What is Tax

Tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity) by the Government in order to fund various public expenditures. Taxes contribute to the major source of revenue for a country. The money collected as tax is utilized for the growth and development of the nation and for the maintenance of public properties and services. There are two major types of taxation according to the Government of India, direct tax and indirect tax.

DIRECT TAX & INDIRECT TAX

Direct tax is levied directly on personal or corporate income. Indirect tax is levied on the price of a good or service.

In direct tax, the incidence and impact of taxation fall on the same entity. In this case, the burden of tax cannot be transferred by the tax payer to someone else. The taxpayer has to pay the tax directly to the government.

In case of indirect tax, the burden of tax can be shifted by the tax payer to someone else. Indirect tax is levied on goods and services rather than on income or profits. All the indirect taxes, both central and state, are now subsumed under GST.