Difference between Direct Tax & Indirect Tax

 DIRECT TAX & INDIRECT TAX

There are two types of taxes: Direct Tax and Indirect Tax

Tax, of which incidence and impact fall on the same person, is known as Direct Tax, such as Income Tax. On the 

other hand, tax, of which incidence and impact fall on two different persons, is known as Indirect Tax, such as GST, 

etc. It means, in the case of Direct Tax, tax is recovered directly from the assessee, who ultimately bears such taxes,whereas in the case of Indirect Tax, tax is recovered from the assessee, who passes such burden to another person 

& is ultimately borne by consumers of such goods or services.

Direct Tax 

Incidence and impact fall on the same person

 

Assessee, himself bears such taxes. Thus, it pinches the taxpayer.

 

Levied on income

 

E.g. Income Tax

 

Progressive in nature i.e., higher tax are levied on

 

person earning higher income and vice versa.

• Indirect Tax

• Incidence and impact fall on two different persons

•  Tax is recovered from the assessee, who passes such burden to another person. Thus, it does not pinch the taxpayer. 

• Levied on goods and services. Thus, this type of tax leads to inflation and have wider base.

•  E.g. GST, Customs Duty, etc.

• Regressive in nature i.e., all persons will bear equal wrath of tax on goods or service consumed by them irrespective of their ability. 

• Useful tool to promote social welfare by checking the consumption of harmful goods or sin goods through higher rate of tax.