The central Government of a state imposes a mandatory fee on its citizens and other individuals in form of tax .The tax fee helps in economy building as it caters for different public expenses.
There are two categories of taxes: Direct and Indirect Taxes.
- The meaning of Direct Tax?
This is a type of tax that is imposed on a tax payer directly. The tax payer pays directly to the government and hence the fee cannot be levied on another person.
- Types of direct taxes imposed in India?
The following are some of the Direct taxes in India:
- Income Tax- This is taxed on income earning individuals who fall under various salary categories. These individuals are required to file their income tax returns on a yearly basis upon which they will either be required to pay tax or get a tax refund.
- Estate Tax– Can also be called Inheritance tax. This tax is imposed based on an individual’s total money or estate and property left behind after they have died.
- Wealth Tax– This is levied based on the property value one has .However, it is now abolished and is not applicable anywhere.
- Benefits of direct taxes?
Some of the advantages of Direct tax to the economy are mentioned below;
- It controls inflation: Whenever inflation occurs the government raises tax rate as a tool to curb inflation thus reducing demand for available services and goods.
- Economical and Social balance: Since every individual earns differently, the government has put in place tax categories which help in balancing the inequalities in income among various individuals thus creating a social balance.
- Major disadvantage of direct taxes.
Time-consuming-Filing of tax returns procedure requires a lot of time thus is cumbersome hence being a major problem.
- Meaning of Indirect Tax?
This type of tax is imposed on goods and services consumed by the people rather than their income and can be on any one who consumes the goods and services.
Initially, indirect tax was seeing as paying more than set value of a good or service in the market and concerns were raised about the tax imposed indirectly to the taxpayers.
Below is a list of earlier indirect taxes imposed in India:
- Duty Customs-This is a duty that is imposed on imported goods that are brought into the country by retailers and consumers in India.
- Central Excise Duty–This is tax that is only levied to manufacturers who then shift the payment of tax to wholesalers and retailers who purchase their manufactured goods.
- Service Tax– A type of tax that is levied on the total amount that is charged by providers of services to those who consume their specific services that they offer.
- Sales Tax– Retailers pay this tax. They would then charge a sales tax to their consumers hence shifting the burden to them.
- Value Added Tax (VAT)–This is value added on goods and services that is imposed on each stage during manufacturing and distribution.
- GST as Indirect Tax
Changes have been seen since GST was implemented in India’s fiscal domain. The numerous types of taxes that’s were initially a must have now been declared obsolete, credit. Is given to the introduced indirect tax. The dream of ‘one nation, one tax, One market’ has now been realized in our country.
With this being mentioned, GST has helped in the reducing of effect of tax being taxed on tax and also has eliminated the ‘cascading effect of tax’
Cascading effect of tax is when the primary consumer of various services and goods, has to withstand the weight of tax being paid on another tax which in turn leads to inflation of prices.
Since the introduction of GST, customers are not taxed on the tax that arises due to the cascading effect.
There are several other benefits of GST. A few are mentioned below;
- Input Tax Credit: During the payment period of tax on the end product, tax can be reduced by paying the balance amount instead of the imposed tax on the product. This is referred to as input tax credit which minimizes the burden of heavy taxes.
- Composition Scheme under GST:
Government has done a good job through the introduction of composition scheme for small and growing businesses with Rs.75Lakh turnover. The scheme states that the small businesses do not have to undergo the formalities that are time consuming during GST hence they only pay taxes according to the rate of turnover of there businesses. This is a big relief to small business.
On a brighter side, we can conclude that direct and indirect taxes help in the growth of the country. For further details related to this topic or any other topic visit company vakil