Context:
Growth in India’s net direct tax collections slowed marginally over the past month to touch 15.88% by January 12, from a 16.5% uptick as of December 17.
Direct Tax in India
- Direct tax is a tax paid directly to the entity imposing it.
- It includes income tax, real property tax, personal property tax, and taxes on assets.
Significance of Direct Tax
- Equity
- Direct taxes ensure justice in tax burden allocation.
- Progressive
- Direct taxes can reduce income and wealth inequalities, leading to social equality.
- Productive
- Direct taxes are elastic and productive, increasing or decreasing with changes in national income or wealth.
- Certainty
- Direct taxes are more precise in estimating revenue, thus reducing chances of tax evasion.
- Economy
- Direct taxes maintain the canon of economy by collecting annually in lump-sum, reducing administrative costs.
- Educational
- Direct taxes create a civic sense among taxpayers, making them aware of their duty to pay taxes.
- Anti-inflationary
- Direct taxes can help keep prices up and curb inflationary excess demand.
Government Steps to Strengthen Direct Taxes
- The Finance Act, 2020
- The Finance Act, 2020 provides concessional rates for personal income tax.
- Vivad se Vishwas Scheme
- Declarations are filed to settle pending tax disputes, raising revenue in time and saving costs on litigation.
- Expansion of scope of TDS/TCS
- New transactions are brought within the purview of TDS and TCS.
- Transparent Taxation- Honoring the Honest
- Brings transparency into the income tax system.
Indirect Tax
Indirect Tax is that type of tax for which the Impact of Tax and Incidence of Tax fall on different persons or entities. Indirect Taxes are, generally, levied on goods and services.
They differ from direct taxes as they are not levied on a person who pays directly to the government. Instead, they are levied on products/services and are collected by the person selling the product.
- Administration
- The Central Board of Indirect Taxes and Customs (CBIC) administers the Indirect Taxes in India. CBIC is a department under the Department of Revenue in the Ministry of Finance.
Characteristics of Indirect Tax
- Goods and Services
- Indirect taxes are levied on the consumption of goods and services rather than being imposed directly on the income of an individual.
- Paid Indirectly
- The indirect tax is paid directly to the intermediary like a seller or service provider and then on to the government, while direct taxes are paid to the government.
- Regressive in Nature
- These are regressive as everyone has to pay for the same commodity or service irrespective of his income.
- Broad Base
- They generally have a broad tax base, since they are levied on most goods and services consumed by the people.
Types of Indirect Tax
- Excise Duty
- Customs Duty
- Sales Tax
- Service Tax
- Goods and Services Tax (GST)
- Octroi and Entry Tax
- Toll Tax
- Stamp Duty
Other Taxes in India
- Corporate Tax
- a percentage of firm profit that has to be remitted to the government.
- DDT
- applicable on the portion of dividends disbursed to a shareholder by an enterprise.
- Minimum Alternate Tax
- Introduced to have no tax payable or reduce a part of one’s tax payable.
- Security Transaction Tax (STT)
- Imposed on buying and selling of securities traded on recognized stock exchanges in India.
