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What Is Direct Tax? A Comprehensive Guide To Direct Tax
Before I tell you something about direct tax, I just want to know what concepts come to your mind when you hear the term Direct tax. Most of the time, people think about monetary transactions, government officers who collect taxes, and financial headaches to pay off the taxes.
Now, if you find the concept of taxation very confusing then knowledge of direct tax in depth is important. This will wipe off all your mental headaches to tackle the financial burden of direct tax easily.
So, let’s learn together the concepts of direct tax to have a clear idea of it. It is always better to learn the concepts in depth rather than on a superficial level.
What Is Direct Tax?
A direct tax is a form of tax that is collected from an individual and entity by the government depending on their income and wealth. For example, income tax, and corporation tax that falls under direct tax. All these taxes are governed and monitored by the Central Board Of Direct Taxes.
Direct taxes are levied on individuals as well as entities based on their income and profit. That too without the presence of any intermediary. Thus, the taxpayer has to pay the taxes that are discharged or imposed on him.
One of the important features of direct tax is it works on a progressive basis. It means the higher your income the higher will be your rate of taxes.
What Is Indirect Tax?
On the consumption of goods and services, you have to pay the indirect tax. Therefore, on your income, it will not be charged directly like direct taxes. Here, the consumer of the goods needs to pay the taxes along with the price of goods. Examples of indirect taxes are GST, VAT, and excise duty. Additionally, these taxes are collected by The Central Board Of Indirect Taxes & Customs.
Types Of Direct Tax?
Several types of direct taxes are levied on you. So, you must be well aware of it while meeting your requirements with ease. Some of the types of direct taxes you should be well aware of are as follows:-
| Types Of Direct Taxes | Governing Act | Complete Information |
|---|---|---|
| Income Tax( Individuals & Entities Except Companies) | Income Tax Act 1961 | Hindu Undivided Family this is a levy imposed on the Income of any individuals. This tax is imposed on HUF, AOP( Association of Persons), Partnership Firms, and LLP.
These types of persons are essential to assess the taxable income from various sources of their income like Capital gain, house property, business, and salary. Various tax slabs are present here depending on individual age and income. You need to compute the tax liability according to the rates. |
| Corporate Tax | Income Tax Act 1961 | Corporate tax is charged to companies depending on their sources of income. The Sources of income may be capital gains and business profits. |
| Securities Transaction Tax | Securities And Transaction Act | STT is the tax imposed on the sale and purchase of all the listed securities like equity-oriented units, equity shares, units of business trust, futures, and options. |
Who Are Eligible To Pay Direct Tax In India?
There are several kinds of people who are eligible to pay direct tax in India. Some of the names of this category of persons are as follows:-
- Individuals who are residents of India.
- Hindu Undivided Families by law are considered separate tax entities.
- Partnerships Firm/ Limited Liability Partnership Firm.
- Association Of Person/ Body of individuals.
- Companies who are operating in India.
Direct Tax Vs Indirect Tax
There are numerous points of differences between direct vs indirect tax. Some of the key points of differences that you must consider here are as follows:-
| Parameter | Direct Tax | Indirect Tax |
|---|---|---|
| Course Of Payment | All the taxpayer pays the taxes to the government. | Through an intermediary, the taxpayer pays the taxes to the government. |
| Tax Imposition | On profits and income of the taxpayer | On goods and services. |
| Rate Of Tax | The rate of tax is decided by the government and is based on income and profit. | All the rates of taxes are the same for everyone but that depends on the services and goods you use and purchase. |
| Paying Entity | Businesses and individuals. | End-to-end consumers. |
| Nature Of Taxation | The rate of tax is progressive | The rate of tax is fixed. |
What Are The Examples Of Direct Tax?
There are several examples of direct tax that you must be well aware of. Some of the common examples of direct tax are as follows:-
- Income tax.
- Real estate property tax.
- Taxes on Assets.
- Personal property tax.
What Are The Examples Of Indirect Taxes?
Some of the common examples of Indirect tax are as follows:-
- Goods and Service tax (GST).
- Service Tax.
- VAT( Value Added Tax)
- Service Tax.
- Excise Tax.
- Custom Duty.
- Stamp Duty.
What Are The Benefits Of Direct Tax?
There are several benefits of direct tax that you must be well aware of. Some of the key benefits of direct tax are as follows:-
1. Economic & Social Balance
In most cases, the government imposes balanced tax slabs depending on the age and income level of the individual. Additionally, it will help the individuals to achieve economic and social equality.
All the exemptions are also provided to address all the income inequalities to ensure fairness to all. So, it will help the government to maintain the economic stability of the country with ease.
2. Certainty
Direct taxes are very useful to the government’s source of income. The national wealth of the country is directly proportional to the amount of revenue collected from direct tax. Additionally, the higher the income-generating population, the return on taxation.
Direct taxes create a positive impact on the government treasury and one of the prime sources of income. This is why direct taxes create an impact on the GDP of a country directly.
3. Productive
Direct taxes offer clarity in the minds of taxpayers and tax-collecting authority. As the taxpayers know what amount they have to pay and the government knows their predictable sources of revenue.
Due to this fact, the taxpayer and the authority can easily create a long-term plan for how to save and invest their money. The chances of corruption decrease at a rapid pace. This is why direct tax plays a vital role in the development of the economy of a country.
4. Progressive
In most of the countries of the world, direct tax reduces the financial inequalities in the country. So, you must pay your taxes on time which will ultimately help you to improve the government inequality.
This can boost the scope of your country’s economic growth to a greater extent in the long run. You must understand these facts from your end to have a correct idea of it.
Income Tax Slab 2024
| Slab Of Income Tax | Tax Rate |
|---|---|
| In case is income up to Rs 3 Lakh | Nil |
| If you have an income of above Rs 3lakh to Rs 7 lakh | 5% |
| Income range higher than Rs 7 Lakh to Rs 10 lakh | 10% |
| If you have income above Rs 10 lakh to Rs 12 lakh | 15% |
| Income Above Rs 12 lakh to Rs 15 Lakh. | 20% |
| If you have income above Rs 15 lakh | 30% |
Final Words
Hence, if you have any confusion regarding the application of direct tax then this article can offer you the complete clarity of the same. You need to keep things in perfect parity while reaching your requirements with ease.
You can share your views and opinions in our comment box. This will help us to know your take on this matter. Additionally, you cannot make your choices in grey. So, try to pay off your taxes on time to get relief from penalties.
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