Summary: The significant difference between direct and indirect taxes is that direct taxes are paid by individuals and businesses and the latter one is paid by end consumers. Let’s find out more about direct tax and indirect tax below.
In India, whether you are making profits or purchasing a good or service, as an individual you are obliged to pay the tax. Taxes are an important recurring fee and source of revenue for the government. Moreover, they are instrumental in building the economy of the country.
In India, the taxes are categorized into two categories: Direct and Indirect taxes. In this article, we will learn about direct and indirect tax and how they are different from each other.
Direct taxes are paid directly to the government whereas indirect taxes are paid to the government through intermediaries. Similarly, the liability of direct taxes is nontransferable whereas indirect tax liability can be transferred.
Here are some other differences between direct tax and indirect tax below.
Metrics | Direct Tax | Indirect Tax |
Levied On | Income and profits | Goods and services |
Taxpayer | Individuals and businesses | End-consumers of goods and services |
Tax Rate | Depends on income and profits | Equal for everyone |
Tax Type | Progressive | Regressive |
Tax Collection | Complex | Easy |
Direct tax is a kind of tax where the tax is paid directly by the taxpayer to the authority that levied tax. Under the direct tax, the taxpayer bears the tax burden and cannot transfer the liability to any other entity. In India, the Central Board of Direct Taxes (CBDT) is authorized for the collection and management of direct taxes.
There are different types of direct taxes levied in India including wealth and estate tax. Some other direct taxes include:
Direct taxes help in maintaining social equality with defined tax slabs. However, there are higher chances of tax evasion associated with direct taxes. Here are some other merits and demerits associated with direct taxes.
The indirect tax is levied on goods and services than the income and profits. This type of tax is passed onto customers by the retailer as a part of the purchasing price of goods and services. Therefore, end consumers are the ones who actually pay indirect taxes.
The collection of direct taxes is quite easy; however, they make the goods and services expensive. Here are some other merits and demerits associated with indirect taxes.
There are several differences between direct and indirect taxes in terms of multiple features. Let’s find out about these differences in detail below:
Tax management software can help you a lot in managing and filing direct taxes. Whether you want to file corporate tax, income tax or capital gain tax, tax management software can help you file all these taxes.
With this type of software, you can automate tax calculations, file your returns, manage tax-related data, create tax reports, etc. Moreover, you can analyze tax-related reports to meet the tax regulations and compliance requirements.
There are two types of taxes; direct and indirect taxes as enumerated in the article. Both of them are important for managing the overall economy of the country.
Therefore, the collection of these taxes is essential for the government and for the well-being of the country. These taxes are collected by the central and state governments as per the tax levied.
Yes, for direct taxes, the tax rate is based on the income and profits of individuals. However, in indirect taxes, the tax rate is equal for every person.
The key difference between direct and indirect tax is that direct tax is levied on income and profits. Whereas indirect tax is levied on goods and services.
GST is an indirect tax which is imposed on goods and services.
Income tax, capital gains tax, and securities and transaction Tax (STT) are some of the direct tax examples.
Goods and services tax (GST), customs and excise duties, and value added tax (VAT), are some of the indirect tax examples.
The direct tax is governed by the Central Board of Direct Taxes (CBDT).
The direct tax is governed by the Central Board of Indirect Taxes and Customs (CBIC).
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