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Taxes are the major source of revenue for the government.

Type of Taxes




Those taxes which are paid directly to

the government.


Those taxes which are channelised

through series of persons while paying

to the government are called indirect


The burden of direct tax can’t be

shifted i.e. the person on whom tax is

levied has to bear the tax.

The burden of indirect tax can be


The impact and incidence of tax is on

some person.

The impact and incidence is on

different persons.

Tax is collected only after the income

is accrued.

Tax is collected before the income is


Eg.– income tax, wealth tax, corporate

tax, gift tax

Eg.– custom duty, excise duty, sales

tax, entertainment tax

Direct Tax




1. Progressive in nature, i.e. with

increase in income tax, direct tax also increases.

1. Ability to pay is difficult to determine.

2. Taxed according to ability to pay.

2. Tax evasion and avoidance is easy.

3. It helps in minimizing inequalities of


3. Requires maintenance of books of

accounts which tax payers are sometimes not able to.

4. Create civic consciousness.

4. Complex assessment procedure

 Indirect Tax




These taxes are assessed at flat rate;

the assessment is very easy.

It is regressive in nature as rich and

poor are taxed alike.

Since the taxes are included in price,

the consumer may not even realize he

is paying tax.

Does not create social consciousness

because the tax payer often does not feel that he is paying tax.

Such taxes are difficult to evade as it is

collected at the time the goods moving

to the market or the point of entry in

case of custom duty.

Government is not certain about the

proceeds of these taxes.


Helpful in achieving social objective

by levying greater taxes on harmful

goods like cigarettes, liquor etc.


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