Understanding Direct Tax: Definition, Benefits, and Types Explained
By June 17, 2024, the government collected INR 4.63 trillion in direct taxes for FY 24-25, marking a 21% annual growth and playing a crucial role in national revenue.
What exactly is direct taxation? How does it impact individuals and businesses? Dive into the world of direct tax with our comprehensive guide, covering everything from definitions to benefits and types.
About Direct Tax:
Direct taxes are levies paid directly to the central authority, based on income or profits. Managed by the Central Board of Direct Taxes, this system is progressive—higher incomes incur higher taxes, ensuring fairness.
Key Differences:
Unlike indirect taxes (like GST), which are applied to goods and services, direct taxes target income or profits, providing a clear and equitable contribution structure.
Types of Direct Taxes in India:
Income Tax: Levied on individuals and entities based on their earnings.
Corporate Tax: Paid by companies on their profits.
Capital Gains Tax: Imposed on profits from asset trading.
Securities Transaction Tax: Applied to securities trading.
Dividend Distribution Tax: Initially paid by companies, now on investors.
Gift Tax: Previously separate, now part of income tax.
Tax Rates for FY 2024-25:
Income Tax: Varies by income slab with progressive rates.
Corporate Tax: Different rates for domestic and foreign companies, with specific rates for various conditions.
Eligibility and Importance:
Direct taxes are crucial for funding public services and ensuring economic fairness. They support essential sectors like healthcare and education while promoting equitable wealth distribution.
Direct Tax Code:
The proposed Direct Tax Code aims to simplify and modernize the tax system, replacing the Income Tax Act of 1961, reducing complexity, and clarifying obligations.
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Is GST a direct tax? No, GST is an indirect tax. Direct taxes are paid on income or profits.
What are the objectives of direct tax? To fund public services and balance the economy by taxing based on income.
What are the advantages? Fairness, predictability, and cost-effectiveness.
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