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Direct tax is a kind of charge, which is imposed directly on the taxpayer. The examples of direct tax include property tax and income tax. Alternatively, it can be said that a direct tax is one that is taken away from one's salary or wages. When the tax is imposed by the government upon the property, then it is called property tax, which is also a direct tax.
Meaning of Direct tax: Different views
The term direct tax can be defined from two different perspectives. One is from Colloquial point and the other is from U.S. constitutional law point. Certain taxes may fall under indirect tax categories in the constitutional sense, but fall under direct tax category in the colloquial sense.
Direct tax: Colloquial sense
From the Colloquial point of view, a direct tax is the charge levied directly to the taxpayers by the government. Examples include corporate taxes, income taxes and transfer taxes. The transfer taxes include estate tax and gift tax.
Direct tax: U.S. constitutional law
According to the U.S. constitutional law, a direct tax is the charge on property by reason of it's ownership.
Direct tax in India
In India, all the direct tax related matters are taken care by the Central Board of Direct Taxes (CBDT), which is a significant division of the Department of Revenue, Ministry of Finance, Government of India. CBDT is functioning under the Central Board of Revenue Act 1963. CBDT is responsible for formulating and enforcing direct taxes in India. One of the vital functions of CBDT is to administer direct taxes law followed by Income Tax Department.
The tax system in India is primarily demarcated under the control of Central and State Government. The Central Government is primarily responsible for imposing taxes on income, custom duties, central excise and service tax. The State Government is responsible for levying taxes like State Excise, stamp duty, VAT (Value Added Tax), land revenue and professional tax. The local bodies are also authorized to impose tax on properties, octroi and many more.
Examples of Direct Taxes
Some of the examples of direct taxes include capital gains tax, personal income tax, tax on corporate income, and tax incentives.
Direct Tax : Indian Budget 2005-06
- Upto Rs 1,00,000: NIL tax
- Rs 1lakh to Rs 1.5 lakh: 10% tax
- Rs 1.5 lakh to Rs 2.5 lakh: 20%
- Above Rs 2.5 lakh: 30% Plus
- Surcharge of 10% to remain
Difference: Direct and Indirect tax
In the colloquial sense, a direct tax is levied by the government directly to the taxpayers, whereas the indirect tax (or collected tax) is collected by intermediaries, who eventually file tax returns and passes to the respective department. Examples of direct taxes include income taxes, some corporate taxes and transfer taxes. Examples of indirect taxes include Value Added Tax and Sales Tax.