Direct tax refers to that tax which is levied on the individual directly, in simple words they are taken by the government from the individual directly without any third party between the government and individual. Given below are the examples of direct tax –
- Income Tax – As the name suggests it is levied on the income of an individual which the person has earned during particular financial year. Under income tax there are various slabs of income according to which the person is taxed. A person earning 500000 will be taxed more as compared to person earning 200000 and hence in a way this type of taxation is fairer in the sense that rich are taxed more as compared to poor whose income is less. Income tax will include income from salary, income from house property in the form of rent, capital gains and profit and gains from business done by the individual.
- Wealth Tax – This tax as the name suggest is levied on the total accumulated wealth of an individual during his or her lifetime. In simple words it includes all assets whether it’s property in the form of land, building, vehicles or ornaments like gold and diamonds items or investment in stocks, mutual funds and insurance policies held by an individual. The rate of taxation on wealth is low as compared to income tax rates.
- Corporate Tax – As the name suggests this tax is imposed on the corporate or companies doing business. The net profit which the company earns after deducting all operating expenses from gross profit is liable for taxation. This is different from income tax in the sense that companies are individual legal entities different from owners and hence they are also liable for tax.