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CS Executive · Tax Laws and Practice · Concept of Indirect Taxes at a Glance

Which feature best distinguishes a direct tax from an indirect tax in the Indian tax system?

The key difference is shifting of burden. In a direct tax, such as income tax, the person on whom it is levied bears it. In an indirect tax, such as GST, the supplier collects it but the burden is passed on to the final consumer.

  1. AIn a direct tax the burden is intended to stay with the person on whom it is levied, while in an indirect tax the burden is shifted to the consumerCorrect
  2. BA direct tax is always levied by the States, while an indirect tax is always levied by the Centre
  3. CA direct tax is collected only on goods, while an indirect tax is collected only on income
  4. DA direct tax is always proportional, while an indirect tax is always progressive

Explanation

The core test is the incidence and impact: in a direct tax the person taxed bears the burden, whereas in an indirect tax the burden is passed on to the consumer. Option B is wrong because both Centre and States levy both kinds of tax. Options C and D reverse or misstate the features.

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