Context:

• Net direct tax collection in the 1st quarter of FY 20212022 is Rs. 2,46,519.82 crore as against Rs. 1,17,783.87 crore during the same period of previous FY 202021.

 Different types of direct taxes are:

Personal Income Tax

• An income tax is a tax which governments impose on individuals within their jurisdiction.

Corporate Tax

• Corporate tax is a tax levied on the net income of the company.
• Companies, both private and public which are registered in India under the Companies Act 1956, are liable to pay corporate tax.

Dividend Distribution Tax

• The Dividend Distribution Tax is imposed on dividends that a company pays to its shareholders out of its profits.

Minimum Alternate Tax

• Minimum Alternate Tax (MAT) was effectively introduced in India by the Finance Act of 1987. It was introduced to tax the ‘zero tax companies’. Zero tax companies are such companies which show zero or negligible income to avoid tax nets.
• Under MAT, such companies are taxed a certain percentage of their book profit as taxable income.
• MAT has been brought in to reduce tax avoidance practices followed by some companies to avoid the income tax, though they had the “ability to pay”.
• MAT is applicable to all corporate entities, whether public or private.
• MAT is not applicable to:
  • Any income accruing or arising to a company from the life insurance business.
  • Shipping income liable to tonnage taxation.

Alternate Minimum Tax:

• It is leviable alternative to normal tax.
• AMT is a tax levied on ‘adjusted total income’ in a FY wherein tax on normal income is lower than AMT on adjusted total income. So, irrespective of normal tax, AMT has to be paid by taxpayers to whom AMT provisions apply.

Capital Gain Tax

• Capital gain is any profit that is received through the sale of a capital asset (Land, building, house property etc.).
• The tax that is paid on that profit is called capital gains tax.
• Capital gain tax can either be long term (individuals own an asset for a duration of more than 36 months) or short term (In case assets are held for a duration of 36 months or less).

Securities Transaction Tax (STT)

• Securities Transaction Tax (STT) is a type of financial transaction tax levied in India on transactions done on the domestic stock exchanges.
• The rates of STT are prescribed by the Central/Union Government through its Budget from time to time.
• It is categorized as a direct tax.

Commodity Transaction Tax (CTT)

• Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in India, on transactions done on the domestic commodity derivatives exchanges.
• The concept of CTT was first introduced in the Union Budget 200809.
• CTT aims at discouraging excessive speculation, which is detrimental to the market.

Direct Tax Code (DTC)

• DTC is the proposed legislative reform of the direct taxation system.
• It seeks to simplify and consolidate all the direct tax of the central government like income tax, gift tax, wealth tax etc.
• It seeks to increase tax revenue by broadening the tax base.
• Features of DTC are:
  • Tax laws will be rewritten in simple and unambiguous language to reduce the scope of misinterpretation.
  • Reduce exemption deduction debate to reduce their scope of misuse.
  • Flexible tax system to make changes in tax provision without amendment in tax law.
• In 2017, the Government set up an expert committee under Akhilesh Ranjan to draft a new Direct Taxes Code. The task force submitted its Report in 2019 which has not been made public.

 

Difference Between Direct and Indirect Taxes:

Direct Tax	Indirect Tax
Direct tax is paid directly by liable person or organization to the government.	Indirect tax is paid indirectly to government. Imposed on income or profits. Imposed on goods and services.
The burden to pay the tax directly falls on the individual.	The burden is shifted to the consumer by the manufacturer or service provider.
Direct taxes are levied based on the paying capacity of the individual.	Indirect Tax does not look at the consumer’s ability to pay but is the same for everyone who buys the goods or services.
Direct taxes can be evaded if there is an absence of proper collection administration.	Indirect taxes cannot be escaped from as they are charged automatically on goods and services.
Direct taxation is example of progressive taxation method.	Indirect taxes is example of regressive taxation method.
Income Tax, Wealth Tax, Corporate Tax etc. are the examples of direct taxes.	GST (Goods and Services Tax), Sales Tax etc. are the examples of indirect taxes.