T.Y.B.A.F.

(SEMESTER-V)

Explained by : Asst. Prof. Seema S. Chaudhary

Tax is a charge which is levied by the Government on a
product, income or activity. Taxes are the source of
income of the government, which is used as fund for
public expenditures.

Direct tax is a type of tax where the incidence and impact of

the taxation fall on the same entity. It can not be shifted by the
taxpayer to someone else. Examples are- Income tax,
Corporation Tax, Property tax and Gift tax.
Indirect tax is a type of tax where the incidence and impact of taxation
does not fall on the same person/ entity. Indirect tax has the effect of
raising the price of the products and services on which they imposed. For
example:- Custom duty, Central excise, service tax and GST, etc.
Difference in Direct Tax and Indirect tax

Direct Tax: Indirect Tax:

• Paid Directly • Paid Indirectly
• Paid on Income • Levied on goods or services
• Can not be shifted • Can be shifted
• Progressive nature • Regressive nature
• No inflation effect • Inflation effect
• Small tax base • Wider tax base
 Indirect Tax (GST)

Goods and Services Tax (GST) introduced on 1st July,2017.

It was a very important step in the field of indirect tax reforms in
India.
Large number of Central and State taxes amalgamated into a single
tax i.e GST
It was done to mitigate the ‘cascading’ or double taxation in a major
way. Which helps to pave the way for common national market.
From the consumer point of view, the biggest advantages should be
in terms of a reduction in the overall tax burden on goods.
 GENESIS Of GST
The idea of GST was first mooted by the Union Finance
Minister in his Budget for 2006-07. The empowered Committee
of State Finance Ministers which had formulated the design of
State VAT was requested to come up with a roadmap and
structure for the GST. Joint working Groups of officials having
representatives of the States as well as the Centre were set
up to examine various aspects of the GST and draw up reports
specifically on examine various aspects of the GST and draw
up reports specifically on exemptions and thresholds, taxation
of services and taxation of inter-state supplies. Based on
discussions within and between State and Central Government,
the Empowered Committee released its First Discussion Paper
on GST in November,2009.
 Advantages of Indirect Taxes
1. Convenient : indirect taxes imposed on the manufacturers, sellers and traders, etc. now
payment of taxation is convenient as they can pay it in small amounts or at intervals and not
in lump sum.

2. Difficult to evade: indirect taxes are paid by sellers and customers to the government.
Therefore, the customer has no opportunity to evade the indirect taxes.

3. Wide Coverage: indirect taxes have a wide coverage. Majority of the products or services
are subject to indirect taxes.

4. Elastic: some of the indirect taxes are elastic in nature. When government feels it
necessary to increase its revenues, it increases these taxes.

5. Universality: indirect taxes are paid by all classes of people and so they are broad based.
Poor people may be out of the net of the income tax, but they pay indirect taxes while buying
goods.
 Advantages of Indirect Taxes

6. Social Welfare: the amount collected by way of taxes is utilized by the government for
social welfare activities, including education, health and family welfare. Very high taxes are
imposed on the consumption of harmful products such as alcoholic products, tobacco products
and such other products.

7. Flexibility: is the ability of the tax system to generate proportionately higher tax revenue
with a change in tax base and buoyancy is a wider concept, as it involves the ability of the tax
system to generate proportionately higher tax revenue with a change in tax base as well as tax
rates.