Differences between Direct Taxes and Indirect Taxes
The main differences between direct taxes and indirect taxes are given in table.
Direct Taxes: If a tax levied on the income or wealth of a person is paid by that person (or his office) directly to the Government, it is called direct tax.
Indirect Taxes: If tax is levied on the goods or services of a person is collected from the buyers by another person (seller) and paid by him to the Government it is called indirect tax.
2. Incidence and Impact
Direct Taxes: Falls on the same person. Imposed on the income of a person and paid by the same person.
Indirect Taxes: Falls on different persons. Imposed on the sellers but collected from the consumers and paid by sellers.
Direct Taxes: More income attracts more income tax. Tax burden is progressive on people.
Indirect Taxes: Rate of tax is flat on all individuals. Therefore more income individuals pay less and lesser portion of their income as tax. Tax burden is regressive.
Direct Taxes: Tax evasion is possible.
Indirect Taxes: Tax evasion is more difficult
Direct Taxes: Direct tax helps in reducing the inflation.
Indirect Taxes: Indirect tax contributes to inflation.
Direct Taxes: Cannot be shifted to others
Indirect Taxes: Can be shifted to others
Direct Taxes: Income Tax, Wealth Tax, Capital Gains Tax, Securities Transaction Tax, Perquisites Tax.
Indirect Taxes: GST. Excise Duty.