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Question

Mention five differences between a direct tax and an indirect tax.

Vidyadip · Accepted Answer

A tax is a legal compulsory payment imposed by the government.
Differences between Direct Taxes and Indirect Taxes

Direct Taxes	Indirect Taxes
1. Direct tax is imposed income and wealth of people	1. Indirect tax is imposed on goods and services.
2. Direct tax is paid by the person on whom it is imposed. Hence, shifting of burden is not possible.	2. Indirect tax is paid by the person other than on the whom it is imposed.
3. Direct tax is generally progressive i.e. rate of tax increases with increase in income.	3. Indirect tax is generally regressive i.e., rate of tax decreases with increase in income.
4. Direct tax reduces inequality of income.	4. Its burden falls more on the poor.
5. Income tax is an example of direct tax.	5. GST is an example of indirect tax.

Answer