From the name itself, direct tax is paid directly to the government while the indirect tax is paid indirectly. Examples of indirect taxes are excise tax, VAT, and service tax. Examples of direct taxes are income tax, personal property tax, real property tax, and corporate tax.

Examples of Direct Taxes An individual’s federal income tax is another example of a direct tax. If a person makes $100,000 in a year, for example, and owes the government $20,000 in taxes, that $20,000 would be a direct tax.

Direct taxes are directly paid by those on whom it is imposed. For instance, taxpayers directly pay income tax, property tax, tax on assets and gifts to the government.

While direct taxes are imposed on income and profits, indirect taxes are levied on goods and services. A major difference between direct and indirect tax is the fact that while direct tax is directly paid to the government, there is generally an intermediary for collecting indirect taxes from the end-consumer.

Direct Taxation: 7 Demerits of Direct Taxation – Explained!

• Pinching: Since direct taxes are to be paid in a lump-sum they pinch the tax payers more.
• Inconvenient:
• Evasion and Corruption:
• Uneconomical:
• Narrow based:
• Arbitrary:
• Disincentiveness:

Tax systems in the U.S. fall into three main categories: Regressive, proportional, and progressive.

A good tax system should meet five basic conditions: fairness, adequacy, simplicity, transparency, and administrative ease. Although opinions about what makes a good tax system will vary, there is general consensus that these five basic conditions should be maximized to the greatest extent possible.

In the United States, the historical favorite is the progressive tax. Progressive tax systems have tiered tax rates that charge higher income individuals higher percentages of their income and offer the lowest rates to those with the lowest incomes. Flat tax plans generally assign one tax rate to all taxpayers.

There are many different kinds of taxes, most of which fall into a few basic categories: taxes on income, taxes on property, and taxes on goods and services.

Here are five types of taxes you may be subject to at some point, along with tips on how to minimize their impact.

• Income Taxes. Most Americans who receive income in a given year must file a tax return.
• Excise Taxes.
• Sales Tax.
• Property Taxes.
• Estate Taxes.

Important direct taxes are listed below:

• Income Tax. This is most important type of direct tax and almost everyone is familiar with it.
• Wealth Tax.
• Property Tax/Capital Gains Tax.
• Gift Tax/ Inheritance or Estate Tax.
• Corporate Tax.
• Service Tax.
• Custom Duty.
• Excise Duty.

Definition: Direct tax is a type of tax where the incidence and impact of taxation fall on the same entity. These are largely taxes on income or wealth. Income tax, corporation tax, property tax, inheritance tax and gift tax are examples of direct tax.

Taxation refers to the practice of a government collecting money from its citizens to pay for public services. Without taxation, there would be no public libraries or parks. Taxation is the practice of collecting taxes (money) from citizens based on their earnings and property.

General tax refers to a general levy by a government that offers no special benefit to the taxpayer, but only a support to governmental programs that benefit all. It is a source of public revenue. The power to levy a general tax is inherent in all sovereign.

The principles of good taxation were formulated many years ago. In The Wealth of Nations (1776), Adam Smith argued that taxation should follow the four principles of fairness, certainty, convenience and efficiency.

Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. The main purpose of taxation is to accumulate funds for the functioning of the government machineries.

The principles of a sound tax system are fiscal adequacy, administrative feasibility, and theoretical justice. Fiscal adequacy means the sources of revenue must be sufficient to meet government expenditures and other public needs.

The main purpose of taxation is to raise revenue for the services and income supports the community needs. Public revenues should be adequate for that purpose. 2. Tax should, as far as possible, be levied equitably, according to ability to pay.

Most of the taxes or revenue collected by government at the point of provision of public goods or services follow benefits-received principle of taxation. Examples include highway tolls, bridge tolls, park tickets and train fares.

Indirect tax is defined as the tax imposed by the government on a taxpayer for goods and services rendered. Unlike direct taxes, indirect tax is not levied on the income, revenue or profit of the taxpayer and can be passed on from one individual to another.

Person liable to pay service tax is governed by Service Tax Rules, 1994 he may be service provider or service receiver or any other person made so liable. It is an indirect tax wherein the service provider collects the tax on services from service receiver and pays the same to government of India.

In developed countries, the purpose of indirect taxes is to catch the general public in the tax net. ADVERTISEMENTS: In effect, thus, the structure of indirect taxation with regressive implications is set up as a balancing factor against the progressive effect of direct taxation in the community.

Advantages and Disadvantages of Indirect Taxes

• Briefly speaking, they are as under: ADVERTISEMENTS:
• (i) The Poor Can Contribute: They are the only means of reaching the poor.
• (ii) Convenient: They are convenient to both the tax-prayer and the State.
• (iii) Broad-based:
• (iv) Easy Collection:
• (v) Non-evadable:
• (v) Elastic:
• (vi) Equitable: