The Income tax is a __________.

The correct answer is Direct tax.

Key Points

• Income tax is classified as a direct tax because it is levied directly on the income or profits of individuals, businesses, or other entities.
• Unlike indirect taxes, which are collected by intermediaries (e.g., retailers), direct taxes are paid directly by the taxpayer to the government.
• The Income Tax Act, 1961, governs the levy, collection, and administration of income tax in India.
• Income tax rates in India are progressive, meaning higher income levels are taxed at higher rates, ensuring equity in taxation.
• Income tax contributes significantly to government revenues, funding infrastructure, public welfare schemes, and other developmental projects.

Additional Information

• Direct Tax:
  • Examples of direct taxes include income tax, corporate tax, and wealth tax.
  • These taxes are progressive, meaning individuals with higher incomes pay a larger proportion of their income as tax.
  • Direct taxes are considered equitable as they are based on the taxpayer's ability to pay.
• Indirect Tax:
  • Indirect taxes are collected by intermediaries and passed on to the government (e.g., GST, customs duty).
  • Unlike direct taxes, they are regressive as they affect all consumers equally, irrespective of income levels.
• Professional Tax:
  • It is a state-imposed tax levied on income earned through professions, trades, or employment.
  • Professional tax rates vary across Indian states, with a maximum cap of ₹2,500 annually.
• Service Tax:
  • It was an indirect tax levied on services provided in India, which has now been subsumed under GST since July 1, 2017.