Maharashtra State BoardHSC Arts 12th Board Exam
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Distinguish Between the Following.Direct Tax and Indirect Tax. - Economics

Distinguish Between

Distinguish between the following.

Direct tax and Indirect tax. 

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Solution

Direct tax and Indirect tax.

 DIRECT TAX INDIRECT TAX

Meaning

It is directly paid by tax payers. Or it is deducted form the income of the tax payers.

It is indirectly paid by tax payers. It is include in the price of goods and services.

Examples

The direct taxes include personal income tax, corporate tax, capital gain tax, wealth tax, etc.

The indirect taxes include customs duty, excise duty, VAT, service Tax, etc.

Principles of equity

Direct taxes follow the principle of equity (social justice). Higher income people are taxed at a higher rate, and middle income people are taxed at lower rate. The lower income people are normally exempted form direct tax.

Indirect taxes lack the principle of equity. For instance, in the case of mass consumption goods, all consumers (whether rich or poor) have to pay the same rate of indirect taxes like excise duty.

Share of Taxes

In India, the share of direct taxes is on the rise. In 2008-09, the share of direct taxes was estimated at 55% of the total tax revenue of Central Government.

In India, the share of indirect taxes is on the decline. In 2008-09, the share of indirect taxes was estimated at 45% of the total tax revenue of Central Government.
Concept: Taxable Income
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