Question

Explain some direct and indirect taxes.

Answer 1

• Types of Taxes:

1. Direct Taxes: A tax imposed on an individual or organization, which is paid directly, is a direct tax. The burden of a direct tax cannot be shifted to others. J.S. Mill defines a direct tax as “one which is demanded from the very persons who it is intended or desired should pay it.” Some direct taxes are income tax, wealth tax, and corporation tax.

1. Income tax: Income tax is the most common and most important tax levied on an individual in India. It is charged directly based on the income of a person. The rate at which it is charged varies, depending on the level of income.
2. Corporate tax: This tax is levied on companies that exist as separate entities from their shareholders. It is charged on royalties, interest gains from the sale of capital assets located in India, and fees for a technical services and dividends. Foreign companies are taxed on income that arises or is deemed to arise in India.
3. Wealth tax is charged on the benefits derived from property ownership. The same property will be taxed every year on its current market value. The tax is levied on individuals and companies alike.

2. Indirect Taxes: If the burden of the tax can be shifted to others, it is an indirect tax. The impact is on one person while the incidence is on another person. Therefore, in the case of indirect taxes, the taxpayer is not the tax bearer. Some indirect taxes are stamp duty, entertainment tax, excise duty, and goods and service tax (GST).

1. Stamp duty: Stamp duty is a tax that is paid on official documents like marriage registration or documents related to a property and in some contractual agreements.
2. Entertainment tax: Entertainment tax is a duty that is charged by the government on any source of entertainment provided. This tax can be charged on movie tickets, tickets to amusement parks, exhibitions, and even sports events.
3. Excise duty: An excise tax is any duty on manufactured goods levied at the movement of manufacture, rather than at sale. Excise is typically imposed in addition to an indirect tax such as a sales tax.