Taxes are one of the government’s most important sources of revenue. You pay a variety of taxes in a variety of ways, from your wage to restaurant meals, multiplex movies, and even purchasing soap from a local shop. It is your responsibility as a citizen of the country to pay your taxes. But it’s also crucial to understand the many types of taxes in the country. All of India’s numerous taxes can be divided into two categories: direct and indirect taxes.

Direct Tax:

In simple terms, a direct tax is one that you pay directly to the taxing body. For example, the government imposes income tax, which you must pay directly to the government. These taxes are non-transferable to any other company or individual. Direct taxes are governed by several statutes. The administration of direct taxes in India is handled by the CBDT (Central Board of Direct Taxes), which is overseen by the Department of Revenue.

The following are some of the types of direct taxes used in India:

1. Income Tax: Income tax is the most common type of direct tax in India. It is based on the income tax slabs of the IT department and is applied to the money you generate in a financial year. Individuals and corporations both pay the tax to the IT department directly. Individual taxpayers can also take advantage of several tax exemptions under the IT Act.

2. Securities Transaction Tax: If you trade stocks, each transaction includes a small component known as the securities transaction tax. This tax must be paid regardless of whether or not you profited from the trade. This tax is collected by your broker and forwarded to the securities exchange, which in turn pays it to the government.

Indirect Tax:

While income and earnings are subject to direct taxes, products and services are subject to indirect taxes. The fact that direct tax is paid directly to the government, but indirect tax is often collected through an intermediary from the end-consumer, is a significant distinction between direct and indirect tax. It is then the intermediary’s job to remit the collected tax to the government. Indirect taxes, unlike direct taxes, are not based on an individual’s income. Everyone pays the same amount of tax. In India, indirect taxes are largely handled by the CBIC (Central Board of Indirect Taxes and Customs). CBIC, like CBDT, is a division of the Department of Revenue.

The following are some of the types of indirect taxes in India:

1. GST (Goods and Services Tax):

GST replaced 17 different indirect taxes in India, including Service Tax, Central Excise, and others. It is a single, all-encompassing indirect tax that is levied on all goods and services in accordance with the GST council’s tax slabs. One of the most significant advantages of the GST is that it largely eliminated the previous tax regime’s cascading or tax-on-tax effect.

2. Value Added Tax (VAT): A VAT is a type of consumption tax levied on goods when their value rises as they move through the supply chain.

To learn more about the various distinctions between Direct tax and indirect tax, you may contact our experts.

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