Direct tax: Meaning, definition, types, examples, difference from indirect tax

Direct tax meaning

Direct tax, a common method to generate revenue for authorities across the world, can be understood by knowing its two integral aspects.

Table of Contents

First, direct tax is the tax, which taxpayers should pay themselves. It means you cannot transfer the burden of paying direct tax on another entity. Second, direct tax is paid by the taxpayer directly to the authority charging it. There is absolutely no involvement of a third party.

Direct tax examples

Key examples of direct tax are:

Income tax.
Transfer tax (tax on asset transfer like stamp duty and registration charges).
Entitlement tax (tax on social security or medical care).
Property tax.
Capital gains tax.

Direct and indirect taxes

An indirect tax is paid by an entity other than the original taxpayer. For example, in case of GST, the tax is levied on a builder but it is the home buyer that ultimately pays the GST.

Indirect tax examples

Key examples of indirect tax are:

Goods and Services Tax (GST).
Value Added Tax (VAT).
Sales tax.
Excise tax.
Customs tax.

FAQs

What are two examples of direct taxes?

Income and property taxes are two examples of direct taxes.

What are direct and indirect taxes?

Direct tax is paid directly by taxpayers to the entity that imposed it. Indirect tax is imposed on a different entity and charged from another.

What is direct tax and its types?

Direct tax is paid directly to the authority imposing it. Its various types include income tax (imposed and collected by Income Tax (I-T) Department and paid by taxpayers), property tax (imposed and collected by urban local bodies and paid by property buyers), capital gains tax (imposed and collected by the I-T Department and paid by taxpayers) and stamp duty (imposed and collected by state governments and paid by homebuyers).

What is direct taxes’ simple definition?

Direct tax is paid by taxpayers directly to the entity responsible for collecting the tax.

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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