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What is Direct Tax?
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.
Role of Tax Rates in Controlling Money Supply
Taxes take away the spending capacity of corporations and individuals. Taxing a product or service, thus making it expensive will make low consumption and eventually decrease in inflation. Thus, decreasing the tax rates will empower individuals to use their capacity. However, taxes are relatively inflexible.
Types of Direct Taxes in India
Direct taxes cover the following:
- Income Tax: It is charged by the central government on the income of individuals and organisations.
- Corporation Tax: It is a flat rate applied on the domestic corporates for the earnings for a particular period of time.
Advantages of Direct Taxes
- The lower income – lower burden of tax
- Self-payment of direct taxes makes everyone responsible and socially aware
- The classification of wealth is almost the same under direct taxation.
- Direct tax rates can be used as an anti-inflationary tool
Disadvantages of Direct Taxes
- Direct taxes may affect savings and investments badly.
- Being it leads to tax evasion in the biggest disadvantage.
- It might be inconvenient to pay direct taxes as the procedure is complicated
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