Budget FAQ: What is Direct Tax?

Budget FAQ: What is Direct Tax?

Direct Tax is levied by the government directly on the individual taxpayers and other entities and gets deducted at the source. Credit: iStock image

As Finance Minister Nirmala Sitharaman gears up to present her second budget within a span of seven months, expectations are soaring high.

The country has been witnessing major economic turbulence and all eyes would be pinned on Union Budget 2020, hoping for some relief.

As the D-day nears, let's take a look at the basics that would make the understanding of the exercise easier.

Read: Budget FAQs: What is trade deficit?

What is Direct Tax?

As the name suggests, Direct Tax is levied by the government directly on the individual taxpayers and other entities and gets deducted at the source. This, along with Indirect Tax, forms the taxation framework of the country,

Imposed majorly on total income or wealth of the entity, some of the taxes that come under Direct Tax are –

Income Tax -- in the form of TDS (Tax Deducted at source) for salaried employees earning over Rs 5 lakh. 

Read more: Budget FAQs: How do direct and indirect tax impact you?

Property Tax – levied by municipal authorities on real estate purchased. This differs from state to state.

Corporate Tax – levied on corporations and entities and comprises taxes like the Minimum Alternative Tax (MAT), the Fringe Benefits Tax (FBT), Dividend distribution tax (DDT) and the Securities Transaction Tax (STT). Corporate tax also occupies the biggest chunk in the government’s direct tax kitty.

Read: Budget 2020: Here's why Budget date, time was changed

Capital gains Tax – imposed on individuals or companies on the sale of assets. Further divided into short term and long term capital gains tax, it is levied on the amount difference between the original price of the asset and the price it was sold at. 

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