Direct Tax Services
Direct taxes are directly affected by the taxpayer. They based upon the income and wealth of an individual or entity. The tax collection depends on the type of taxes. Direct taxes which include the income tax, wealth tax and corporation tax are handled by the central government. The Income Tax Department is responsible for monitoring the payments of income tax. Therefore, when the liability to pay the tax and the burden of the tax points on the same individual, it is called a direct tax.
Characteristics Of Direct Taxes
Direct taxes have distinct characteristics that set them apart from other types of taxes, such as indirect taxes
Direct Payment
Paid directly by the individual or entity to the government without any intermediaries.
Based on Ability to Pay
The structure of tax reflects the taxpayer's ultimate ability to pay. Accordingly, taxpayer's with higher income should pay a higher tax.
Fixed Liability
Tax has a fixed cost that is known ahead of time with simple planning.
Administrative Simplicity
The assessment and collection procedures are simple and easy.
Personal Responsibility
The taxpayer is personally responsible for calculating their own tax and paying the correct amount.
Economic Impact
Can influence economic behavior and decisions, such as investment and spending.
Non-Transferability
Tax liability cannot be passed onto other parties, so it is always ultimately borne by the taxpayer.
Progressive Rates
Generally utilizes marginal rates, where higher income/profits pay higher rates.
Government revenue source
Direct taxes typically provide the government with a dependable source of revenue.
Types of Direct Taxes
Direct taxes come in various forms, each targeting different sources of income or assets.
Income Tax
Individual taxes on earnings such as salaries and wages, and other earnings. Corporate Income Tax: tax on profits earned by businesses and corporations.
Property Tax
Tax on the assessed value of property, such as land and buildings, of individuals or businesses. Personal Property Tax: Tax collateralized against movable properties, such as vehicles and various machinery.
Capital Gains Tax
Tax on selling a capital asset, which means it was held for less than one year. Make note that short-term capital gains are generally taxed heavily. Long-Term Capital Gains: Tax on selling a capital asset, which means it was held for more than one year. After one year, long-term capital gains are taxed at a lower rate than personal income tax.
Wealth Tax
Tax on the total net worth of an individual, not just income, such as the value of an individual's real estate and all investments.
Estate Tax
Tax on the value of the estate before any distributions made to heirs; otherwise, this is referred to as an inheritance tax.
Gift Tax
Type of transfer tax; tax on a transfer of property or money between two parties, without a full value paid in exchange.
Payroll Tax
Tax imposed on employment wages to fund Social Security and Medicare. Social Security Tax: Collected to fund social security programs. Medicare Tax: Fund Medicare, which is a federal health insurance program.
Dividend Tax
Depending on the ownership structure of the corporation; taxes imposed on dividends paid by corporations to shareholders from their stock investments.
Self-Employment Tax
One additional tax type: taxes levied against individual income earned by individuals when self-employed, adding the employer and employee portions of the social security and medicare tax amounts.
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