9 Difference Between Direct Tax and Indirect Tax

Direct tax and Indirect tax are the two taxes which are collected by the government. Direct tax is the tax which implies on the incomes like salary and profits of the companies. Income tax is the example of the direct tax. On the other hand, indirect tax is the tax which implies on the purchase of the goods. GST is the example of the indirect tax. Both direct tax and indirect tax is collected by the departments of the government.

Everyone should have the knowledge of the taxes. In this article we will discuss about the tax, types of tax like direct tax or indirect tax, difference between Direct tax and indirect tax. Need of tax and other necessary aspects of the tax.

What is tax

          Tax is a charge which is collected by the government from the people or the product customers to using services and living in the society. This is a type of fee for using government products and services. This tax is classified in the direct tax or indirect tax.

Need of tax

If we talk about the need of the tax, it is main source of the government to generate revenue. This money is used for the public to provide services like defense education, roads hospitals and other services. These services are very essential for the human being. Like government opens many hospitals for the public in which people get free treatment. All these services are very important for the poor people of the nation. So, the taxes are imposed. These are the people money which is used for the peoples.

Direct tax vs indirect tax

Sr.no	Direct Tax	Indirect Tax
1	Directly paid to the government.	Not directly paid to the government
2	Imposed on the earning of the particular person.	Imposed on the purchase of the goods.
3	Based on the ability to pay so it is progressive in nature	Tax is regressive in nature.
4	Collected by the central board of direct taxes (CBDT).	Collected by the central board of indirect taxes.
5	Tax all burden falls on one person.	Tax burden is shifted one to another.
6	Tax evasion is possible	Tax evasion is not possible.
7	Tax directly submitted to the government which needs less administration cost.	Tax needs more Administration, which leads more Administration cost.
8	Tax is paid after receiving the income by the person.	Indirect tax is paid before getting products and services.
9	Tax is imposed only on that person who comes in the criteria	Tax imposed on every person because everyone purchases something.

Direct tax

This is the tax which is imposed directly on the person who earns the money. We are well known about the income tax this the type of direct tax. Simply direct tax is applicable on the income of the person. Like if someone doing job anywhere or any other sources of income he should have to pay tax. Direct tax is paid by the corporates on their profits. This tax is directly based on the income more the income more tax has to paid and vice versa. So the rich person gives more tax to the government then the poor people. This tax is directly paid to the government by the tax payers

Types of direct tax

1. Income tax
2. Corporate tax
3. Wealth tax
4. Property tax

Indirect tax

Indirect tax is the tax which is not paid directly to the government from tax payer. The tax which is imposed on the purchase of the goods in known as the indirect tax. In this type of tax, tax burden is equally carried by the all stages of purchase. For example, a company makes a product after that is sale to distributer after wholesaler then retailers after that lastly product is used by the consumer. In this case all tax burden is carried by all stages and tax is not paid directly to the government. These days GST is very popular this is the type of indirect tax. This tax is regressive in nature. Indirect tax is collected by the CBIC. In indirect tax envision is not possible because tax is included in the price of the goods.

Some times back there are many indirect taxes which have to be paid but after the GST all the taxes are merged and a single tax is collected. GST is different on all the goods. This difference is defined by the government.

Main difference between Direct tax and Indirect tax

1. Direct tax is directly paid to the government. Indirect tax is not directly paid to the government it collected people to proper or user to user.
2. Direct tax is imposed in the earning of the particular person. Indirect tax is imposed on the purchase of the goods.
3. Direct tax is based on the ability to pay so it is progressive in nature. While indirect tax is regressive in nature.
4. Direct tax is collected by the central board of direct taxes (CBDT). Indirect tax is collected by the central board of indirect taxes.
5. In direct tax all burden falls on one person. In indirect tax burden is shifted one to another.
6. Tax evasion is possible in direct tax. In Indirect tax, tax evasion is not possible.
7. Direct tax directly submitted to the government which needs less administration cost. While indirect tax needs more Administration, which leads more Administration cost.
8. Indirect tax imposed on every person because everyone purchases something. While direct tax is imposed only on that person who comes in the criteria
9. Direct tax is paid after receiving the income by the person. While indirect tax is paid before getting products and services.
10. Direct tax reduces inflation. While indirect tax increase inflation.

These are some differences between direct tax and indirect tax.

Conclusion

                Both these Direct tax and indirect tax are very important for the nation. Taxes are very necessary for the development of the nation. Because tax is the main source of the government to generate the revenue. Direct tax and Indirect tax are the two types of the tax. Simply direct tax is imposed on the earning of the person and indirect tax is imposed on the purchase of the goods. GST is the example of the indirect tax. Income tax is the example of the direct tax

This is all about the difference between Direct tax and Indirect tax. We hope you understand the topic very well. Please feel free to comment on us. For more interesting topics like this please go through our website.