Direct Tax vs Indirect Tax

Difference between Direct Tax and Indirect Tax

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Direct Tax and Indirect Tax are the forms of taxation. First lets get a brief knowledge about tax. Tax is a “compulsory payment” by the citizens to government to “public expenditure”. It is legally enforceable by the government. Tax is the main source of income to government.

Aims of taxation:

1. To secure money for expenditure of government

2. Regulation of economy

3. Equitable distribution of income to reduce income inequalities

Generally tax is divided into two parts which are as follows.

i. Direct tax and

ii. Indirect tax.

Direct Tax:

The most of the income to the government from corporate tax (Direct Tax). The present corporate tax is 30% and proposed to reduce up to 25% in frigid manner 2016-17 budget wealth tax abolished.

Indirect Tax:

One of the indirect taxes is GST. Introduction of GST would be very significant step in the field of indirect tax reforms in India by amalgamating a large number of Central state taxes into single tax it would be mitigate, cascading or double taxation in a major way and payee the way for “common national market”.

(2017-18) General income tax slabs( men + women):

Slab                       Rate

Up to 250000.          – Nil

250000 to 5 lakh      – 5%

5Lakh to 10 lakh       -20%

above 10Lakhs.        -30%

Difference between Direct tax and Indirect Tax

Difference between Direct Tax and Indirect Tax:

Direct Tax Indirect Tax
It is charged directly on persons expenditure, income, wealth etc., Charged on goods and services
It is progressive in nature. It is regressive in nature.
The tax which is born by the person on whom it is levied The tax which are their primary burden or impact on one person but person succeeds in shifting his burden to others.
A direct tax cannot be shifted to other person The final or real burden of the taxes has to be Borne by third person.
The impact of tax incidence on tax on same person The impact of tax incidence of tax on different persons.
Personal income tax, Corporate tax, Wealth tax, Gift tax, Land revenue, Professional tax etc., Excise duty, Custom duty, Sales tax, Service tax, VAT etc.,


The direct taxes won’t affect the price of Goods and services while coming to the Indirect taxes it will have an Inflationary effect (eg: The cost of production will increase.) In the direct tax High income tax rates leads to Tax evasion while in the indirect tax it will lead to smuggling etc., If you want to know about current Tax slab rates click here.

For further reading about Difference between Stock and share click here.

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