Business Finance and Arithmetic — Entrepreneurship STD 11 Commerce — Question

There are fundamentally two types of taxes:

1. Direct Taxes:

The distinct features of direct taxes are as follows:

1. It is a kind of charge and is imposed directly on the taxpayer and paid directly to the government by the entities on whom it is imposed.
2. A direct tax is one on which the burden cannot be shifted by the taxpayer to someone else.
3. Direct taxes are levied directly on income, capital antic value, wealth and corporate assets.

The following are some examples of direct taxes:

• Income tax: It is an annual tax on income (profit). Rates and other details vary, based on whether the organisational structure is that of sole proprietorship, partnership or corporation. This is a charge on the profit and cannot be included in costs. That is why, the terms 'income before tax’ and 'income after tax’ are incorporated in the income statement.
• Corporation tax: It is a tax levied on the income (profit) of the domestic company or foreign company.
• Property tax Property tax or house tax is a local tax on buildings, along with the adjoining land, and imposed on owners of the property.

2. Indirect Taxes:

The distinct features of indirect taxes are as follows:

1. If a tax is levied on the price of a good or service, then it is called an indirect tax.
2. An indirect tax is a tax collected by an intermediary (such as a retail store owner) from the person who bears the ultimate economic burden of the tax, i.e. the customer of the good or the service.
3. An indirect tax is one, the burden of which can be shifted by the taxpayer to someone else.
4. It can be included as a cost element in the computation of total cost.

Some examples of indirect taxes in India are as follows:

• Customs duty: It is levied on goods imported to and exported from India.
• Central excise duty: It is levied on goods manufactured in India.
• Service tax: It is levied on taxable services availed by a customer.se
• Sales tax: It is levied in course of inter-state transactions.
• Value Added Tax: (VAT) It is levied in course of intra-state transactions.