Tax is a financial contribution made by an individual to the government, and the taxes collected are utilised to run the country. It is mainly imposed by the Central and State governments to help in improving the economy. The tax payment helps in various levels, such as improving the infrastructure, developing the nation, and enhances multiple welfare activities for the country. Overall, taxes are mainly levied by the government to create income for undertaking projects to improve the Indian economy and the living standard of the citizens. The Government of India imposes two types of taxes on the Indian citizens, namely direct tax and indirect tax. Both these taxes are essential for improving the economy.
Let us know about the direct and indirect taxes in India.
Direct taxes are imposed on an individual’s income and are paid directly to the government. An individual cannot transfer this type of tax to another individual. Some of the examples of direct taxes in India are:
- Income Tax
- Wealth Tax
- Capital Gains Tax
- Corporate Tax
Benefits of Direct Taxes to the Taxpayers
The direct taxes in India have their share of advantages. They are mainly responsible for a country’s economic development and have the following benefits:
- The taxpayers are liable to pay tax annually, depending on their income. They are supposed to file an income tax return every year after paying tax. This makes it very economical as it is collected every year and is reduced at the source. It helps in saving administrative costs as the employer works as a tax collector.
- These types of taxes are productive as the revenue that comes from this tax is proportional to the changes in the country’s wealth. The increase in the population will raise the returns on direct tax.
- These taxes help reduce inflation. The government raises the tax rate if there is inflation, which may lower the demands for goods and services. Because of the increasing demand, the inflation may reduce.
The other type of tax is an indirect tax. The indirect taxes in India are the ones that are levied on goods and services. These taxes are added to the price of the services and products that increase the cost of the product. Some of the common types of indirect taxes in India are the Goods and Services Tax (GST), and Customs Duty.
GST is added to value-added services and goods in every stage of their consumption in the supply chain. It was introduced on July 1, 2017. With its implementation, the most significant advantage is the elimination of the ‘tax on tax’ dilemma. In this case, individuals are saved from paying multiple taxes that they would pay because of the cascading effect.
Both direct and indirect taxes in India are equally important for its economy. They play an essential role in the development of the nation in terms of different facilities such as healthcare, infrastructure, and other welfare initiatives. The central and state government collects these taxes as per the type of tax that is levied and is essential for the government and a country’s economic growth. Now, as a responsible citizen, you must pay taxes on time annually, as this will make India flourish.