must pay the direct tax.

The Union Budget prescribes the tax structure and rates annually. Corporate tax, income tax, gift tax and minimum alternate tax fall under the direct tax. India Briefing[2] What is an indirect tax? Indirect taxes are not paid directly by the individuals or entities to the government.

Instead, these are the taxes that are levied on goods and services collected by intermediaries. Value added tax VATcustoms duty, octroi, excise duty and service tax fall under the indirect tax.

The introduction of the Goods and Service Tax GST has been a significant step towards the indirect tax reformation in the country. GST is a comprehensive indirect tax, levied on sale, manufacture and consumption of goods in the country, and will absorb numerous indirect taxes levied by the central and state governments.

Content: Direct tax Vs Indirect Tax

Direct tax versus Indirect tax Apart from the differences in their taxation approach, both direct and indirect taxes have various distinctions. For instance, direct taxes are paid at the end of the financial year, while indirect taxes are levied on the goods and services individuals purchase.

Another key distinction is the fact that direct taxes are progressive, which implies that the more you earn, the higher is the likelihood of the tax outgo. Indirect taxes are fixed, which implies that everyone pays the same tax, regardless of the disparity of the income levels.

The difference between direct and indirect taxes

Reserve Bank of India[4] Direct and indirect taxes both make up the Indian taxation system, and ensure economic stability, moving the country towards economic progress.

To easily understand your direct tax liability, you can make use of a variety of income tax calculators on offer.Dec 21,  · Difference Between Direct and Indirect Taxes Nature One of the major difference between direct and indirect tax is that direct tax is progressive while the indirect tax is retrogressive.

The main difference between these two is that in direct tax the effect of tax restricted to the person who is actually paying the tax while in indirect tax the effect of tax pass temporarily to the person paying the tax and after that shifted onward to the last end user or consumer.

Direct Tax vs Indirect Tax Taxes are financial levies or burden imposed by governments upon its citizens to realize money for various purposes.

The main purpose is to carry out administration and welfare activities for the population, and also to raise money for the defense of the country. There are two types of taxes called direct taxes and indirect taxes, and both are used in varying proportions by all governments of the world.

Though the purpose of revenue generation is served by both direct as well as indirect taxes, they are different in nature. Explain the difference between a direct tax and an indirect tax.

Give examples of each. Therefore, the prime difference between direct tax and indirect tax is the ability of the taxpayer to shift the burden of tax to others.

Direct taxes include tax varieties such as income tax, corporate tax, wealth tax, gift tax, expenditure tax etc.

What Is the Difference between Indirect Tax and Direct Tax? | Babington