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Objectives of Direct Tax
Objectives of Direct Tax
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The history of direct tax in India dates back to prehistoric and ancient cultures as there is sufficient evidence to suggest that this form of tax was prevalent during the Indus Valley civilization and the Vedic period. There are also ample proofs that point toward land revenues and water tax during the Maurya and Gupta ages. The Mughal era redefined direct taxation as there were numerous ways for maintaining the treasury. However, the pre-independence period laid the foundation for the contemporary direct taxation methods as taxes related to land acquisition, transportation, entry, etc. were introduced by the British during this period.
The objectives of Direct tax are in plenty but first and foremost, it helps in tackling the economic balance. There are pre-defined tax slabs based on the economic condition of the country and an entity’s capacity and earnings. Suitable exemptions are also provided to balance out financial inequalities. Another major objective of this tax is to curb inflation. During inflationary times, the government increases the tax that reduces the requirement for goods and services thereby compressing inflation. The direct tax also helps with equal wealth distribution as higher taxes are levied on the rich and this amount is spent by the government towards the poor and deprived societies.
Different types of direct tax are prevalent within the country and some of the most common ones include income tax, wealth tax, corporate tax, etc. However, the rate of taxation is different for each of them while the period applicable is the same and it is usually for a year. However, corporate tax is a type of direct tax that may manifest in many forms and includes other taxes like fringe benefits tax, dividend distribution tax, securities transaction tax, etc.
The recent changes in direct tax have been well received by citizens and businesses as income tax and corporate tax have been reduced by the government. A reduction in the MAT (Minimum Alternate Tax) rate has also been introduced by the government for companies. The government has also abolished dividend distribution tax (DDT) so that corporations are not required to pay DDT. Moreover, to widen the tax base, many new transactions have been included in the ambit of tax collection at source (TCS) and tax deduction at source (TDS). Additionally, the due date for filing returns has also been extended.