What is direct taxes ? Explain
11/September/2025 00:00
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Direct Taxes
Meaning
A direct tax is a tax that is paid directly by the individual or organization to the government.
The burden of this tax cannot be shifted to someone else.
It is based on income, profit, or wealth of the taxpayer.
So, the person/entity who earns the income or owns the wealth is responsible for paying the tax.
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Types of Direct Taxes in India
1. Income Tax
Levied on individuals, Hindu Undivided Families (HUFs), partnerships, and other non-corporate entities.
Based on income slabs (progressive system: higher income = higher tax rate).
Example: If a person earns ₹12 lakh per year, they pay tax according to the income tax slab.
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2. Corporate Tax
Levied on the profits of companies.
Domestic and foreign companies pay tax at prescribed rates.
Example: A company making ₹10 crore profit will pay corporate tax + surcharge + cess.
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3. Capital Gains Tax
Levied on profit from selling capital assets like land, buildings, shares, gold, etc.
Divided into:
Short-Term Capital Gains (STCG) – taxed at normal or special rates.
Long-Term Capital Gains (LTCG) – taxed at concessional rates.
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4. Securities Transaction Tax (STT)
Levied on purchase/sale of securities (shares, mutual funds) on stock exchanges.
Paid directly by the investor/trader.
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5. Wealth Tax (Abolished in India in 2015)
Earlier, charged on the net wealth of individuals above a certain limit.
Replaced by an additional surcharge on the super-rich.
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6. Estate Duty / Inheritance Tax (Currently not applicable in India)
Tax on property inherited after death.
Some countries still levy it; India abolished it in 1985.
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Characteristics of Direct Taxes
1. Cannot be shifted – taxpayer bears the burden themselves.
2. Progressive in nature – richer people/companies pay more.
3. Based on ability to pay – linked to income, profit, or wealth.
4. Requires declaration – individuals and companies must file returns.
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Example of Direct Tax (Individual Income Tax)
Suppose Ms. Priya earns ₹12,00,000 in FY 2024-25 under the new income tax regime.
Tax Calculation:
Up to ₹3,00,000 – Nil
₹3,00,001 – ₹6,00,000 @ 5% = ₹15,000
₹6,00,001 – ₹9,00,000 @ 10% = ₹30,000
₹9,00,001 – ₹12,00,000 @ 15% = ₹45,000
Total Income Tax = ₹90,000
Health & Education Cess @ 4% = ₹3,600
✅ Total Tax Payable = ₹93,600
Here, Priya herself must pay this tax; she cannot pass it on to anyone else.
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