Net direct tax collections saw an increase of 23%: Basics Explained

The Central Board of Direct Taxes statement said that the net direct tax collections so far this financial year saw  an increase of 23% as compared to the same period of the corresponding financial year. The total includes corporation tax of ₹368,484 crore and personal income tax (including securities transaction tax) worth ₹330,490 crore.

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Direct tax is levied and paid directly by a person or an organisation. One cannot shift the payment of this tax to another entity. Income tax and corporate tax are two such examples.

Indirect tax is levied on end-consumers of products, services and goods. But unlike a direct tax, the responsibility of paying indirect tax can be passed on to consumers. Excise duty and GST (goods and services tax) are two common examples.

Direct taxIndirect Tax
Includes income tax, property tax (levied on real estate), wealth tax (levied on inherited wealth) and  the corporate tax that is levied on corporate businesses.Includes Value Added Tax (VAT), GST, central excise duty, etc..
Direct tax plays a role in boosting the economy and curbing inflation.The imposition of more indirect taxes could enhance inflation.
Direct taxes tend to drain a part of the income and discourage savings. Due to tax evasion by many, the burden of paying taxes falls on the shoulder of a smaller section of the society.When it comes to savings, indirect taxes lessen personal consumption and increase savings. For example, consumers are more careful about consuming products that are taxed extensively.
Direct taxes like income tax play a role in reducing socio-economic inequality. The money from taxpayers is used for the well-being of the entire society, and everyone stands to benefit from the same. Public transport is one such example.Indirect taxes widen the socio-economic gap between the rich and the poor. Only the rich can afford better quality products which may be essential for all. However, the weaker sections of society may not be able to consume these goods.
The burden of tax cannot be shifted in case of direct tax.    The burden of tax shifted for indirect taxes.

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