Define a Tax. Explain Briefly Two Merits and Two Demerits of Direct Taxes

By BYJU'S Exam Prep

Updated on: November 9th, 2023

Tax is defined as a mandatory contribution by entities or individuals to governments in almost every country in the world. Direct tax and indirect tax are different types of taxes. Examples of direct taxes are income tax, corporation tax, dividend distribution tax, minimum alternative tax, and security transaction tax. Examples of indirect taxes are service tax, sales tax, value-added tax, excise duty, customs duty, etc.

Direct Tax Definition

The tax paid directly to the entity that is imposed by a person or organization is known as a direct tax. This money is used to keep the government’s revenue stable.

What is Indirect Tax?

When someone uses a product or service, they must pay for it. An indirect tax is a portion of the price that goes to the government of that country. The price of a service or good includes indirect tax.

What is Direct Tax?

Direct taxes are those that are paid directly to the government, such as income tax, VAT, sales tax, and so on. Income tax, real property tax, personal property tax, and asset taxes are all examples of taxes paid directly to the government by an individual taxpayer.

Read: Difference between Direct Tax and Indirect Tax

Merits and Demerits of Direct Taxes

The two benefits and two drawbacks of direct taxes are as follows:

Merits of Direct Taxes Demerits of Direct Taxes
They are elastic and productive. There are chances of tax evasion.
They have an educative value because they create a civic sense among the taxpayers. They are inconvenient on the part of the taxpayers.

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