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

Finance Minister Nirmala Sitharaman on February 1 will present her second Union Budget under the PM Modi-led government. In Budget 2020, the finance minister may revise the tax slabs to boost consumption. Tax sops may help you save more on taxes.

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Here are the two different types of taxes and how they impact you:

Direct taxes: Direct taxes include the taxes that cannot be transferred or shifted to another person, for instance, the income tax an individual pays directly to the government. In this case, the burden of the tax falls flatly on the individual who earns a taxable income and cannot shift the tax to others.

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The amount of tax you pay to the government depends on the tax slabs fixed by the government. For example, at present, income between Rs 2.5 and Rs 5 lakh per annum is taxed at the rate of 5%, between Rs 5 lakh and Rs 10 lakh at 20% and, income over Rs 10 lakh is taxed at the rate 30%.

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Indirect taxes: Indirect taxes are imposed on goods and services. They are paid by consumers indirectly at the time of buying goods and services. Tax levied on the seller of goods and service providers but often gets passed on to the end consumer and hence the consumer bears the tax. An indirect tax is levied at the same rate for everyone irrespective of their income. Service tax, excise duty, entertainment tax, customs duty, securities transactions tax, stamp duty are some of the widely applied indirect taxes.

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GST Council is the decision-making body for GST and the Union Budget has nothing to do about it. GST is mentioned in an invoice when a purchase is made. However, every product you purchase has a fixed indirect tax that is included in the MRP. So, you pay the indirect taxes every time you buy an item.