Tax is a compulsory contribution to state revenue by the Government. It is levied on the income or profits from business of individuals and institutions. It may be added to the price of goods, services or transactions. Tax is the basic source of revenue to the Government. This revenue is utlised for the expenses of civil administration, internal and external security, building infrastructure, etc.
There are two types of taxes – direct taxes and indirect taxes.
Direct Tax: If a tax levied on the income or wealth of a person and is paid by that person (or his office) directly to the Government, it is called direct tax e.g. Income-Tax, Wealth Tax, Capital Gains Tax, Securities Transaction Tax, Fringe Benefits Tax (from 2005), Banking Cash Transaction Tax (for Rs.50,000 and above- from 2005), etc. In India all direct taxes are levied and administered by Central Board of Direct Taxes.
Indirect Tax: If tax is levied on the goods or services of a person (seller). It is collected from the buyers and is paid by seller to the Government. It is called indirect tax. e.g. GST.