Question

Which among the following is not a direct tax?

• A. Income Tax
• B. Corporation Tax
• C. Sales Tax
• D. Gift Tax

Hint:

Ask who finally bears the cost. If it passes from seller to buyer through the price of goods, it is an indirect tax.

Answer 1

The Correct Option is C

This question is about the difference between direct and indirect taxes. A direct tax is paid straight to the government by the person or entity on whom it is levied, and its burden cannot be passed on to someone else. An indirect tax is collected by an intermediary, like a seller, from the end consumer and then paid to the government, so its burden shifts to the buyer.

1. Income Tax: This is charged directly on a person's or company's income and paid by that same person, making it a direct tax.
2. Corporation Tax: This is a direct tax charged on the profits earned by companies, paid directly by the company itself.
3. Sales Tax: This is charged on the sale of goods. The seller collects it from the buyer at the time of sale and deposits it with the government, so the actual burden falls on the consumer even though the seller pays it over. This makes it an indirect tax, not a direct one.
4. Gift Tax: This is levied directly on the person receiving a gift above a certain value, making it a direct tax.

The correct option is Sales Tax since it is collected from consumers through an intermediary, unlike Income Tax, Corporation Tax, and Gift Tax, which are all charged directly on the taxpayer.

Let's summarize:

• Direct taxes here are Income Tax, Corporation Tax, and Gift Tax, paid straight by the taxpayer.
• The indirect tax here is Sales Tax, whose burden passes on to the buyer through the seller.

So Sales Tax is not a direct tax.