As the Indian Union Budget for 2023 approaches, many are wondering what changes to tax laws will be implemented. Two key terms that are often mentioned in budget discussions are "direct taxes" and "indirect taxes." But what exactly do these terms mean and how do they affect individuals and businesses in India?
Direct taxes: Taxes that are paid directly to the government by the individual or entity that is liable to pay them are called direct taxes. These taxes include income tax, wealth tax, and corporate tax. Direct taxes are based on the income and wealth of the individual or entity, and the amount of tax paid is directly proportional to the income or wealth earned. For example, an individual with a higher income will pay a higher amount of income tax than an individual with a lower income.
Indirect Taxes: Taxes that are paid indirectly by the consumer or end-user are called Indirect Taxes. These taxes include value-added tax (VAT), goods and services tax (GST), and excise duty. Indirect taxes are typically added to the price of goods and services, and the consumer pays the tax when they make a purchase. For example, when purchasing a product, the consumer pays a GST on top of the base price of the product.
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One of the key differences between direct and indirect taxes is that direct taxes are considered progressive, as they take a larger percentage of income from those who can afford to pay more. Indirect taxes, on the other hand, are considered regressive as they take a larger percentage of income from those who can afford to pay less.
FAQs:
Q1: What is the difference between direct and indirect taxes?
Direct taxes, such as income taxes, are taxes that are paid directly to the government by the individual or business. Indirect taxes, such as sales taxes, are taxes that are built into the cost of goods and services.
Q2: How do direct and indirect taxes impact individuals and businesses?
Direct taxes, such as income taxes, can have a significant impact on the disposable income of individuals and the profits of businesses. Indirect taxes, on the other hand, are often passed on to consumers in the form of higher prices for goods and services.
