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    Difference Between Direct and Indirect Tax

    difference between direct and indirect tax
    (Source: ytimg)

    In India, every earning individual has to pay income tax as per the different slab rates. Similarly, when individuals purchase some goods or avail services, they have to pay tax on that product or service. It is here, the need to understand various types of tax and their difference arises.

    This piece will discuss the difference between direct and indirect tax in a tabular form to help you understand every pointer easily.

    Keep reading!

    Direct Tax vs Indirect Tax

     

    Refer to the table given below to distinguish between direct and indirect tax.

    Point of Difference

    Direct Tax

    Indirect Tax

    Definition

    Individuals pay this amount directly to the Government, and others cannot transfer it. There are different acts that monitor this amount.

    End-use consumers of products, goods and services are liable to pay indirect tax. This variant is applicable for manufacturers and suppliers for the sale, import and purchase of goods. However, the accountability to pay this type of tax is passed on to consumers.

    Benefits

    The collection of direct tax occurs annually and is mostly deducted at the source, which makes it more cost-effective and reduces administrative costs. The tax amount is certain, which allows the Government to estimate revenue accurately. The collection of such taxes helps in controlling inflation and reduces inequalities.

    Consumers have to pay indirect tax only at the time of purchase. As such, tax collection is easy and convenient. Indirect tax payments ensure equitable contribution as taxpayers bear lower tax rates on basic items and higher rates on luxury goods.

    Imposition of Tax

    As the name suggests, this amount is imposed directly on the income of a taxpayer.

    The Government imposes this on taxpayers for the goods and services purchased or availed.

    Course of Payment

    Individuals can pay this directly to the Government.

    Individuals can pay this to the Government via an intermediary.

    Paying Entity

    Businesses and individuals pay such taxes.

    End-use consumers pay such taxes.

    Rate of Payment

    The Government decides the rate on the basis of income and profit.

    Rate is equal for all individuals

    Transferability of Payment

    Non-transferrable

    Transferrable

    Nature of Tax

    This type is progressive, meaning the rate increases with an individual’s income and profit.

    This type is regressive, meaning the rate remains the same, irrespective of an individual's income.

    The table mentioned above covers key differentiating points between Direct and Indirect taxes. Read the pointers attentively to understand the difference between direct and indirect taxes.

    Frequently Asked Questions

    Who administers and governs Direct Tax in India?

    The Central Board of Direct Taxes (CBDT) administers Direct Taxes in India and the Department of Revenue governs it.

    The Central Board of Direct Taxes (CBDT) administers Direct Taxes in India and the Department of Revenue governs it.

    Who administers and governs Indirect Tax?

    The Central Board of Indirect Taxes and Customs (CBIC) administers Indirect Tax in India and the Department of Revenue governs it.

    The Central Board of Indirect Taxes and Customs (CBIC) administers Indirect Tax in India and the Department of Revenue governs it.

    What are the types of Direct Tax?

    Types of Direct Tax include income, wealth, corporate, and capital gain taxes.

    Types of Direct Tax include income, wealth, corporate, and capital gain taxes.

    What are the types of Indirect Tax?

    Types of Indirect Tax include value-added, sales, and service taxes.

    Types of Indirect Tax include value-added, sales, and service taxes.

    Please try one more time!

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    Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.

    1. Digit Insurance
    2. Income Tax
    3. Difference between Direct and Indirect Tax

    Last updated: 2023-03-23

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