There are two types of taxes
Direct Tax and Indirect Tax
Tax, of which incidence and impact fall on the same person, is known as Direct Tax, such as
Income Tax. On the other hand, tax, of which incidence and impact fall on two different
persons, is known as Indirect Tax, such as GST, etc. It means, in the case of Direct Tax,
tax is recovered directly from the assessee, who ultimately bears such taxes, whereas in
the case of Indirect Tax, tax is recovered from the assessee, who passes such burden to
another person & is ultimately borne by consumers of such goods or services.
Direct Tax
- Incidence and impact Fall on the same person
- Assessee himself bears such taxes
- E.g. Income Tax
- Progressive in nature
Indirect Tax
- Incidence and impact fall on two different
- Tax is recovered from the assessee, who passes such burden to another person. Thus, it does not pinch the taxpayer.
- E.g., GST, Customs Duty, etc.
- Regressive in nature, i.e., all persons will bear equal
Wage tax on goods or services consumed by them
irrespective of their ability.