Distinguish between Direct Tax and Indirect Tax (any three points).

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Accepted Answer

**Direct Tax vs. Indirect Tax:**

1. **Shiftability** — In a Direct Tax, impact and incidence fall on the same person and the burden cannot be shifted (e.g. Income Tax); in an Indirect Tax, the person who initially pays it can shift the burden to another person, typically the final consumer (e.g. GST).
2. **Nature/effect** — Direct taxes are generally progressive, taking a larger share of income from the rich, since rates rise with income; indirect taxes are generally regressive in effect, since a rich and a poor consumer pay the same tax on the same product.
3. **Basis of levy and evasion** — Direct taxes are levied on income/wealth and are relatively easier to evade since they depend on self-declaration; indirect taxes are levied on the supply of goods/services and are harder to evade since they are built into the transaction price.

> [!ANSWER]
> A Direct Tax (e.g. Income Tax) is non-shiftable, generally progressive, and levied on income/wealth; an Indirect Tax (e.g. GST) is shiftable to the consumer, generally regressive, and levied on goods/services.

Type	Meaning	Examples
Direct tax	Impact and incidence fall on the same person; burden cannot be shifted	Personal income tax, corporate tax, wealth tax
Indirect tax	Levied on goods and services; burden can be shifted to the final consumer	GST, customs duty, excise duty

Q.Distinguish between Direct Tax and Indirect Tax (any three points).

Concept understanding — Public Revenue — Tax and Non-Tax Revenue

Q.Distinguish between Direct Tax and Indirect Tax (any three points).

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