Budget Explained: What is direct tax?

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Budget 2024: Every year, Union Finance Minister of the country presents the Budget on February 1. For the upcoming year, the country's FM, Nirmala Sitharaman, will present Budget 2024 in the Parliament on Thursday, February 1, 2024. This will be her sixth straight Budget speech.

A budget is a financial plan or estimate of revenues and expenditures for a specified period. During the Budget speech, a common man gets to know new finance terminology. You come across many new words that you either hear for the first time or that spark curiosity in you to know more about them. One such word is 'direct tax'.

Let us understand what direct tax is and what it includes:

What is Direct Tax?

Direct Tax, as the name suggests, is a tax paid directly by individuals or organisations based on their earnings to the government. In simple terms, if an individual has earned money, they will have to pay this tax.

Which types of taxes fall into the direct tax category?

Apart from income tax, direct tax also includes taxes like gift tax, wealth tax, capital gains tax, etc. If a person earns, then these taxes have to be paid by them.
 
Corporate tax for companies also comes under the scope of this tax. The person or company that earns has to pay direct tax.

Categories under Direct tax

The following is a list of some kinds of direct taxes that are levied in India:

Income Tax

Income tax is the tax paid on wages or income that is produced. The Government of India has established several tax slabs that determine the amount of tax that must be paid.

Capital Gains Tax

It is a form of direct tax that is paid on income earned from the sale of assets or investments.

Corporate Tax

Domestic companies, apart from shareholders, will have to pay corporate tax. In India, foreign firms that generate revenue are also required to pay this tax. Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India is taxable.

Wealth Tax

It is a type of tax levied on property ownership and market value. If someone possesses real estate, they are required to pay wealth tax regardless of whether the property brings in money or not.

Estate Tax

Estate Tax, often known as inheritance tax, is paid based on the value of the estate or the money that an individual has left after their death.