Budget 2023: What is Direct Tax and Indirect Tax? Explained

Budget 2023: A budget means a financial plan or an estimation of revenue and expenses for a defined period. The government presents the Budget every year wherein it tells people of the country that how it will use the funds. Union Finance Minister presents the Budget in the Parliament on February 1 every year. This year, Nirmala Sitharaman will present the Budget. This would be her 5th straight Budget speech.

There are multiple terminologies that are used in the Budget. But commoners are unable to relate to those words. Tax is the most talked about the topic ahead of the budget as people expect some announcements. To help you understand better, Zee Business will tell you the key differences between Direct Tax and Indirect Tax.

What is Direct Tax?

Direct Tax, as the name suggests is a tax paid directly by an organisation or an individual to the entity by which the tax is imposed. So in simple terms, the tax is paid directly to the government and no one else.

Categories under Direct tax

The various types of direct tax that are imposed in India are mentioned below:

Income Tax: Tax paid on earnings or income generated is income tax. The Government of India has decided certain slabs under which tax to be paid is decided. The taxpayer must file Income Tax Returns (ITR) on a yearly basis to receive a refund or might have to pay a tax depending on their ITR. Huge penalties are levied in case individuals do not file ITR.

Also Read: Budget 2023 Exclusive: Govt may allow deductions in new income tax regime - Expectations

Wealth Tax: Tax paid on ownership of properties and the market value of the property is Wealth Tax. In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.

Estate Tax: It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.

Corporate Tax: Domestic companies, apart from shareholders, will have to pay corporate tax. Foreign corporations that make an income in India will also have to pay corporate tax. Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India are taxable.

Capital Gains Tax: It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments.

Also Read: Budget 2023: Why investors should keep an eye on railway stocks ahead of Union Budget 

What is Indirect Tax?

A tax that is transferable and can be passed on to other entities is Indirect tax. Indirect tax is generally imposed on suppliers or manufacturers who pass it on to the final consumer.

Categories under Indirect Tax

The various types of indirect tax that are imposed in India are mentioned below:

Service tax: Tax levied by an entity in return for the service provided by them is service tax. The service tax is collected by the Government of India and deposited with them.

Excise duty: Tax levied on any product or good manufactured by a company in India is called Excise Duty.

Value Added Tax: Also known as VAT, this type of tax is levied on any product sold directly to the customer and is movable. VAT consists of Central Sales Tax which is paid to the Government of India State Central Sales Tax which is paid to the respective State Government.

Custom Duty: This is levied on the goods imported to India. Sometimes, Custom Duty is also levied on products which are exported out of India.

Stamp Duty: This is a tax levied on the transfer of any immovable property in a state of India. Stamp tax is also applicable on all legal documents too.

Entertainment Tax: This tax is charged by the state government and is applicable on any products or transactions related to entertainment. Purchasing of any video games, movie shows, sports activities, arcades, amusement parks, etc. are some of the products on which

Securities Transaction Tax: This tax is levied during the trading of securities through the Indian Stock Exchange.

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