Distinguish between direct taxes and indirect taxes. Give an example of each.

Question

1 Answer

answered Aug 6, 2020 by Eshan01 (50.9k points)
selected Aug 7, 2020 by Aalaya

Best answer

Distinction between the direct tax and indirect tax :

Basis of distinction	Direct tax	Indirect tax
(i) Subject matter	Direct tax is imposed on persons	Indirect tax is imposed on commodities.
(ii) Shifting	Direct tax is paid by the person on whom it is imposed. Hence, shifting of burden is not possible	Indirect tax is paid by the consumers i.e., the persons other than the persons on whom it is imposed. Thus, shifting of burden is possible.
(iii) Nature	Direct tax is generally progressive i.e., rate of tax increases with increase in income.	Indirect tax is generally regressive i.e., rate of tax decreases with increase in income
(iv) Examples	(a) Income Tax (b) Wealth Tax (c) Gift Tax.	(a) Sales Tax (b) Excise Tax (c) Custom Duty.