All You Need to Know About Direct Taxes
The country’s supreme tax body levies direct taxes on businesses and individuals. Direct taxes are paid directly by those who are subjected to them. Taxpayers, for example, pay income tax, property tax, asset tax, and gifts to the government directly.
The Central Board of Direct Taxes (CBDT) is in charge of direct taxes in India. It is a statutory entity that is part of the Department of Revenue and was established under the Central Board of Revenue Act of 1924.
What Is Direct Tax?
As the name implies, these taxes are paid directly to the government by the assessee. These are imposed directly by the regulator and are not paid on behalf of the taxpayers. This obligation is also non-transferable to another taxpayer. A good example of a direct tax is a person’s income tax. Income tax is usually reported once a year, while deductions from one’s wage might be done monthly.
Now let’s have a glance at
Types of Direct Taxes
- Income Tax
It is determined by one’s income. Depending on how much a worker earns, a percentage of his or her pay is deducted. The government is also keen on publicizing credits and deductions that help reduce one’s tax liabilities, which is a positive thing.
- Property Tax
Property taxes are incurred on real-estate, such as land and buildings, and are used to fund public services such as fire and police departments, libraries, schools, and roads.
- Capital gains Tax
This tax must be paid when an individual sells asset such as stocks, real estate, or a company. The difference between the buying price and the selling price is used to compute the tax.
- Transfer Taxes
The most popular sort of transfer tax is the estate tax. This tax is imposed on the taxable portion of a deceased person’s property, which includes trusts and financial accounts. A gift tax is a sort of tax that collects a specific amount from people who give property to someone else.
- Entitlement Tax
People benefit from social programs like Medicare, Medicaid, and Social Security because of this form of direct tax. The Federal Insurance Contributions Act is the umbrella term for the entitlement tax, which is collected through payroll deductions.
Benefits of Direct Taxes
Although it is imposed on everyone who does not qualify for an exemption, there are various benefits to paying taxes directly. They are as follows:
- Encourages trust
Direct taxes have the advantage of being determined and finalized before they are even paid. When it comes to income tax, the annual tax remains the same year after year as long as the pay is constant.
- Encourages equality
Because direct taxes are based on a person’s ability to pay, they encourage equality among taxpayers and citizens. Someone is charged a varied amount depending on how much money they make.
- Enhances elasticity
Taxes are the government’s earnings, and as they fluctuate, so do the earnings. They can go higher or lower.
- It saves both time and money
The government does not need to spend money on tax collection because taxes are already collected at the point of earning. Automatic payroll deduction systems are used by some businesses to save time and money.
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