Question

Which of the following is a form of direct tax?

• A. Income tax
• B. Excise Duty
• C. Sales Tax
• D. Custom Duty

Hint:

A simple way to remember the difference: If you pay a tax directly from your own pocket based on what you earn (income, profit), it's a \textbf{direct tax}. If the tax is included in the price of something you buy (goods, services), it's an \textbf{indirect tax}.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Taxes can be broadly classified into two categories:

Direct Tax: A tax that is levied directly on the income or wealth of a person or a corporation. The liability to pay the tax and the burden of the tax fall on the same person. It cannot be shifted to others.
Indirect Tax: A tax levied on goods and services rather than on income or profit. The burden of an indirect tax can be shifted from the taxpayer to the final consumer. Examples include Goods and Services Tax (GST), customs duty, and excise duty.

Step 2: Analyzing the Options:


(A) Income tax: This tax is levied directly on the income earned by an individual or entity. The person earning the income pays the tax directly to the government. Hence, it is a direct tax.
(B) Excise Duty: This is a tax on the manufacture of goods. The manufacturer pays the tax but recovers it from the buyers by including it in the price of the goods. Thus, it is an indirect tax.
(C) Sales Tax: This tax is levied on the sale of goods. The seller pays the tax to the government but collects it from the customer. It is an indirect tax. (Note: Sales tax has been largely subsumed into GST in India).
(D) Custom Duty: This is a tax imposed on goods when they are transported across international borders. The importer pays the duty but passes the cost on to the consumer. It is an indirect tax.

Step 3: Final Answer:
Based on the analysis, Income tax is a form of direct tax.