A Definitive Guide on Direct and Indirect Taxes.
                     A Definitive Guide on Direct 
and Indirect Taxes in India
What is Direct Tax?
• It is a tax levied directly on a taxpayer 
who pays it to the Government and 
cannot pass it on to someone else.
Source: cleartax.in
What are the direct taxes 
imposed in India?
• Income Tax- It is imposed on an 
individual who falls under the different 
tax brackets based on their earning or 
revenue.
• Estate Tax- Also known as Inheritance 
tax, it is raised on an estate or the total 
value of money and property that an 
individual has left behind after their 
death.
• Wealth Tax- Wealth tax is imposed on 
the value of the property that a person 
possesses.
Source: cleartax.in
Advantages of direct 
taxes
Curbs inflation
• The Government often increases the 
tax rate when there is a monetary 
inflation which in turn reduces the 
demand for goods and services and as 
a result of descending demand, the 
inflation is bound to condense.
Source: cleartax.in
Social and economic 
balance
• Based on every individual’s earnings 
and overall economic situation, the 
Government has well-defined tax slabs 
and exemptions in place so that the 
income inequalities can be balanced 
out.
Source: cleartax.in
Disadvantage of direct 
taxes
• Direct taxes come with a handful of 
disadvantages. But, the very time-
consuming procedures of filing tax 
returns is a taxing task itself.
Source: cleartax.in
What is Indirect Tax?
• It is a tax levied by the Government on 
goods and services and not on the 
income, profit or revenue of an 
individual and it can be shifted from 
one taxpayer to another.
Source: cleartax.in
What are the indirect taxes 
imposed in India?
• Customs Duty- It is an Import duty 
levied on goods coming from outside 
the country, ultimately paid for by 
consumers and retailers in India.
• Central Excise Duty- This tax was 
payable by the manufacturers who 
would then shift the tax burden to 
retailers and wholesalers.
• Service Tax- It was imposed on the 
gross or aggregate amount charged by 
the service provider on the recipient.
• Sales Tax- This tax was paid by the 
retailer, who would then shifts the tax 
burden to customers by charging sales 
tax on goods and service.
• Value Added Tax (VAT)- It was collected 
on the value of goods or services that 
were added at each stage of their 
manufacture or distribution and then 
finally passed on to the customer.
Source: cleartax.in
GST as Indirect Tax
• After subsuming of 17 indirect taxes, 
government of India implemented the 
GST law on 1st July, 2017, varying from 
state to central governmental levels. 
• At the state level, it covers central 
excise duty, additional excise duty, 
service tax, additional custom duties 
etc. 
• At the central level, it consists of sales 
tax, entertainment tax, central sales 
tax, entry tax, purchase tax and luxury 
tax etc. 
Source: cleartax.in
Advantages of 
indirect taxes
Input Tax Credit
• At the time of paying tax on the final 
product, one can reduce the tax they 
have already paid on their purchases 
and pay just the balance amount. 
• This is called Input Tax Credit which 
again reduces the burden of a hefty 
tax.
Source: cleartax.in
Composition Scheme under 
GST
• The government has done a 
commendable job by introducing 
Composition Scheme for small 
businesses with a turnover below Rs.1 
crore. 
• As per the scheme, they don’t have to 
go through the time-consuming 
formalities of GST but only pay the tax 
at a fixed rate based on their business 
turnover. 
Source: cleartax.in