As an Indian resident, you pay taxes based on your annual income as well as when you purchase a product or a commodity. Based on the nature of these taxes, it is safe to say that the Indian economy thrives on two kinds of taxes – direct and indirect. But what is direct tax and indirect tax?
It is crucial to stay informed about these taxes to ensure that you are never caught off guard. Hang on as we dive deeper into the difference between direct and indirect tax and elaborate on the concepts.
As the name suggests, a direct tax is paid to the entity or authority imposing the tax. For instance, annual income tax is directly paid to the Central Government.
Some of the forms of direct tax you can observe in India are as follows:
With direct taxation, the government has a steady revenue source to address developmental needs in the country. Moreover, it is a way to maintain equilibrium between all classes in society.
Indirect taxes are stark opposites to their counterparts and require you to pay taxes to the government through an intermediary. Some of the common forms of indirect taxation are as follows:
The primary difference between direct and indirect tax is the manner of collection. The former is paid directly to the tax-imposing authority, while the latter goes through an intermediary before reaching the government. Apart from these, direct tax and indirect tax have the following differences:
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GST is a uniform, indirect tax levied on the consumption of goods and services. It was introduced to maintain uniformity and avoid multiple taxes on the movement of goods and services.
TDS is an indirect tax since it is acquired from the source of your income.