India’s tax system is a combination of direct and indirect taxes, governed by both central and state authorities. The Constitution of India divides the powers to levy taxes between the central and state governments, ensuring a balanced distribution of revenue sources.

Direct Taxes

Direct taxes are those paid directly to the government by individuals and organizations. These taxes are based on the income or wealth of the taxpayer. 

Direct taxes are imposed on the basis of individuals ability to pay principle, which says that those individuals or entities having access to more resources and earning a higher income need to pay higher taxes. The direct rules are framed such that taxes turn out to be a method to redistribute money in the country.

Direct taxes are transferable to another person or organisation. The companies and individuals on whom the direct taxes are applied are solely responsible for paying the taxes. Failure to pay taxes on time may result in fines and imprisonments.

Direct tax system, based on the brackets system, may turn out to be discouraging as it imposes higher taxes on those working hard to earn a higher income. Hence, people, with the view of needing to pay higher taxes, may settle and cap their productivity to reduce their outgo.