What is Direct Tax, Types & its Benefits in India ?


There are two types of taxes that government imposes, they are direct taxes and indirect taxes. Some taxes are after being collected as direct taxes are transferred to another person as indirect taxes. Direct taxes cannot be transferred to another person’s, as indirect taxes. Income tax comes under these direct taxes which every individual has to pay. Direct taxes have to pay directly to the tax authorities.

In changing the Indian economy both direct and indirect taxes play an important role. Below are further details about these direct taxes to get the clear basics.

Direct Tax Information-

Every individual, who is having income which is earned from their job or property has to pay direct tax. These taxes are directly paid to the tax authorities of the government by an organization or the taxpayers. The burden of paying the tax will not be transferred to another person in this type of tax. Corporate tax and income tax comes under this direct tax.

direct tax in india

Types of Direct Taxes-

There are many types of direct taxes in India which charges on the citizens by the government. The different types of taxes are as follows-

  1. Capital gains tax.
  2. Income tax
  3. Corporate tax-
  4. Wealth Tax

Corporate tax is again divided into many as

  • DDT (Dividend Distribution Tax)
  • MAT (Minimum Alternative Tax)
  • FBT (Fringe Benefits Tax)
  • Securities Transaction Tax

Tax on Capital Gains-

The individuals who are gaining profits on their investments need to pay the tax. This tax is called the Capital gains tax. The capital assets are anything that you owned for your personal use or it may be for any investment purpose. The capital assets for the business are that which can be used for many years with no intension of selling it within the duration course. More things that come under these capital assets may be farms, cars, shares, machinery, bonds, art, and homes. Capital gains are those which you get from the assets or your investments. This tax is divided into short term gains and long term gains depending on the holding period of the tax.

Capital gains are calculated as follows-

Capital gains= Sale value – purchase value.

Every individual has to pay these direct taxes, using online mode of payment only. Physical payment is not accepted.

Income Tax (IT)-

One of the direct taxes is Income tax which is the well-known direct tax on the annual income which will be generated by the individuals and businesses. The income which is generated by the business houses and the tax paid on this is called the Corporate Tax. According to the net taxable income, only the income tax rate depends.

Depending on the rules of the IT Act,1961 only income tax is calculated and on an annual basis only it is directly paid to the central government. For salaried employees, the IT may be deducted in the form of TDS Tax Deducted at Source. For the self-employed individuals, the tax is decided to depend upon the income they declare. The ITR is described as the tax liability and the statement of income in a format.

Corporate Tax-

Both the Indian and the foreign countries have to pay the taxes to the government as per the Indian Income Tax Act, 1961. On the domestic firm’s net profit, the corporate tax is applicable. The tax is liable in the form of interest, dividends, and royalties for the income of the company. The companies who are having turnover up to Rs.250 crores need to pay the tax up to 25%. And the companies who are having turnovers more than Rs.250 crores need to pay the tax at 30%.

Different Corporate Taxes are as follows-

DDT Dividend Distribution Tax-

  • DDT is applicable only for domestic companies only.
  • A domestic company which pays the tax on the amount which is distributed declared or paid as the dividend to the shareholder. This is called the Dividend Distribution Tax.

MAT Minimum Alternative Tax-

The companies which show no income or declare the little income to save tax is said to be as Zero Tax Companies. It is called as MAT Minimum Alternative Tax.

FBT- Fringe Benefits Tax –

Some companies pay their employees like drivers, maids provided/ paid for, will provide them the fringe benefits. This is said to be a Fringe benefits tax.

SST (Securities Transaction Tax)-

Companies that get income through taxable securities transactions, SST is applicable.

Benefits of Direct Taxes in India

  • Progressive in Nature – The government imposes the tax based on the income of the people which reduces the gap between financial inequalities. The taxes collected in the direct taxes will be used for the upliftment of the poor people of the society.
  • Anti-Inflationary – It helps to reduce inflation by increasing the collection of direct tax. If the demand of the product is increasing, then the government can increase direct tax. The spending nature of people will get less, that’s results in less buying of products of goods & services.