Question

Write the meaning of Direct Tax. Highlight its important advantages.

Hint:

Remember "Direct tax is paid Directly." The person who earns the income pays the tax directly to the government. You can't ask your friend to pay your income tax for you—the burden is non-transferable.

Answer 1

Meaning of Direct Tax:
A direct tax is a tax that is levied directly on the income or wealth of a person or a corporation. The liability to pay the tax and the actual burden of the tax fall on the same person. This means the taxpayer cannot shift the burden of the tax to someone else. Examples include Income Tax, Corporate Tax, and Wealth Tax.
Important Advantages of Direct Tax:

Equity (Progressive in Nature): Direct taxes can be designed to be progressive, meaning that higher income earners pay a larger percentage of their income as tax. This helps in reducing income inequalities in society.
Certainty: The taxpayer knows exactly how much tax they need to pay, and the government can estimate its revenue with a fair degree of certainty. The tax rates are fixed and announced in advance.
Elasticity: The revenue from direct taxes can increase or decrease automatically with changes in the national income or wealth. As the economy grows and incomes rise, tax revenues also increase without any change in the tax rates.
Civic Consciousness: Since individuals feel the direct pinch of the tax, they are more likely to be conscious of how the government spends their money. This promotes accountability and responsible governance.
Economical: The cost of collecting direct taxes is generally lower compared to indirect taxes, as many taxes (like income tax) are deducted at the source itself (TDS).