Direct taxes, such as income tax, poll tax, land tax, and personal property tax, are one kind of taxes that people pay to the government in a direct or unambiguous manner. These direct taxes are calculated based on the taxpayer's capacity to pay, so the larger that capacity, the higher the taxes are.
An individual who earns more pays more taxes, for instance, in the case of income taxation. A proportion of the total income is used to calculate it. Furthermore, it is the individual's duty to pay direct taxes, and no one else should do so.
Example of Direct Taxes
Income tax is a prime example of a direct tax, as was already mentioned. Although deductions from a person's wage might be made on a monthly basis, income tax returns are typically submitted once a year. For instance, if a person earns a salary of RS.120,000 per year and pays RS.30,000 in taxes annually, it is his direct tax.
Types of Direct Taxes
Income Taxes
It is determined by one's income. Depending on how much an employee makes, a particular proportion of that salary is deducted. The government is also interested in publishing tax benefits and deductions, which is a positive development.
Transfer Taxes
The estate tax is the transfer tax that is used the most frequently. The taxable component of a decedent's property, which includes trusts and bank accounts, is subject to this tax. Another way to collect money from persons transferring property to another person is through a gift tax, which is another form of taxation.
Entitlement Taxes
The existence of social programmes like Medicare, Medicaid, and Social Security is made possible by this particular direct tax. The Federal Insurance Contributions Act, which encompasses all entitlement taxes, is collectively collected by payroll deductions.
Property Taxes
Property taxes are levied on assets like land and buildings, and the money they generate is used to maintain public services like the police and fire departments, schools and libraries, as well as roads.
Capital Gain Taxes
When someone sells assets like stocks, real estate, or a business, this tax is levied. The tax is calculated by comparing the acquisition and sale amounts and finding the difference.
Advantages of Direct Taxes
There are actually many benefits to paying taxes directly, despite the fact that it is rigidly enforced on everyone who does not qualify for an exemption. They comprise:
1. Advances equity
Direct taxes promote equality between payers and citizens because they are based on a person's capacity to pay. Depending on how much money each person makes, they are each charged a different amount.
2. Encourages assurance
Direct taxes have the advantage of being decided upon and rendered final before being paid. As long as the wage does not vary, the annual tax rate for income tax remains constant from year to year.
3. Encourages elasticity
The government receives its income through taxes, and as they vary, so do the government's earnings. They are able to move up or down.
4. It saves both time and money
Taxes are already taken at the point of revenue generation, therefore the government does not need to spend money on tax collection. Systematic payroll deductions are made automatically by some businesses, which helps to save time and money.
Conclusion
The nation's top tax authority collects direct taxes from both individuals and businesses. The people who are subject to direct taxes are the ones who pay them. For instance, taxpayers immediately remit to the government their income tax, property tax, asset tax, and gift tax.
