Budget 2024: We examine the effects of direct and indirect taxes on our lives ahead of Union Finance Minister Nirmala Sitharaman‘s presentation of the Interim Budget for the fiscal year 2024–25 on February 1. In order to finance a government and influence its economy, taxes are essential. There are two primary categories of taxes in India: direct taxes and indirect taxes.
Introduction to Direct and Indirect Taxes
Let’s first clarify what direct and indirect taxes entail.
Direct tax: Money paid by individuals or businesses to the government directly on the basis of their profits is known as direct tax. The amount of tax paid is determined by the individual’s annual income. Income tax, property tax, corporation tax, wealth tax, gift tax, security transaction tax, and capital gains tax are a few types of direct taxes. Therefore, direct taxes are sums that a person pays to the government directly out of their income.
Indirect tax: The person purchasing the thing or service is the final recipient of indirect tax, which originates with the products suppliers. Indirect taxes are levied on goods that are purchased, as opposed to direct taxes. Value-added tax (VAT), excise taxes, and sales tax are a few examples. Thus, a portion of the money spent on purchases is allocated to these indirect taxes.
Different Application and Payment Processes
The application and payment processes for direct and indirect taxes are different. Similar to income tax, direct taxes are the payer’s duty. Conversely, the seller—who could be any person making a purchase—is originally responsible for paying indirect taxes, such as sales tax. Therefore, indirect taxes are transferable throughout many parties or groups.
Benefits of Reducing Indirect Taxes
Reducing indirect taxes increases exports, boosts domestic manufacturing, increases economic value addition, and promotes green energy and mobility. The goal of direct tax is to relieve citizens’ tax burdens, encourage entrepreneurship, and lessen compliance requirements.
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