Understanding Direct Taxes and Their Benefits

A direct tax, in a layman’s language, is a tax that is paid directly or straight to the government by an individual. A very common example of direct taxes is income tax, land tax, and personal property tax.

These taxes are determined individually depending upon the individual's ability to pay in terms of his income. Direct taxes are directly proportional to the income level of an individual; i.e., the higher the income level, the higher the tax and vice-versa.

For example, if a person earns $ 200k in a year and if the direct tax percentage is 25 per cent, then he is entitled to pay $500,000 yearly as a direct tax. The amount of $50,000 will be deducted from his annual salary of $200,000.

What are the different types of direct tax?

There are certain types of direct tax that we will be discussing below. Let’s get into this quickly!

• Income tax : This is the most renowned and common direct tax that a government charges from the earning citizens. It is mandatory by law and reinforces quality among individuals in terms of taxation.

• Property tax : This is a tax that is levied on a property such as land and establishments or any building. It is used to maintain public services such as schools, libraries, police stations, and governmental institutions along with the roads.

• Capital Gains tax : A capital gains tax is charged when a person sells his business, real estate, or assets. It is determined by calculating the difference between the selling amount and the acquisition amount.

• Entitlement tax : This tax gets deducted from the payroll and accumulates in an act called the Federal Insurance Contributions Act. This act provides individuals with social programs such as Medicare and other social security benefits.

• Transfer tax : This tax is charged from a person who transfers his properties to another individual. This is mostly levied on estates, and the most common type of transfer tax is an estate tax. It is deducted from the amount of property that is taxable.

What are the advantages of direct taxes?

Though taxes are monetary deductions, they also serve some advantages to an individual in the long run. These advantages are mentioned below.

• It facilitates equality : Direct taxes promote and facilitate equality among the citizens as it guarantees a fair and equitable collection of taxes from every single person. Every person is entitled to a different tax amount depending on their income level. Direct taxes are based on the income slab.

• Facilitates certainty : Direct taxes are certain and are known by all the taxpayers before the time they pay for them. Direct taxes don’t fluctuate or change unless there is a change in the income level of the individual. These kinds of taxes are inevitable.

• Facilitates elasticity : There is elasticity maintained in the economy. The government earns through taxes, and when the generated amount through tax collection fluctuates, the earnings fluctuate too. This avoids the economy from being at a standstill.

• It saves money and time : Direct taxes are time-efficient as well as cost-efficient. As there is no extra charge incurred by the government on the collection of taxes, there is enough money saved by negating this procedure. The tax is normally collected directly at the beginning when the income is generated. Some firms even use automatic payroll deduction systems, which help save money and time.

Who are direct tax professionals?

Paying taxes can be strenuous at times owing to our negligence and lack of time availability. We must understand and keep ourselves updated on all the contemporary tax laws and norms.

This is where direct tax professionals intervene in this. The role of direct tax professionals in India is to acquaint us with tax norms and bring down our tax liabilities.

They also assist in filling out tax returns and estimating taxes on various investments. They have expertise in minimizing the tax amount that has to be paid to the tax authority.

A person who has faced some familial issues and issues in the purchase of a new property or home, as well as job loss and inheritance, is more likely to seek help from a direct tax professional’s services. 

Before we conclude, we hope it is clear to you what direct taxes are and what their key benefits are. Direct professionals in India are masters when it comes to anything related to direct taxes.

Audits and taxes often go hand in hand. So, if you are looking for an audit assistant job in Bangalore, this blog will be of assistance to you, as we strive to provide basic knowledge on the most important framework of taxation—direct taxes—understanding of which will be beneficial to all finance professionals.