Differences Between Direct and

Indirect Taxes
CONTEXT DIRECT TAX INDIRECT TAX

Imposition Imposed on income or Imposed on goods and

profits services

Individuals, HUFs, firms and End-consumer of the goods

Taxpayer
companies and services

Applicable to every stage of

Applicable to the taxpayer
Applicability the production-distribution
alone
chain
The burden is shifted to the
The burden falls directly on consumer by the
Tax burden
the individual manufacturer or service
provider

Cannot be transferred to Can be transferred from

Transferability
anyone else one taxpayer to the other
 Wide coverage because all
Confined to an entity or
Coverage the members of the
individual taxpayer
society are taxed
Lesser administrative costs
Higher administrative costs
Administrative cost because of stable,
and many exemptions
convenient collections

Tax evasion Possible Not possible

Have good allocative effects Allocative effects not as

Allocative effects since they put less burden good as those of direct
on the collection taxes

Might help in increasing

Inflation Helps in reducing inflation
inflation
 Discourage investments, Growth-oriented,
Orientation
lessen savings encourage savings

Progressive, reduce Regressive, enhance

Mode of progress
inequalities inequalities

Most common types (in Income, Wealth, Corporate GST or Goods and Services
India) Tax Tax