Direct Tax

March 7, 2009

Taxes form an important part of each of our financial life. Understanding the intricacies of taxes becomes vital as it can help us deal with our finances better. Taxes are categorised into direct taxes and indirect taxes. A Direct tax is a kind of charge, which is imposed by the government directly on the taxpayer. Indirect taxes are the charges that are levied on goods and services. In this article, we will go in depth into direct tax.

Direct taxes are those that that levied by the government directly on the taxpayer. It is one that is deducted directly from an individual’s salary. The examples of direct tax include property tax, income taxes, some corporate taxes, and transfer taxes such as estate (inheritance) tax and gift tax. The term direct tax can be defined from two different perspectives. One is from colloquial point and the other is from U.S. constitutional law point. Certain taxes may fall under indirect tax categories in the constitutional sense, but fall under direct tax category in the colloquial sense. From the colloquial point of view, a direct tax is the charge levied directly to the taxpayers by the government. A direct tax is contrasted with an indirect tax or "collected" tax such as sales tax or value added tax (VAT). An indirect tax is one which is collected by intermediaries who turn over the proceeds to the government and file the related tax return. Some experts have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."Direct tax is applied on all individuals. According to the U.S. constitutional law, a direct tax is the charge on property by reason of its ownership. Traditionally a direct tax in the constitutional sense means a tax on property "by reason of its ownership".

In this article, we will look into income tax and corporate tax in brief detail. This will assist us in comprehending direct tax better. An income tax is a tax levied on the financial income of people, corporations, or other legal entities. Various income tax systems exist, with varying degrees of tax incidence. There are five types of income taxes: personal taxes, corporate taxes, payroll taxes, inheritance taxes and capital gains taxes. A personal or individual income tax is levied on the total income of the individual. It is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. Corporate tax refers to a direct tax levied by various jurisdictions on the profits made by companies or associations and often includes capital gains of a company.

Earnings are generally considered gross revenue minus expenses. A payroll tax generally refers to two kinds of taxes. Taxes which employers are required to withhold from employees’ pay and these withholdings contribute to repayment of an employee’s personal income tax obligation. The other kind is the payroll taxes that are paid from the employer’s own funds, either as a fixed charge per employee or as a percentage of each employee’s pay. The inheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. A capital gains tax is the tax levied on the profit released upon the sale of a capital asset. Corporate tax in the United States is imposed both by the federal government and by most state governments. The federal income tax on corporations is the more significant tax, in terms of the tax rates, the number of entities affected and the complexity of its rules.