A direct tax is one in which both the impact and the incidence are grouped together. The tax is paid by the organization or individual directly to the entity that imposes the payment. The tax must be paid directly to the government and not to a third party.

Types of Direct taxes

Below mentioned are the types of direct tax.

Income Tax

Individuals must pay income tax based on their age and earnings. The Indian government has a number of tax slabs that determine how much income tax is paid. The taxpayer is required to file an income tax return each year (ITR). Individuals may be eligible for a refund or must pay a tax depending on their ITR. Individuals who do not file their ITR are subject to stiff penalties.

Wealth Tax

The tax is assessed on an annual basis and is computed based on the ownership and market value of the property. If a person owns the property, he or she must pay a wealth tax, which is levied whether or not the property generates income.

Depending on their residency status, corporations, Hindu Undivided Families (HUFs), and individuals must pay wealth tax. Gold deposit bonds, stock assets, residential real estate, commercial real estate rented for more than 300 days, and residential real estate owned for business and professional use are all exempt from the wealth tax.

Capital Gains Tax

It is a type of direct tax levied on income derived from the sale of assets or investments. Capital assets include farms, bonds, stocks, businesses, art, and real estate investments. Tax is classified into two types: long-term and short-term, based on its holding period. Short-term gains apply to any assets other than securities sold within 36 months of the date they were acquired. Long-term investments are assessed if any income is generated from the sale of properties held for more than 36 months.

Advantages of Direct Tax

Economic and social balance: The Government of India has introduced well-balanced tax slabs based on an individual’s earnings and age. The country’s financial situation also determines the tax slabs. Exemptions are also implemented to balance out all income disparities.


As the number of people working and living in the community grows, so do the returns from direct taxes. As a result, direct taxes are regarded as highly productive.

Inflation is controlled: The government raises taxes during periods of inflation. Tax increases reduce the demand for goods and services, causing inflation to contract.

Inflation is controlled

The government raises taxes during periods of inflation. Tax increases reduce the demand for goods and services, causing inflation to contract.

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Because of the presence of direct taxes, both the government and the taxpayer have a sense of confidence. The taxpayer and the government are both aware of the amount that must be paid and the amount that must be collected.

The distribution of wealth is equitable

The government levies higher taxes on those individuals or organizations who can afford them. This extra money is used to assist India’s poor and lower societies. Direct taxes play an essential role in the Indian economy despite a few drawbacks. To know more about TDS on consultancy, click here.

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