Direct and indirect tax structure
• Tax can be defined as a levy(collecting by authority) or other type
of a financial charge or fee imposed by state or central
governments on legal entities or individuals.
• Local authorities like local governments, provincial
governments and municipal corporations also have the right to
impose taxes. The rates, rules, and regulations of taxation differ
from one country to another and they are complex in character.
• Tax is a principle source of revenue for a country's government
•Direct tax:
A direct tax is a form of tax is collected directly by the government from the
persons who bear the tax burden. Taxable individuals file tax returns directly to the
government.
•Examples of direct taxes are corporate taxes, income taxes, and transfer taxes.
Direct Taxation:
• Direct tax deduction according to the Indian Budget
of the current fiscal year 2009-2010 is as follows:
Up to earning tax(%)
Up to Rs. 1,60,000 Nil tax
Up to Rs. 1,90,000 (for women) Nil tax
Up to Rs.2,40,000 (for residents ,65 Yrs or above) Nil tax
Up to
From Rs.1,60,001 - Rs. 300000 10% tax
From Rs.300001 to Rs. 500000 20% tax
From Rs.500001 & above 30% tax
In addition, Education Cess(tax) of 3% is levied on the total tax amount.
Calculation of Direct Tax:
• For example if a person X gets 7 lacs per annum without any savings,
then his income tax will be:
Gross salary Rs.7,00,000
• Savings under 80C deductions Rs.0 Up to Rs.1,60,000 0% tax
7,00,000–1,60,000=5,40,000
Tax on1,40,000(Rs.1,60,001 to Rs.300000)10%tax=Rs.14000
5,40,000–1,40,000=4,00,000
• Tax on 2,00,000(Rs.300001 to Rs. 500000) 20% tax = Rs. 40,000
• Tax on remaining Rs. 2,00,000 ( i.e. 5,00,000 and above) 30% tax =Rs. 60,000
•
Total tax on the gross income = Rs.1,14,000
• Plus education cess 3% on total tax = Rs. 3420
• Total tax to be paid = Rs. 1,17,420
• Indirect tax:
An indirect tax is a form of tax collected by mediators
who transfer the taxes to the government, and also
perform functions associated with filing tax returns.
The customers bear the final tax burden.
• Examples of indirect taxes are sales tax and value
added tax (VAT).
• The tax structure is distributed among the
central and state governments.
• The tax is actually looked after by the revenue
department which comes under the ministry
of finance.
• The central and state governments play a
significant role in deciding the tax which is to
be levied on the public of a country.
Indirect tax examples:
Excise Tax:
• It is type of indirect tax levied and collected on manufacture of a specific
good. It is vital source of revenue for the government.
• Calculation of excise duty: most of the products attract an excise duty of
16%. But for some products it is 8%. In addition to the prescribed rate 2%
education cess is also levied.
Sales Tax or VAT (Value Added Tax):
• It is a type of indirect tax levied by the government at the point of sale on
retail goods and services. This tax is collected by the retailer, which is
forwarded to the government. In India each state has its own sales tax act.
The sales tax is also governed by the central government under central
sales act.
Indirect Taxation Calculation:
There are 4 slabs of sales tax
0% for essentials commodities
1% on bullion and precious stones
4% on industrial and capital goods and items of mass
consumption and other items
12.5% on Petroleum products, tobacco, liquor
attract very high VAT rates and they vary from state
to state
Difference Between Direct Tax and Indirect Tax:
• Direct tax is type of taxation where in the tax payer is levied
a certain percentage of money by the government from the
income he earns.
• It is applicable to all the individuals and business concerns.
• It has a slab rate which is fixed by the government wherein
the income of the person which falls under the prescribed
slab has to pay the money
• indirect taxes such as sales tax, Value added tax, goods and services tax is
a tax collected by an intermediary from the person who bears the whole
economic burden of the tax (for example the retail store dealer and the
customer who buys the product from him).
• Examples would be fuel, liquor and cigarettes. An excise duty on motor
cars is paid in the first instance by the manufacturer of the cars; ultimately
he transfers this to the buyer of the car by levying a higher price. So an
indirect tax is one which can be shifted or passed on.
• But in direct tax cannot be shifted from one person to the other. It is set
by the central government
Advantages of Direct Tax:
• The tax burden is not shifted from one person
to the other. Less chance of corruption as it is
directly collected from source.
Thank you…
Presented by,
Vinod kumar.M
MBA(marketing)
ABBS
