Tax structure in INDIA is divided into Direct Tax and Indirect Tax.While direct taxes are levied on the incomes earned by individuals and corporate entities, burden to pay taxes is ontop of the taxpayers . On the other hand, indirect taxes imposed on the sale of goods and provision services where the burdenis to collect and deposit taxes on the sellers instead of taxpayer directly.
Central Governments and State GovernmentsLocal Authorities like Municipality and Local governments has also been given some powers for levy and collection of the taxes and charges in their area.
since last few years, Central and many State Governments have undertaken many reforms in policy formulation and implementations for objective of Ease of doing thr business and regular efforts on simplification processes towards great predictabilityautomation,, transparency and Introduction of GST is one of such reforms to eliminate cascading effect of taxes and to overcome complexities in multiple indirect tax regimes in India.
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Direct and indirect taxe are two categories of taxes that government use to collect revenue.
These categories differ how they are levied, who ultimately bears tax burden, and how they will impact individuals and businesses.
Here’s a breakdown of direct and indirect taxes:
Direct Taxes:
1. Definition: Direct taxes are imposed directly on individuals or entities and cannot be shifted to others.
The taxpayer is responsible for paying the tax directly to government.
2. Taxpayer: The taxpayer, in case of direct taxes, is also person or entity that bears the economic burden of tax. This means that the tax is deducted from the taxpayer’s income or assets.
3. Examples of Direct Taxes
Income Tax:This tax is imposed on individual’s or business
Corporate Tax: Corporations has to pay corporate income tax on their profits.
Property Tax:Property owners pay taxes on their assessed value of their real personal property.
Wealth Tax: Some countries impose taxes on individual’s net wealth or their assets.
4. Progressive Taxation: Direct taxes are progressive that the tax rate increases as the taxable income / wealth increases.
Indirect Taxes:
1. Definition: Indirect taxes are not directly paid by taxpayer to government. Instead, this taxes are imposed on sale of goods and services, and tax burden can be shifted to end consumer.
2. Taxpayer: While businesses are being responsible for collecting and remitting indirect-taxes to government, the actual burden of taxes can be passed on to consumers in form of higher prices for the goods and services.
3. Examples of Indirect Taxes:
– Value Added Tax or Goods and Services Tax are applied at each stage of the distribution and production process. While businesses collect tax, the cost is typically passed on to the consumers through higher prices.
– Sales Tax: sales tax is imposed on final sale of goods and services to the consumers. Businesses collect and remit tax to the government.
4. Regressive Taxation: Indirect taxes are regressive, that they have a larger impact on lower-income individuals or households.
5. No Deductions or Credits: Unlike direct taxes, these are typically no deductions or tax credits available to reduce tax liability for indirect taxes.
Direct taxes are paid directly by the individuals or businesses entities and are o progressive in nature. Indirect taxes are collected from the business but can be shifted to the consumers, and they are regressive. Both the types of taxes play an important role inthe government revenue collection and fiscal policy
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