In the simplest terms, tax is a compulsory contribution to state revenue. It is paid in money by the
income earners on their income and profits. It may be paid by everyone or only some class of
Taxation can be direct or indirect. Direct tax is paid directly by the taxpayer to the government while
indirect tax is paid to the government through the purchase of goods and services from any business
entity or person (who then passes it on to the government) like the GST on a bike or car.Check out this page for more info.
Table of Contents
Different types of direct tax:
Income Tax: Income tax is a part of direct tax. It is a compulsory payment made by an individual or
company for earning a certain amount of income in a financial year. There are different slabs for
different levels of income earned by an individual or company. The rate charged on each slab
depends on how much money you make, not what percentage of your total earnings you pay out in
Gift tax: A gift tax is a tax levied by the Government of India on gifts received by an individual. Gifts
received by resident Indians from non-residents are also subject to the gift tax.
Wealth Tax: This type of direct tax is levied on an individual's assets such as property or savings
accounts etc. The amount of wealth tax varies from country to country and depends on their
economic growth rate and inflation rate etc.
Capital Gains Tax: This type of direct tax is levied when an individual sells assets like stocks, shares
or real estate at a higher price than what was purchased for them initially (in the case of stocks and
shares) or when an individual sells property at a higher price than what was bought for them initially
(in case of real estate)
Securities Transaction Tax (STT): This is a tax collected from a buyer or seller of securities when they
buy or sell shares in the stock market through a registered broker-dealer. Securities Transaction Tax
(STT) is a tax collected from a buyer or seller of securities when they buy or sell shares in the stock
market through a registered broker-dealer.
Sales tax is a type of indirect tax that is charged on the sale of goods or services. In India, it is
charged at different rates in different states and union territories. For example, Delhi charges 12%
sales tax on hotels (except 5-star hotels) while Mumbai charges 16%. The rates differ based on the
category under which you fall — whether it's a restaurant, a shop or an office space.
Service tax is charged on services provided by any person or entity in India. The service provider has
to pay service tax at the rate of 15% on the total value he earns from services. This includes services
like advertising, construction, telecom etc. The government can change this rate depending on its
Goods and Service Tax (GST):
GST is an indirect tax levied on the sale or supply of goods and/or services at one point in time. It
replaces all other indirect taxes such as excise duty and vat(Value added tax) etc.
The difference between gst and vat is under VAT taxes had to be paid at every stage of product movement. It was
first introduced in 1991 but was not implemented until 2017 due to various reasons such as a lack of
consensus between state governments and central government.