Definition Purposes and effects Types Differences Conclusion TAX Definition Purposes and effects Types Differences Conclusion

Definition A fee charges ("levied") by a government  on a product, income, or activity. If tax is levied directly on personel or corporate income, then it is a direct tax. If tax is levied on the price of a good or service, then it is called an indirect tax. The purpose of taxation is to finance government expenditure One of the most important uses of taxes is to finance public goods and services, such as street lighting and street cleaning

Purposes and effects The levying of taxes aims to raise revenue to fund governing and/or to alter prices in order to affect demand. States and their functional equivalents throughout history have used money provided by taxation to carry out many functions . Some of these include expenditures on economic infrastructure (roads, public transportation, sanitation, legal systems, public safety, education, health care system), military, scientific research, culture and the arts A government's ability to raise taxes is known as Fiscal capacity

Types of taxes Mainly there are two types of Taxes that are imposed  Direct tax Indirect tax

Direct Tax A direct tax is referred to as a tax levied on person’s income and wealth and is paid directly to the government, the burden of such tax cannot be shifted. The tax is progressive in nature i.e. it increases with an increase in the income or wealth and vice versa. It levies according to the paying capacity of the person, i.e. the tax is collected more from the rich and less from the poor people. The tax is levied and collected either by the Central government or State government or the local bodies.

Direct Tax The plans and policies of the Direct Taxes are being recommended by the Central Board of Direct Taxes (CBDT) which is under the Ministry of Finance, Government of India. There are several types of Direct Taxes, such as: Income Tax Wealth Tax Property Tax Corporate Tax Import and Export Duties

Indirect Tax Indirect Tax is referred to as a tax charged on a person who consumes the goods and services and is paid indirectly to the government. The burden of tax can be easily shifted to the another person. The tax is regressive in nature, i.e. as the amount of tax increases the demand for the goods and services decreases and vice versa.  It levies on every person equally whether he is rich or poor.

Indirect Tax The administration of tax is done either by the Central Government or the State government. There are several types of Indirect Taxes, such as: Central Sales Tax VAT (Value Added Tax) Service Tax STT (Security Transaction Tax) Excise Duty Custom Duty Agricultural Income Tax

Differences Between Direct and Indirect Taxes The tax, which is paid by the person on whom it is levied is known as the Direct tax while the tax, which is paid by the taxpayer indirectly is known as the Indirect tax. The direct tax is levied on person’s income and wealth whereas the indirect tax is levied on a person who consumes the goods and services. The burden of the direct tax is transferable while that of indirect tax is non-transferable. the incidence and impact of direct tax falls on the same person, but in the case of indirect tax, the incidence and impact falls on different [persons.

Differences Between Direct and Indirect Taxes The evasion of tax is possible in case of a direct tax if the proper administration of the collection is not done, but in the case of indirect tax, the evasion of tax is not possible since the amount of tax is charged on the goods and services. The direct tax is levied on Persons, i.e. Individual, HUF (Hindu Undivided Family), Company, Firm, etc. On the other hand, the indirect tax is levied on the consumer of goods and services. The nature of a direct tax is progressive, but the nature of the indirect tax is regressive.

Differences Between Direct and Indirect Taxes Direct tax helps in reducing the inflation, but the indirect tax sometimes helps in promoting the inflation. Direct tax is collected when the income for the financial year is earned or the assets are valued at the date of valuation. As against this, the indirect taxes are collected, when the purchase or sale of goods or services are rendered. Direct tax is imposed on and collected from the assesse. Unlike indirect tax is imposed on and collected from consumer but deposited to the exchequer by the dealer of goods or provider of services.

Conclusion Both the direct and indirect tax has its own merits and demerits. If we talk about the direct taxes they are equitable because they are charged on person, according to their paying ability. The direct tax is economical because its cost of collection is less but however, it doesn’t cover every section of the society. On the other hand, if we talk about the indirect tax, they are easy to realize as they are included in the price of the product and services, and along with that, it has an excellent coverage of every section of the society. One of the best advantages of the indirect tax is, the rate of tax is high for harmful products as compared to the other goods which are necessary for life.

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