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Direct Tax Objectives
Direct Tax Objectives
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Direct taxes in India are levied on individuals, Hindu Undivided Families (HUFs), and corporate entities. These taxes are imposed directly on the income, profits, or wealth of the taxpayers. The scope of Direct Tax includes Income Tax and Corporate Tax. Income Tax is the primary direct tax in India and is levied on the income earned by individuals and entities. The Income Tax Act of 1961 governs the provisions related to income tax and its administration. Companies registered under the Companies Act, partnership firms, and other corporate entities are subject to corporate tax. It is calculated based on the profits earned by these entities.
The objectives of direct tax are revenue generation, redistribution of wealth, and promoting economic growth. The primary objective of direct taxes is to generate revenue for the government. These taxes contribute significantly to the government's coffers and finance various developmental activities and public welfare programs. Direct taxes aim to promote income redistribution and reduce income inequality. By employing a progressive tax structure, higher-income individuals and entities are taxed at higher rates, ensuring a more equitable distribution of the tax burden. Direct taxes can also be used as tools to incentivize economic activities and encourage investments. Tax incentives, exemptions, and deductions provided under the tax laws encourage savings, investment, and entrepreneurship, fostering economic growth.
There is a difference between direct tax and indirect tax in terms of their nature, impact, and method of collection. Direct taxes are borne by the individuals or entities on whom they are imposed. The burden of these taxes cannot be shifted to others. In contrast, indirect taxes are passed on to consumers as part of the prices of goods and services they purchase. Direct taxes directly affect the income, profits, or wealth of individuals or entities. The amount of tax paid is based on an entity's financial circumstances. Indirect taxes, on the other hand, impact consumption and are usually levied as a percentage of the value of goods and services.
Direct tax in India follows a progressive tax structure, meaning that tax rates increase as the income or wealth of the taxpayer rises. This ensures that higher-income individuals contribute proportionally more to the government's revenue. Indirect taxes, on the other hand, are generally regressive as they tend to impact lower-income individuals more significantly.