Direct Tax

Direct Tax

Direct tax is a type of tax which is directly paid to the government by an individual or organization. A direct tax has to be paid by the person whom the tax was legally imposed on in the first place. The burden of direct tax cannot be shifted to someone else.

Direct taxes are calculated on the basis of ability of the taxpayer to pay, which means that the higher taxpayer’s capability of paying is, the higher their taxes are. Direct taxes include Income tax, Property tax, Corporate tax, Estate tax, Gift tax, Value added tax, Taxes on assets etc.

Advantages of Direct taxes

There are many advantages of paying taxes directly. Some of the advantages are as given below:-

Promotes equality

As we know that direct taxes are based on the ability of a person to pay, it promotes equality among payers and citizens. A different amount is charged by every person, depending on how much they make.

Promotes elasticity

Another advantage of direct taxes is that it promotes elasticity because taxes are the earnings of the government and when taxes fluctuate, the earnings also change which means they can go higher or lower.

Promotes certainty

Direct taxes promote certainty because the amount of tax is certain and definite to the payer of tax.They are determined and made final before they are even paid.

Saves time and money

The government of country does not need to spend on the collection of taxes because they are already taken right at the source of the income. Many companies use automatic payroll deduction systems which help the companies in saving time and money.

Creates equal distribution of wealth

One of the primary objectives for any economy and government is having equal distribution of wealth. Direct taxes have this great advantage that it helps the economy to achieve that. It is because government charges more taxes from the people who can afford them and spend that money on the poor.

Creates social awareness

Direct tax creates social awareness among the general public. When we have to pay a certain sum of money to the government, we expect something back as well. so, we tend to feel more socially aware and responsible because it is our money that is spent all around us.

Types of Direct taxes

Income Tax

Corporate Tax

Tax Deducted at Source