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Direct taxes are simple to understand since they are incurred on individuals’ earnings or profits. The government imposes an indirect tax on goods and services for businesses and professional service providers.

In 2017, the Goods and Services Tax (GST) effectively replaced most indirect taxes in India, including VAT, service tax, excise duty, purchase tax, and so on. Those who want to start a business but have never paid indirect taxes are frequently perplexed about what they are.

As a reputable tax consultancy in Kolkata, MPVD & Associates has been working with taxpayers at different stages of their tax-filing journeys, and they have found that there is still much confusion regarding direct tax and indirect taxes, particularly among young people who are looking to start a business. This article aims to provide much-needed clarification.

What Is Direct Tax

Individuals and businesses pay direct taxes to the government based on their income and wealth. This includes income tax as well as other wealth taxes (levied on inherited wealth), property taxes (levied on real estate), and capital gains taxes. Direct taxes for organizations include corporate taxes. This tax is non-transferable and the person earning the income has to pay the tax. In

What is Indirect Tax

Sellers must pay indirect taxes on products and services through a middleman who is responsible for remitting the money to the government. These taxes are imposed on manufacturers, suppliers, importers and exporters, restaurants, gyms, and all such service providers, as well as any other organizations or people that make purchases of goods or services. The tax may be transferred to another payor. For instance, a wholesaler may transfer it to shops, which in turn transfer it to customers. Indirect taxes such as VAT, service fees, central excise duties, and more than a dozen others used to be prevalent. Since 2017, all of the various taxes have been consolidated under the Goods and Services Tax to create a single, comprehensive, one-time tax.

Key Differences Between Direct Tax and Indirect Tax

The context or premise, how they are applied to taxpayers, and the tax rates are the main distinctions between direct and indirect taxes. To help with this, the table below highlights the important points.


Direct tax

Indirect Tax


Individuals and Businesses

  • Salaried Individuals

  • Self-Employed Individuals

  • Sole Proprietors

  • Company Directors

Goods and Services Providers, Dealers and Customers

  • Manufacturers

  • Retailers

  • Restaurants

  • Salons

  • Gyms

Imposed on

Individual’s profit or income

Price of products and services

What Are the Types of Taxes

  • Income Tax

  • Wealth Tax

  • Capital Gains Tax

  • Corporate Tax

  • GST

    • CGST

    • SGST

    • IGST

    • UGST


Direct taxation plays a role in boosting the economy and curbing inflation.

The imposition of more indirect taxes could enhance inflation.

Tax Rate

Based on income and profits

The static rate applied to product/service cost

Tax Principle




  • Equitable with adequate exemptions and benefits

  • Can curb monetary inflation

  • Raised civic consciousness – one can’t pay this tax unknowingly.

  • Convenient one-time payment

  • Tax evasion is impossible

  • Reduces tax burden

  • Tax liability is transferable


  • Direct tax collection can be challenging.

  • Evasion is very likely.

  • Impose certain limitations on savings and investment

  • Adds to the expense of goods and services.

  • Has no impact on monetary inflation

  • Reduced civic consciousness – consumers may pay this tax unknowingly.

Both direct tax and indirect taxes are crucial since they are related to the health of the economy, and the well-being of the country. Yet, the government is addressing problems like tax evasion to make sure that the cost of paying direct taxes is shared by all members of society.

Give MPVD & Associates a call if you need help with company registration, filing taxes, registering for GST, or with your tax returns. We’ll work with you to keep your tax profile transparent and consistent, find tax-efficient investing opportunities, and achieve the peace of mind you deserve.

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