Direct Tax vs Indirect Tax
A direct tax is borne by the person on whom it is levied and cannot be shifted. An indirect tax is collected by one person but its burden is passed on to the final consumer.
The quick answer
The test is incidence versus impact. If the person who pays the tax to the government is also the person who ultimately bears it, the tax is direct. If the burden shifts down the supply chain, it is indirect.
Side-by-side comparison
| Basis | Direct Tax | Indirect Tax |
|---|---|---|
| Burden | Borne by the person assessed | Shifted to the ultimate consumer |
| Incidence and impact | Fall on the same person | Fall on different persons |
| Basis of levy | Income, profits or wealth | Supply of goods and services |
| Nature | Progressive — rises with ability to pay | Generally regressive in effect |
| Collection point | Directly from the assessee | Collected by the supplier and remitted |
| Examples | Income tax, corporate tax | GST, customs duty |
The exam angle
Theory questions often ask for merits and demerits. Direct taxes are equitable but harder to administer and easier to evade; indirect taxes are broad-based and convenient to collect but regressive in incidence.
Related comparisons
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Talk to usIs GST a direct or indirect tax?
GST is an indirect tax. The registered supplier collects and remits it, but the burden is passed forward and finally borne by the consumer.
Why are direct taxes called progressive?
Because rates typically rise with income, so those with greater ability to pay contribute a higher proportion — the essence of the progressive principle.
Which is easier to evade?
Direct taxes are generally considered easier to evade because they depend on declared income, whereas indirect taxes are embedded in transactions and collected at source by the supplier.
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Recognition fades; retrieval sticks. Generate an MCQ set on this exact concept and test whether the distinction holds under pressure.
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