Question

Explain the direct and indirect tax with examples.

Answer 1

• Direct Tax:

1. A Direct tax is the tax whose burden is directly borne by the person on whom it is imposed, i.e., its burden cannot be shifted to others.
2. It is deducted at source from the income of a person who is taxed.
3. Income tax is a direct tax because the person, whose income is taxed, is liable to pay the
   tax directly to the Government and bear the burden of the tax himself. Eg. Corporation tax, wealth tax gift tax estate dirty.

• Indirect Tax:

1. On the other hand when liability to pay a tax is on one person and the burden of that tax shifts on some other person, this type of tax is called an indirect tax.
2. Indirect Tax is a tax whose burden can be shifted to others.
3. For example Service tax, Sales tax, Excise duty, Entertainment tax.