Direct Tax Definition – Meaning, Example and Importance

direct tax definition

Direct Tax Definition, Example and Importance

Direct Tax Definition – “Taxes that are levied directly on the income of the individual. Examples are Income Tax, Wealth tax, etc”

In other words, direct tax is a tax which is imposed by government directly on the income of the individual or the profit of the individual. The burden of this tax cannot be transferred to another person or other party.

Different Types of Direct Taxe or Example

Well, to have a more clear idea about Direct Tax definition, we have come up with different types of direct tax which are also its examples.

Income Tax – It is one of the most common direct tax in India and is charged directly on the income of the individual. In addition this, for different income level there is different tax slab. There are different heads under which the income tax is charged. These are given below –

  • Income from salaries.
  • Revenue in the form of capital gains.
  • Income from house ad property
  • Revenue earned from a business or a profession
  • Income from other services.

Corporate Tax – It is imposed on the entities or the corporate houses. In case of foreign companies, tax is charged on the income that arises or deemed to arise in India.

Wealth Tax – This type of tax is imposed on the incomes earned from property ownership. The most important point to note regarding this tax is that wealth tax is charged whether company is earning wealth or not.

Importance of Direct Tax

The best part of direct tax is that, tax slab is decided on the basis of income level. So the burden is balanced and revenues can be generated from every section of the society for the development purpose.

There is certainty, that is tax payer and government both knows how much amount they will pay or receive. These taxes are also productive as the income grows the tax revenue also increases. In addition to this, government charges taxes for them only who can afford them and use it in the upliftment of the lower section of the society.

Related Financial Terms of Direct Tax

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