Difference Between Direct Tax and Indirect Tax

 

Difference Between Direct Tax and Indirect Tax

Feature	Direct Tax	Indirect Tax
Definition	A tax paid directly by individuals or organizations to the government.	A tax collected by an intermediary (like a seller) and passed on to the government.
Who Pays?	Paid directly by taxpayers (individuals, businesses).	Paid by consumers when purchasing goods and services.
Burden of Tax	Cannot be shifted to another person.	Can be shifted to another person (passed to consumers).
Examples	Income Tax, Corporate Tax, Wealth Tax, Property Tax.	GST (Goods & Services Tax), VAT, Excise Duty, Customs Duty.
Collection Method	Collected directly from individuals/entities based on earnings.	Collected by businesses and added to the price of goods/services.
Impact on Economy	Can reduce disposable income but promotes economic equity.	Affects the cost of goods/services, influencing inflation.

Key Takeaways:

• Direct Taxes are paid by individuals or companies directly to the government (e.g., Income Tax).
• Indirect Taxes are included in the price of goods/services and paid by consumers (e.g., GST).
• Direct taxes are progressive, meaning higher-income individuals pay more.
• Indirect taxes are regressive, affecting everyone equally, regardless of income.