Understanding Direct taxes v/s Indirect taxes in India

Taxes are one of the government's most important sources of revenue. You pay a variety of taxes in a variety of ways, from your restaurant meals, to multiplex movies, wages, driving your automobile on roads, and even purchasing a packet of biscuits from a local shop near you.

It is your responsibility as a responsible citizen of the country to pay your taxes. But it's also crucial to understand the many types of taxes in place in the country. All of India's numerous taxes can be divided into two categories: direct taxes and indirect taxes.

Let's take a closer look at what these two forms of taxes represent.

direct tax

What are direct taxes and how do they work?

A person or an organization is responsible for levying and paying tax. The payment of this tax cannot be delegated to another entity. Two examples are income tax and business tax. The Indian Income Tax Act of 1961 mandates that both domestic and international corporations pay direct taxes to the government. You can find a direct tax consultant on the Qwirk platform.

What are Indirect Taxes and how do they work?

End-users of products, services, and goods are subject to indirect taxes. This tax is levied by the government on manufacturers and suppliers for the import, sale, and acquisition of goods. In contrast to direct taxes, however, indirect taxes can be passed on to consumers. Two common examples are GST (goods and services tax), and excise duty.

indirect taxes

What's the difference between direct and indirect taxes?

The basic classification of taxes is based on who collects the taxes from the taxpayers. The differences between direct and indirect taxes are summarized below —

Direct tax Indirect tax
Income tax, property tax (imposed on real estate), wealth tax (imposed on inherited wealth), and other taxes are examples. The corporate tax, which is imposed on corporations, is another example of a direct tax. VAT, GST, central excise duty, and other taxes are included. VAT is levied on the price of a product from the point of manufacture to the point of sale, whereas central excise is levied on the manufacture and sale of commodities.
Direct taxation contributes to economic growth and inflation control. Inflation could be boosted if more indirect taxes are imposed.
Direct taxes have the effect of draining a portion of one's income and discouraging savings. Due to widespread tax evasion, a smaller segment of the population bears the brunt of the tax burden. Indirect taxes reduce personal consumption and raise savings when it comes to saving. Consumers, for example, are more cautious about consuming things that are heavily taxed.
Direct tax is difficult to collect unless it is deducted at the source. Salaried people are more likely to experience this. However, when it comes to collecting taxes from the business community, many find a method to avoid paying them and identifying and punishing them has proven tough. In the case of indirect tax, the tax amount for goods and services has already been determined and is charged along with the product price. As a result, there is no way around it. The taxes are always mentioned on the front of a consumer product.
Direct taxes, such as income tax, help to reduce socioeconomic disparity. The money raised from taxpayers is utilized to improve the well-being of the entire society and everyone benefits. One such example is public transportation. Indirect taxes contribute to the widening of the socioeconomic divide between the rich and the poor. Only the wealthy can buy higher-quality products, which may be necessary for everyone. The poorer elements of society, on the other hand, may not be able to afford these items.

As you can see, both direct and indirect taxes have advantages and disadvantages, but both are vital to the economy. While taxes are widely regarded as an unneeded burden, they are the means by which the government constructs the country, invests in healthcare, infrastructure, defense, and welfare programs. Our goal of making our country a global superpower will only be realized if citizens continue to pay their taxes honestly.

Now that you've learned about the many forms of indirect and direct taxes in India, go ahead and pay your taxes like a good citizen of the country.

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QWIRK is a professional marketplace that assists organizations in locating vetted qualified professionals for short-term jobs and projects in India. The organization began by concentrating on the domains of finance, audit, tax, and accounting.

For further information, please contact us.