What is Direct Tax?
5paisa Research Team
Last Updated: 27 Mar, 2025 11:30 AM IST

Content
Direct taxes are a key component of any country’s tax system, especially in India. These taxes are imposed directly on individuals or businesses, and the tax payment is made directly to the government. The crucial distinction between direct and indirect taxes is that with direct taxes, the taxpayer cannot transfer the responsibility of payment to others, unlike indirect taxes where costs are passed on to the consumer.
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Frequently Asked Questions
Direct taxes are levied directly on an individual’s income, wealth, or profits, whereas indirect taxes are imposed on goods and services and are passed on to the consumer.
Income tax is a major source of government revenue and plays a vital role in funding public services and infrastructure, helping maintain social equity and economic stability.
Capital gains tax is levied on profits from selling assets like property or stocks. Short-term capital gains are taxed at higher rates, while long-term capital gains may benefit from lower rates and indexation.
Yes, foreign companies making income in India through activities like selling assets or receiving royalties are subject to corporate tax in India, based on their earnings.
The removal of wealth tax streamlined the tax system, reducing administrative burden and complexity. It also led to a focus on more efficient tax collection methods, like capital gains tax.